N. L.

Dalmia Institute of Management Studies & Research

Title of the Project

“A Comprehensive Review on the Credit Analysis of the Textile Industry”

Summer Internship Report

Submitted in partial fulfilment of the requirements

for
2 Years Full Time PGDM Program
Batch 2020-22

SUBMITTED BY
Name: Rujuta Kulkarni
PGDM Roll No. PF2022-1033
Batch 2020-22
 PREFACE

This report is a brief summary of my summer internship which is a part of my PGDM

coursework. The report is a comprehensive study of the Indian Textile Industry as a whole
taking into account a sample of five listed textile companies. The objective of this report is to
find out the various factors based on which the debt instruments of the companies of the textile
industry have been rated by credit rating agencies. This is done by analysing the credit
rationales of these companies. Analysis of the credit rationales was the main learning of my
internship. As an intern at FinMen Advisors Private Limited, my primary task was to analyse
the key elements of the rationales i.e., parameters based on which rating is assigned,
interpreting key financial ratios etc. In addition to the main objective, this report will also
analyse the financial performance indicators of the selected companies, it will help me to study
the impact of rating sensitivities i.e., significant improvement/decline in scale of operations of
a company on the rating assigned. Considering the above aspects, this report would give a
holistic view as to how the Indian textile industry is functioning and what does the future hold
for it.

i
 ACKNOWLEDGEMENT

I would like to thank Finmen Advisors Private Limited for offering me an internship as a
Financial Analyst-Intern wherein it helped me to learn the credit rating process, various
parameters based on which the rating is assigned etc. Further I would like to extend my heartful
gratitude to my industry mentor, Ms. Hiral Upadhyay for guiding me with great insights all
through the internship. Without her support and co-operation, it would have been difficult to
understand the depths and layers of the Credit Rating Agencies, their credit rating criteria etc.

I would also like to express my deep sense of gratitude to my college mentor, Dr. Chitra
Gounder for her timely guidance, valuable suggestions and inputs and her constant support
which helped me in completing the project on time.

Rujuta Kulkarni
NLDIMSR, Mumbai

ii
 CERTIFICATE

This is to certify that the Summer Internship Project Report is submitted in partial fulfillment
for the award of PGDM Program of N. L. Dalmia Institute of Management Studies and
Research. It is a result of the bonafide research work carried out by Ms. Rujuta Kulkarni under
my supervision and guidance during Summer Internship of 9 Weeks from 3rd May 2021 till
30th June 2021.

No part of this report has been submitted for award of any other Degree, Diploma, Fellowship
or other similar titles or prizes. The work has also not been published in any
Journals/Magazines.

Date: 10th July 2021 Place: Mumbai

Industry Guide
Name of Industry Guide: Ms. Hiral Upadhyay

Company: Finmen Advisors Private Limited

Designation: Senior Financial Analyst

Signature of the Industry Guide

Faculty Guide

Name of the Internal Faculty Guide: Dr. Chitra Gounder

Faculty Dept Name: Finance

Signature of Internal Faculty Guide

iii
 EXECUTIVE SUMMARY

The project report exhibits the analysis of the Indian Textile Industry. In the recent times the
Indian Textile Industry has been driven by demand, reasons being increased penetration of
organised retail, favourable demographics and rising income level. The pandemic also led to a
splurge of demand in the textile industry in the form of PPE suits and equipment. According to
reports, the Indian textile market is expected to expand to US$ 23.3 billion by 2027. In order
to analyse this industry in depth, the project is framed taking into consideration the credit rating
and financial performance analysis of five listed textile companies. The report outlines details
of the financial health of these companies in turn giving a comprehensive view of the Indian
textile industry as a whole.

Chapter 1 of the report states the introduction. It gives an overview of the textile industry, a
summary of my internship at FinMen Advisors Private Limited, my company overview and a
brief introduction of my project. Chapter 2 consists of the research methodology adopted for
this project which includes the research objectives, the area of research, the research type and
the sources used for data collection. Further the chapter also includes literature review which
is a summary of 10 research papers that I had taken into consideration for my project. The next
chapter i.e., chapter 3 consists of the core analysis of the report. It includes ratio analysis which
determines the financial health of the selected companies. Further the analysis consists of credit
analysis which is interpreted after analysing credit rationales of the selected companies which
are framed by various credit rating agencies. In addition to the analysis is the peer comparison
of the five companies. The peer comparison has been done after analysing the financial
statements and rating rationales. The peer comparison is demonstrated with the help of graphs
of the key financial ratios. The report is concluded with the last chapter that includes findings
and conclusion.

iv
 TABLE OF CONTENTS

Sr. No. Topic Page No.

Preface (i)
Acknowledgement (ii)
Certificate (iii)
Executive Summary (iv)

Chapter 1 Company Overview 1

Industry Overview 2
Internship at FinMen 3
Introduction to the project 3

Chapter 2 Research Methodology 4-5

Literature Review 5-8
Hypothesis 8

Chapter 3 Ratio Analysis 9-19

Credit Rating Analysis 20-21
Peer Comparison 22-27

Chapter 4 Findings 28
Conclusion 28-29

References and Bibliography 30

Plagiarism Report 31
 LIST OF TABLE, GRAPHS AND FIGURES

Sr. No. Topic Page No.

1 Key ratios of Raymond Limited 9

2 Key ratios of The Bombay Dyeing and Manufacturing Company 12
3 Key ratios of Vardhman Textiles 14
4 Key ratios of Arvind Limited 16
5 Key ratios of Welspun India Limited 18
6 Peer Comparison- Current Ratio 22
7 Peer Comparison- Net Leverage Ratio 23
8 Peer Comparison- Gearing Ratio 23
9 Peer Comparison- Return on Capital Employed 24
10 Peer Comparison- Return on Equity 25
11 Peer Comparison- Interest Coverage Ratio 25
12 Peer Comparison- Asset Turnover Ratio 26
13 Peer Comparison- Return on Assets 27
 CHAPTER 1

COMPANY OVERVIEW
FinMen Advisors Private Limited, founded in 2010, is pioneered in credit rating consultancy
and remains the largest credit rating consultant till date with a Pan-India presence. The
company has successfully consulted more than 1,000 companies to get the deserved credit
rating of debt instruments and has a client satisfaction ratio of 95%. FinMen Advisors has a
dedicated team of experts with specialized knowledge for handholding clients throughout the
rating process. It is headquartered in Mumbai and has branches over Delhi, Hyderabad,
Bangalore, Chennai, Nagpur, Raipur, Ahmedabad, Pune, Kochi and an associate office in
Dubai. The company handles a range of activities such as Credit Analysis, Credit Rating,
Industry Research, SME Rating, and IPO Grading. FinMen at present is operated by highly
qualified and experienced professionals who have a deep understanding of credit rating and is
functioning to channelize the financial truths into a winning pitch. FinMen takes pride in client
satisfaction ratio of more than 90%. The company has worked with 500+ clients. This has
further helped the team to acquire valuable intelligence on approach, perspectives, assessment
models and logic used by multiple credit rating agencies across multiple sectors. With deep
insights into credit rating pre-requisites, parameters and overall process, combined with in-
house expertise adds an enduring strength to clients’ credit standing. The company’s aim is to
get all the benefits of rating to company by getting them the deserved rating. Hence, it works
towards turning expenses of company in terms of rating agency fees into investment by getting
them various benefits such as reduction in interest rates, better sanction terms, high valuation,
improvement of corporate image, better negotiation power, improved market visibility amongst
customers and creditors/vendors etc.

VISION STATEMENT

“A World without Risk” FinMen is built on the passion to envisage possibility of success over
the probability of default. FinMen aims to bridge the gap between what the clients aspire and
what they deserve.

1
INDUSTRY OVERVIEW
The textile industry in India is one of the country's oldest industries, stretching back several
centuries. The industry is quite diverse, ranging from hand-spun and hand-woven textiles on
one end to capital-intensive modern mills on the other. The textiles sector is dominated by the
decentralized power looms/hosiery and knitting sector. Textiles are distinct from other
industries in the country because of their tight ties to agriculture (for raw materials such as
cotton) and the country's old history and customs in terms of textiles. India's textile sector has
the capacity to create a wide range of products suitable for various market segments, both
domestically and internationally. In 2018-19, India's textiles sector provided 7% of total
industry output (by value). In the fiscal year 2018-19, the Indian textiles and apparel industry
contributed 2% to GDP, 12% to export earnings, and 5% of global textiles and apparel trade.
In 2019-20, India's textile and garment exports accounted for 11% of all mercantile shipments.
Around 4.5 crore people are involved in the textile business, with 35.22 lakh of them working
on handlooms. Cotton output is predicted to reach 36.0 million bales in FY21, with
consumption expected to reach 114 million bales, up 13% from the previous year. In FY19, the
domestic textiles and apparel market was predicted to be worth US$ 100 billion. In FY20,
India's raw cotton production is predicted to have reached 35.4 million bales. Fiber output in
India reached 1.44 million tons (MT) in FY19 and 1.60 MT in FY20 (till January 2020), while
yarn production reached 4,762 million kgs during the same period. In the last five years, the
textiles industry has seen a surge in investment. From April 2000 to December 2020, the sector
(including dyed and printed) attracted US$ 3.68 billion in foreign direct investment (FDI). The
Indian government has enacted a number of textile-related export promotion measures. Under
the automatic approach, it has also approved 100 percent FDI in the sector. Some of the
government's attempts include extending the benefit of the Scheme for Remission of Duties
and Taxes on Exported Products (RoDTEP) to all exported commodities beginning January 1,
2021, in order to increase exports. A National Technical Textiles Mission is planned in the
Union Budget 2020-21 for the period 2020-21 to 2023-24, with an estimated outlay of Rs.
1,480 crore (US$ 211.76 million).

2
INTERNSHIP AT FINMEN

• Reading and analyzing rationales framed by credit rating agencies namely CRISIL, CARE,
ICRA, India Ratings, Acuite, Brickwork Ratings and Infomerics for various companies of
various sectors.
• Determining the various parameters based on which the debt instruments (short term or
long term) have been rated.
• Understanding the business of a company, its analytical approach, its key rating drivers
such as its strengths and weaknesses that have led to the rating assigned to it.
• Extracting the key financials, key ratios from the rationale and documenting them.
• Analyzing the risk profile of a company, its liquidity position and calculating a few ratios
relating to it.
• Determining any other related information in the rationale such as provisional rating, any
parent or group support etc.

INTRODUCTION TO THE PROJECT

The future for the Indian textile industry seems to be positive as it is backed by strong domestic
consumption as well as export demand. Therefore, this would lead the companies of this
industry to establish a strong presence in the market by showcasing a good credit rating. Hence,
the purpose of this research would be to analyze the textile industry taking into account five
companies pertaining to this industry. The analysis would be particularly credit analysis as to
what are the parameters based on which these companies have been rated by various credit
rating agencies. Further this research would also help in analyzing the financial performance
of these companies which would in turn give us a picture of the textile industry as a whole.
This would include financial ratio analysis, peer comparison etc. This would help to get a
comprehensive and holistic view of the textile industry.

3
 CHAPTER 2

RESEARCH METHODOLOGY

RESEARCH OBJECTIVES:

1. To find out the various factors based on which the debt instruments of the companies of the
textile industry have been rated by credit rating agencies.
2. To analyze the financial performance indicators of the selected companies.
3. To study the impact of rating sensitivities i.e., significant improvement/decline in scale of
operations of a company on the rating assigned.
4. To analyze the financial risk profile of the companies with respect to the company’s net
worth, gearing and debt protection metrics.

RESEARCH TYPE:

The nature of research is a combination of exploratory, descriptive and causal. The research
involves finding out various factors based on which the debt instruments have been rated. Thus,
this is exploratory in nature. Further, it also includes analyzing the financial performance and
financial risk profile of the companies. This makes the research descriptive in nature. In
addition to this, the research will involve studying the impact of rating sensitivities of the
companies on the rating assigned. Therefore, this proves it to be a causal research too. Hence,
considering the above-stated objectives, the nature of research is a blend of exploratory,
descriptive and causal.

DATA COLLECTION SOURCE:

This research will require data from a secondary source. In order to analyze the selected
companies with respect to their credit rating and financial performance, the financial
statements, annual reports of these companies, the rating rationales by the credit rating agencies
etc. would be required and these can be obtained from a secondary source only.

4
DATA COLLECTION TOOLS:

In order to obtain the financial statements and annual reports of the companies, the data
collection tools would be BSE/NSE website, Bloomberg terminal etc. Further so as to obtain
the rating rationales, the data collection tool would be the websites of the credit rating agencies.
In addition to the above tools, research papers related to this topic would also be useful in the
actual analysis.

SAMPLING METHOD:

The sampling method to be adopted for this research is a simple random sampling. This
research would involve credit analysis of a few companies from the textile industry. Therefore,
these companies will be selected on a random basis having no specific selection criteria.

LITERATURE REVIEW:

1. Kaur K. and Kaur R. (2011): According to the authors, credit rating is the symbolic
indicator of the current opinion of rating agencies regarding the relative capability of issuer
of debt instrument, to service the debt obligations as per contract. The main objective of
their study was to assess the consistency in rating methodology of each individual rating
agency by taking companies belonging to same rating class. This research is based on
secondary data. The authors have used data and found results; therefore, this can be
considered as an empirical research paper. This research concluded that all the rating
agencies use consistent methodology while assigning a particular rating grade as there is
no significant difference in the value of all the ratios which belong to different sets of
similarly rated companies.
2. Raghunathan V. and Varma J.R. (1993): This study is based on the need for an
evaluation of the quality of the credit rating of the Indian rating agencies. The authors based
their methodology on the well-known international evidence that financial ratios are good
predictors of default risk. The study is based on secondary data and has an empirical view.
The study concluded by stating that the credit rating done by CRISIL was deficient on two
grounds, one stating that CRISIL ratings are far too liberal by international Standards i.e.,

5
 what CRISIL rates as AAA will usually rate in the BBB range or lower by international
standards. The second one stating that there is very little internal consistency in the CRISIL
ratings. Companies rated in the same category by CRISIL span wide range of credit-
worthiness. The lack of discriminatory power is such as to rob the rating of much of its
meaning.
3. Ganatra R.P. and Malan U. (2018): According to the authors, solvency analysis is backed
by seven variables namely Working Capital, Total Assets, Retained Earnings, Earnings
before Interest and Taxes (EBIT), Market Value of Equity, Book Value of Total Liabilities
and Sales and there are five ratios that are calculated with the help of these above stated
variables. The objective of their research was to examine the impact of Z score on PAT
(Profit after tax) of a few Indian textile companies. They state that with the help of the Z
score there are chances to predict the PAT and know how profitable the company will be
in future. The study is based on secondary data and the paper is of an empirical view. The
authors conclude that there should always be a high requirement to predict the financial
position of a company in the early stage itself so as to avoid any bankruptcy in future.
4. Pai M.G.S. and Dam L. (2017): According to the authors, there is a need for research for
testing solvency prediction models that can give prior indication of distress in such terms
that the management can use the indicators to better their liquidity position which would in
turn help the management better their liquidity position. Their objective was to study the
financial distress in Indian textile industry and predict the default risk in these textile
companies one or two years before being given a default rating by CRISIL. The research
methodology was done taking secondary data and the paper was of an empirical view. Their
study concluded that companies with adequate working capital when compared to the
available working capital as per their operational size can give better indication of distress
even 2 years prior to default status.
5. Anand M. (2014): According to the author, the need of the research was to analyse the
financial strength of the textile sector in India. Therefore, the main objective of the research
was to examine the profitability, liquidity and solvency position of textile companies and
to analyse how effectively the textile companies have used their resources. The study is
explanatory and empirical in nature and it is based on secondary source of data. The author
concluded that the financial position of textile companies in India is sound and they are
exploring their available resources. The profitability margins are slightly different due to
volatile textiles market and volatility in raw material prices, the liquidity position of the
companies is also sound as they have maintained sufficient funds to meet their short-term
6
 obligations and in addition their total net worth is quite enough to repay total outside
liabilities of the companies, so solvency position is almost same and sound in all the
companies.
6. Marimuthu, K.N. (2012): The study focuses on working capital and financial performance
of Tamilnadu Textile industry. The main objective of this research was to analyse the
financial performance of Tamilnadu Textile industry on selected companies and to view
the position of profitability ratios. The study is based on secondary data and has an
empirical view. The study found out that the selected companies should consider short-
term outlook for investments because of some reasons such as less concentration of earning
capacity, highest debt proportion, less yield on assets etc. In addition, one of the suggestions
mentioned that the selected companies should concentrate on their liquidity position,
payables, receivables and specifically more on the working capital.
7. Ali L. (2011): According to the author, the need of the study is to examine the determinants
of leverage of Indian textile firms using panel data analysis. The variables used in the
research were firm size, growth of the firm, non-debt tax shields, profitability, and asset
tangibility. The study is based on secondary data and has an empirical view. It is stated that
large textile firms in India use more debt as compared to small firms. The author derives
the conclusion as; firm size, non-debt tax shields and tangibility have a positive impact on
leverage whereas growth in total assets and profitability are negatively associated with
leverage.
8. Jain N. (2014): According to the author, CRAs (credit rating agencies) have been criticized
for various reasons such as issuing incorrect ratings that were too high etc. Therefore, the
role of a CRA was questioned. The objectives of this research were to analyze the relevance
of credit ratings and to identify the potential of credit rating agencies in assessing the trend
of financial crisis. The study is based on secondary data and can be considered as a
conceptual paper. The author concluded by stating that ratings must be objective—the
methodology used must, in particular, be systematic and subject to some form of validation;
the process should be free from political influence and economic pressure; ratings should
be reviewed at least once a year; and general information about the methodology should be
documented and publicly available. The activities of CRAs should be monitored, among
other things by implementing a code of conduct.
9. Dad S. and Jain A. (2020): According to the authors, credit rating agencies play an
important role as they provide all the investors full information about the company’s or
bond’s performance. This helps investors to invest accordingly. By understanding the full
7
 process of analysing the rating, CRA provides quality and transparent information, so that
a normal person can also access the information. There are rating symbols that help in
understanding what a company wants to convey about the company or bond. This study
has used secondary data and has a conceptual view. The study highlights the steps followed
in the credit rating process.
10. Ramachandran D. K. and Madhumathy M. (2016): According to the author, capital
structure represents the total long-term investment in a business firm. A company should
therefore plan its capital structure in such a way that it derives maximum advantage out of
it and should easily adjust to the changing conditions. The author states that if a wrong mix
of finance is employed; the performance and survival of the business enterprise may be
seriously affected. The main objective of this research was to analyse the financial
performance of selected textile companies and to study the inter-company variation with
regards to resorting to various sources of finance. This study is based on secondary data
and has an empirical view. One of the suggestions given by the author stated that the
financial analysts should emphasize on the optimum level of capital structure and efficient
utilization and allocation of resources so as to increase the company’s financial
performance. Thus, to conclude, the study stated that a healthy capital structure that reflects
a low level of debt and a corresponding high level of equity is a positive sign of investment
quality.

HYPOTHESIS:

Considering the third research objective i.e., “To study the impact of rating sensitivities i.e.,
significant improvement/decline in scale of operations of a company on the rating assigned.”
to be causal in nature, it is followed by a hypothesis statement which is as follows:

Null Hypothesis: There is no significant impact of rating sensitivities i.e., significant

improvement/decline in scale of operations of a company on the rating assigned.

Alternative Hypothesis: There is significant impact of rating sensitivities i.e., significant

improvement/decline in scale of operations of a company on the rating assigned.

8
 CHAPTER 3

ANALYSIS

RATIO ANALYSIS:

1. Raymond Limited: It is the world's largest integrated fabric maker. In India, it controls
more than 60% of the suiting market. It is also the largest manufacturer of woolen fabrics
in India. In the domestic market, its textile segment has a distribution network of
approximately 4,000 multi-brand outlets and 637 exclusive retail shops.

Analysis:

• The current ratio of the company is well maintained at almost 1 and above. This indicates
that the company has adequate current assets to settle its current liabilities. For the year
2021, Raymond has a current ratio of 1.27x which states that for Rs.1 of current liability,
the company has Rs. 1.27 of current assets available to pay for it. Looking at the past 5
years, except 2018 and 2019 the ratio has been above 1 which means the company can meet
its current liabilities with its current assets.

9
• The working capital of the company ideally should be a positive amount because that
indicates that the company is able to pay its current liabilities with its current assets. But
for the years 2018 and 2019, the company did not have sufficient current assets to cover
the current liabilities. This typically works as a "safety cushion" to creditors. Creditors want
to know whether the company has enough current assets before extending new credit. A
company has a better chance of acquiring credit if it maintains a good level of working
capital.
• The gearing ratio of the company is almost above 50% across the five years. A gearing
ratio of 50% or above is considered to be high which indicates that the company has a large
proportion of debt over equity. Looking at the financials of this company, the company’s
debt levels have an increasing trend since 2017 to 2021, which indicate that the company
can be at a greater financial risk.
• The net debt to EBITDA ratio (debt/EBITDA) essentially indicates how long a company
would have to operate at its current level in order to pay off all of its debt. Credit rating
agencies frequently use the ratio to estimate the likelihood of a company defaulting on its
debt. Raymond has a quite high net leverage ratio in the year 2021 as compared to the past
four years. Usually, this ratio if found to be more than 4 or 5 is deemed high by rating
agencies, investors, creditors, and analysts, and is viewed as a warning flag.
• The EBITDA margin measures how much cash profit a company made in a given year.
Looking at the EBITDA margins of this company, the company had a growing trend till
2019 after which the margin dropped a little owing to the pandemic and in the year 2021 it
drastically went down indicating that the company’s financial health might be at stake.
• The PAT margin has a similar trend like the EBITDA margin wherein it grew till 2019 and
then fell in 2020 and now the company is into losses indicating a negative PAT margin in
2021.
• ROCE tells us the amount of profit a company is generating per Rs 1 of capital employed.
Ideally the ROCE should either be growing or should have a stable trend. It is said that if
the company has a 20%+ ROCE, the company is doing well with respect to its profitability
in terms of all of its capital. Raymond has a growing ROCE till 2019, after which it dropped
drastically. Similarly, ROA and ROE have a similar trend as well.
• The asset turnover ratio indicates how efficiently a company is generating revenue from its
assets. Here Raymond has a falling trend with respect to this ratio. This tells us that the
sales are not being generated to a greater extent.

10
• Raymond has a growing interest coverage ratio till 2019 after which it falls. Usually, this
ratio should be driven by one factor i.e., stability. Investors are concerned of a falling
interest coverage ratio, as it implies that a company may be unable to pay its debts in the
future.
• The debtor days should ideally be decreasing over a period of time, but Raymond saw this
trend only till 2019, after which the debtors’ days increased. This indicates that in order to
generate sales, the company is ready to sell on credit.
• The inventory days ideally should be decreasing over the years but Raymond has a contrast
trend wherein the days are increasing. This implies that the company is unable to generate
sales and they have obsolete stock.
• The creditors days should have an increasing trend and this increase should be gradual and
slow. Raymond has such a trend wherein the days are increasing with each passing year.

11
2. The Bombay Dyeing and Manufacturing Company: The Wadia Group's flagship
company, Bombay Dyeing & Manufacturing Company Limited (Bombay Dyeing), is
principally engaged in the textiles business. Bombay Dyeing is a major textile manufacturer
in India.

Analysis:

• This company has had a healthy current ratio over the years. In the year 2017, the current
ratio was below 1 which indicated that the company did not have adequate current assets
to settle its current liabilities. But there was an increasing trend from 2018 to 2020 wherein
the ratio went above 2 indicating the company’s strength to pay current liabilities through
current assets. But the ratio went down in the year 2021 but it did not go down drastically,
it was still above 1 which says that the company still has adequate current assets to settle
its current liabilities.
• The working capital of the company was negative in the year 2017 but it turned positive
from 2018. This company has a better chance of acquiring credit because it maintained a
good level of working capital from 2018 to 2020. It reduced in 2021 but still it is adequate
i.e., the current assets are enough to pay the current liabilities.

12
• The gearing ratio of this company is quite high all across the years indicating that the
company has a large proportion of debt over equity. The company’s debt levels have an
increasing trend over the years.
• The net leverage ratio if found to be more than 4 or 5 is considered to be high and as a
warning signal for the company. Looking at this company’s net leverage, in the year 2019
the company had good financial health but in 2021, the ratio increased exponentially
indicating that the company might not be in a good position to pay off its debts.
• The EBITDA margins of the company were growing till 2019 indicating that the company
is making good amount of cash profits. But the margin fell from 2019 to 2021, indicating
that the company’s financial health might be at stake.
• The PAT margin followed a similar trend like EBITDA margin wherein it grew till 2019
but then fell drastically to a negative margin in 2021 which implies that the company is
making losses.
• The company was doing well till 2019 as it had a 20%+ ROCE which implied good
profitability levels in terms of capital. But in 2020 and 2021 ROCE fell exponentially. ROA
and ROE have a similar trend as ROCE.
• The asset turnover ratio had an increasing trend till 2019 indicating that the company is
efficiently generating revenues from its assets. But in 2020 and 2021 there was a decreasing
trend which suggested that the company was unable to generate sales from its assets.
• The interest coverage ratio had an upward trend till 2019 after which it fell drastically. This
implies that the company may be unable to pay its debts in the future.
• The debtor days should ideally be decreasing over a period of time, here the days kept
increasing over the years. This indicates that in order to generate sales, the company is
ready to sell on credit.
• The inventory days ideally should be decreasing over the years but here the company has a
contrast trend wherein the days are increasing. This implies that the company is unable to
generate sales and they have obsolete stock.
• The creditors days have eventually increased here, which gives a good sign that creditors
are willing to do credit sales with this company.

13
3. Vardhman Textiles: VTL is a major player in the Indian textile industry, producing fibre,
yarn, sewing thread, and fabrics. Through a relationship with Nisshinbo, Japan, they are
now also into garment manufacturing, with production beginning in March 2011. VTL and
its subsidiaries employ over 26,000 employees in 25 manufacturing plants across India.

Analysis:

• This company has had a healthy current ratio over the years. In fact, the current ratio has
been increasing over the years and is 3.64x in 2021 which indicates that the company has
adequate current assets to settle its current liabilities. This shows the company has a good
liquidity position.
• The working capital of the company is positive all across five years. This indicates that the
current assets are enough to pay the current liabilities. Creditors want to know whether the
company has enough current assets before extending new credit hence this company has a
better chance of acquiring credit as it has maintained a good and increasing level of working
capital.
• The gearing ratio of this company is below 25% over the five years indicating that the
company has a moderate proportion of debt. The company’s short-term borrowings have
decreased over the years which might have resulted in moderate gearing levels.
• The net leverage ratio if found to be more than 4 or 5 is considered to be high and as a
warning signal for the company. But this company has net leverage levels below 4 for all

14
 the five years. This shows that the company will be in a position to pay off all its debts in
the future.
• The EBITDA margins of the company have significantly fallen over the five years. This
indicates that the profitability is affected due to some factors because revenue decreased
from 2019.
• The PAT margin followed a similar trend like EBITDA margin wherein it was unstable all
through five years. But the company is still making profits.
• The company was doing well in 2017 as it had a 20%+ ROCE which implied good
profitability levels in terms of capital. But in later in the coming years ROCE fell
exponentially. ROA and ROE have a similar trend as ROCE.
• The asset turnover ratio had a decreasing trend indicating that the company is not efficiently
generating revenues from its assets over the five years.
• The interest coverage ratio has been falling since 2017. This implies that the company may
be unable to pay its debts in the future.
• The debtor days should ideally be decreasing over a period of time, here the days did
decrease till 2019 but then increased again in 2020. This indicates that in order to generate
sales, the company is ready to sell on credit.
• The inventory days ideally should be decreasing over the years but here the company has a
contrast trend wherein the days are increasing. This implies that the company is unable to
generate sales and they have obsolete stock.
• The creditors days have eventually increased here, which gives a good sign that creditors
are willing to do credit sales with this company.

15
4. Arvind Limited: It is the flagship company of the Lalbhai Group and a textile
manufacturer. The company's headquarters are in Naroda, Gujarat, India. Cotton shirting,
denim, knits, and bottom weight (khaki) fabrics are all produced by the company. In 2011,
it launched the Advanced Materials Division, which specialises in technical textiles. It is
the largest denim maker in India.

Analysis:

• This company has had a moderate current ratio over the years. In the year 2020, the current
ratio was below 1 which indicated that the company did not have adequate current assets
to settle its current liabilities. But apart from that the company’s current ratio was above 1
which says that the company has adequate current assets to settle its current liabilities.
• The working capital of the company initially in 2017 was good but from 2019 it decreased
and then turned negative in 2020. But again, in the year 2021, it rose exponentially
indicating that the company now has enough current assets to settle off the current
liabilities.
• The gearing ratio of this company is quite high all across the years indicating that the
company has a large proportion of debt over equity. Though the company’s short-term
borrowings have reduced over the years, the long-term borrowings continue to rise.
• The net leverage ratio if found to be more than 4 or 5 is considered to be high and as a
warning signal for the company. Looking at this company’s net leverage, the ratio has been

16
 below 4 which indicates that the company might be in a moderate position to pay off its
debts.
• The EBITDA margins of the company are moderately stable, they do have an increase as
well as a decrease trend over the years. But comparing 2017 and 2021, the margins have
fallen.
• The PAT margin fell over the five years and the company went into losses in the year 2021
which was indicated by a negative PAT margin.
• The company’s ROCE has been below 20% since 2017 itself, and in 2021 it fell drastically
indicating that the profitability levels in terms of capital are being affected. ROA and ROE
have a similar trend as ROCE.
• The asset turnover had a decreasing trend which suggested that the company was unable to
generate sales from its assets.
• The interest coverage ratio has a downward trend since 2018. This implies that the company
may be unable to pay its debts in the future.
• The debtor days should ideally be decreasing over a period of time which did happen in
2020 but again in 2021 the days increased to 77 days. This indicates that in order to generate
sales, the company is ready to sell on credit.
• The inventory days ideally should be decreasing over the years but here the company has
an unstable trend wherein the days are decreasing and increasing. This implies that the
company is unable to generate sales and they have obsolete stock.
• The creditors days have eventually increased after a decrease in 2020, which gives a good
sign that creditors are willing to do credit sales with this company.

17
5. Welspun India Limited: Welspun India is an Indian textile firm headquartered in Mumbai,
Maharashtra. It is Asia's largest and world's second-largest terry towel manufacturer. More
than 94 percent of its home textiles are exported to over 50 nations.

Analysis:

• This company has had a moderate current ratio over the years. The company’s current ratio
was above 1 which says that the company has adequate current assets to settle its current
liabilities.
• The working capital of the company initially in 2017 and 2018 was good but from 2019 it
decreased and but then again increased in 2021. This indicates that the company now has
enough current assets to settle off the current liabilities.
• The gearing ratio of this company is quite high all across the years indicating that the
company has a large proportion of debt over equity. Though the ratio has decreased from
2017 to 2021 still the ratio is above 50% indicating that the debt proportion is high.
• The net leverage ratio if found to be more than 4 or 5 is considered to be high and as a
warning signal for the company. Looking at this company’s net leverage, the ratio has been
below 4 which indicates that the company might be in a moderate position to pay off its
debts.

18
• The EBITDA margins of the company are moderately stable, they do have an increase as
well as a decrease trend over the years. But comparing 2017 and 2021, the margins have
fallen.
• The PAT margin has an upward trend from 2019 which indicates that the profitability
position of the company is getting better.
• The company’s ROCE was above 20% in 2017, but eventually it fell till 2020 after which
in 2021 there was a rise indicating that the profitability levels in terms of capital might rise
further. ROA and ROE have a similar trend as ROCE.
• The asset turnover had an unstable trend since 2017 but in 2021 it rose which suggested
that the company has been successful in generating revenue from assets.
• The interest coverage ratio has a moderate downward trend since 2017. This implies that
the company may be unable to pay its debts in the future.
• The debtor days should ideally be decreasing over a period of time which did happen in
2019 and 2021 but the trend looks unstable. This indicates that in order to generate sales,
the company is ready to sell on credit.
• The inventory days ideally should be decreasing over the years but here the company has
an unstable trend wherein the days are decreasing and increasing. This implies that the
company is unable to generate sales and they have obsolete stock.
• The creditors days have eventually increased after a decrease in 2019, which gives a good
sign that creditors are willing to do credit sales with this company.

19
CREDIT RATING ANALYSIS:

(Interpretations have been derived after analysing credit rationales given by various credit
rating agencies to the respective companies.)

1. Raymond Limited: From the year 2017 to the year 2021, Raymond has a steady and stable
rating given by CRISIL. The rating is AA- which remained steady all through the five years.
There are various factors based on which this rating has been assigned to Raymond.
Primarily, Raymond has a dominant position in the worsted suiting business, has a strong
brand image, and majorly has a large retail network. In addition, the company enjoys 60%
market share. The company’s revenue profile is well diversified all across the years,
wherein it is the market leader with a domestic market share of about 65% from 2018 to
2021. Further, the company has a strong and adequate liquidity throughout because its
annual long term obligations are well spaced out and a steady stream of interest and
dividend income augmented cash flows for the five years.

2. The Bombay Dyeing and Manufacturing Company: The company has been rated by
Brickwork Ratings. There are only four rationales available i.e., only for the year 2019 and
2020, and 2021. In the year 2019, the rating assigned was A. The rating basically went from
BBB+ in the previous year to A in 2019. The positive change (increase) in the rating was
due to the near completion of a project which led to increase in revenues and therefore the
risk of project execution is minimal. In addition, the company has low debt to be serviced
for next two years (FY20 and FY21). Also, the company is planning to prepay a portion of
this debt from the sales proceed. However, if revenues or customer collections decline, and
revenue, profitability, and net worth fall short of expectations, the rating outlook may be
altered to 'Negative.' In FY20, the rating remained steady to “A” because there was
considerable debt payback and capital structure improvement, as well as satisfactory and
significant new sales. But in FY21, the rating fell from “A” to “A-“ as there was a decline
in the total operating income and negative sensitivities namely rising debt levels and a
reduction in net value, further deterioration of profitability and liquidity, and the inability
to sell unsold inventory added up to fall in the rating. Further to the end of FY21, the rating
again fell from “A-“ to “BBB+” because the profitability and the liquidity profile
weakened.
20
3. Vardhman Textiles: The company has been rated by CRISIL and has a stable “AA+” all
through the five years. The parameters based on which this rating has been assigned to the
company are that the company has a strong, diversified business risk profile, especially in
the textiles business, the company’s liquidity position remains solid in the form of
unutilized working capital bank limits and cash surpluses, the company has healthy
operating capabilities, and the Operating profitability, return on capital employed remain
healthy over the years.

4. Arvind Limited: The company has been rated by CARE ratings. In the year 2017, the
company had a “AA” rating due to significant reduction in the debt-level, improved
leverage and debt-coverage indicators and an increasing trend of the total operating income.
The rating remained stable in 2018 but declined to “AA-“ in 2019 and 2020. The reasons
for the decline were, adverse impact of Covid-19 pandemic on textile sector, vulnerability
of operating margin to volatility in cotton prices and foreign exchange fluctuation, decline
in EBITDA margin, elongation of the operating cycle which affected its cash flow from
operations and liquidity etc. Although there was a decline, it was not a sharp fall because
of certain positive factors like debt reduction, 15%+ ROCE etc.

5. Welspun India Limited: The company has been rated by CARE ratings. The rating is
“AA” which is steady all through the five years. The various reasons why the company has
been assigned this rating are that it has a leading position in home textiles segment with a
global reach, it has established relationship with the large global retail chains, it has a
diversified product portfolio, a steady revenue across the years and a steadily growing
capital structure.

21
PEER COMPARISON:

The peer comparison has been done through comparing the financials of the five companies.
Analysing the financial statements involves ratio analysis, therefore the following key financial
ratios have been taken as parameters for the peer comparison.

a) Current Ratio:

Current Ratio
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
2017 2018 2019 2020 2021

Raymond Bombay Dyeing Vardhaman Arvind Welspun

Vardhman Textiles Limited has the highest current ratio over the years which states that
they have enough current assets to settle off the current liabilities. Arvind Limited, Welspun
India Limited and Raymond Limited have more or less similar levels of current ratios, also
their ratio is quite stable over the years. Whereas The Bombay Dyeing and Manufacturing
Company Limited has the maximum fluctuations, followed by Vardhman who has
moderately stable trend.

22
b) Net Leverage Ratio:

Net Leverage Ratio

70.00

60.00

50.00

40.00

30.00

20.00

10.00

0.00
2017 2018 2019 2020 2021

Raymond Bombay Dyeing Vardhaman Arvind Welspun

Barring Raymond Limited and The Bombay Dyeing and Manufacturing Company Limited,
rest three companies have a stable trend of Net Leverage Ratio. The above two companies
have a quite high ratio over the years especially The Bombay Dyeing and Manufacturing
Company Limited. This indicates that the company has quite chances to default and not
pay off its debts if the ratio keeps rising.

c) Gearing Ratio:

Gearing Ratio
60.00
50.00
40.00
30.00
20.00
10.00
0.00
-10.00 2017 2018 2019 2020 2021

-20.00
-30.00

Raymond Bombay Dyeing Vardhaman Arvind Welspun

23
Apart from The Bombay Dyeing and Manufacturing Company Limited, rest four companies
have a stable trend with respect to the gearing ratio. This one company in particular has
exceptionally high levels of gearing ratios indicating that the company has a large proportion
of debt over equity meaning that the company can be at a greater financial risk.

d) Return on capital employed (ROCE):

ROCE
60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%
2017 2018 2019 2020 2021
-10.00%

Raymond Bombay Dyeing Vardhaman Arvind Welspun

ROCE tells how much profit a company makes per rupee of invested capital. The higher a
company's profit per Rs 1, the better. As a result, a larger ROCE suggests more profitability
when comparing companies. Here as we can see The Bombay Dyeing and Manufacturing
Company Limited has the highest ROCE touching 48.07% in 2018. Rest four have more
or less a stable and similar trend.

24
e) Return on Equity (ROE):

ROE
700.00%

600.00%

500.00%

400.00%

300.00%

200.00%

100.00%

0.00%
2017 2018 2019 2020 2021
-100.00%

Raymond Bombay Dyeing Vardhaman Arvind Welspun

Return on equity (ROE) is a metric that analyses profitability by combining investor

resources and corporate earnings. A high return on assets indicates that the company was
able to generate income using the resources given by its equity investors as well as its
accumulated earnings. Here, The Bombay Dyeing and Manufacturing Company Limited
has the highest ROE whereas the rest four have a similar and stable trend.

f) Interest Coverage Ratio:

Interest Coverage Ratio

12.00

10.00

8.00

6.00

4.00

2.00

0.00
2017 2018 2019 2020 2021
-2.00

Raymond Bombay Dyeing Vardhaman Arvind Welspun

25
 When looking at interest coverage ratios, one of the most important things to look for is
stability. Investors should be suspicious of companies with a falling interest coverage ratio,
since it implies that they may be unable to pay their loans in the future. Vardhman Textiles
and Welspun India have a moderately increasing interest coverage ratio whereas Raymond
Limited and The Bombay Dyeing and Manufacturing Company Limited have a falling
trend.

g) Asset Turnover Ratio:

ATR
120.00%

100.00%

80.00%

60.00%

40.00%

20.00%

0.00%
2017 2018 2019 2020 2021

Raymond Bombay Dyeing Vardhaman Arvind Welspun

A company's ability to generate revenue from its assets is measured by its asset turnover
ratio. The higher the asset turnover ratio, the more efficient it is. A low asset turnover ratio,
on the other hand, suggests that a corporation is not effectively leveraging its assets to
produce sales. Arvind Limited has the highest asset turnover ratio, followed by Raymond
Limited.

26
h) Return on Assets:

ROA
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
-5.00% 2017 2018 2019 2020 2021

-10.00%
-15.00%

Raymond Bombay Dyeing Vardhaman Arvind Welspun

Return on assets (ROA) is a measure of a company's profitability in relation to its total assets.
The return on assets (ROA) tells a manager, investor, or analyst how well a company's
management is utilising its assets to generate profits. Higher ROA indicates
more asset efficiency. The Bombay Dyeing and Manufacturing Company Limited had touched
the highest ROA in the year 2019. But considering 2021, Welspun India has the highest ROA
followed by Vardhman Textiles Limited.

Peer comparison has also been done by comparing the credit ratings of the five companies. As
seen in the credit analysis, Vardhman Textiles has the most steady and highest rating of “AA+”
as compared to the other four companies. The lowest and not so consistent rating is of The
Bombay Dyeing and Manufacturing Company. The remaining three more or less are on a
similar track with similar ratings.

27
 CHAPTER 4

FINDINGS:

The third research objective stated, “To study the impact of rating sensitivities i.e., significant
improvement/decline in scale of operations of a company on the rating assigned.” This research
objective was causal in nature therefore it was followed by a hypothesis statement. This
research proves that the rating sensitivities mentioned in the credit rationales i.e.,
improvement/decline in scale of operations of a company, liquidity profile of the company,
brand image of the company, revenue growth over the years, profitability margins and in all
the financial health of the company determines the rating to be assigned to the company.
Therefore, our null hypothesis i.e., “There is no significant impact of rating sensitivities i.e.,
significant improvement/decline in scale of operations of a company on the rating assigned.”
has been rejected as we proved that the rating varied as per the rating sensitivities so the impact
is significant.

CONCLUSION:

A company is considered to be financially healthy when the company is doing well in terms of
its operations, profitability etc. A company’s financial health is one of the parameters that
determines its credit rating. This project revolved primarily around two major aspects, credit
analysis and financial performance analysis of the selected companies. Taking into
consideration the credit rating analysis, it has been observed that Vardhman Textiles has the
highest and steady rating as compared to the other four companies. The company's risk profile
is strong and diverse, particularly in the textiles market; the company's liquidity position is
strong, with unutilized working capital bank limitations and cash surpluses; and the company
has healthy operating capabilities. The remaining four companies are also doing well as far as
their rating is concerned barring The Bombay Dyeing and Manufacturing Company because
this company’s rating has been fluctuating and unstable and has seen a downward trend over
the past five years. Further, considering the financial performance of these companies, it has
been observed that in terms of liquidity and solvency, Vardhman Textiles is in a better position
than the other four. But in terms of profitability, Welspun India Limited is above the rest four

28
companies. On the other hand, The Bombay Dyeing and Manufacturing Company is into
losses, therefore this company’s financial health would be considered at stake over a period of
time. Hence to conclude, Vardhman Textiles has been a consistent performer as far as the credit
rating and financial analysis is concerned.

29
 REFERENCES AND BIBLIOGRAPHY

1. Ganatra, R. P., & Malan, M. U. Solvency Analysis of Textile Companies in India.

2. Pai, M. G. S., & Dam, L. predictive ability of relative solvency ratio for assessing the
probability of default in indian textile firms.
3. Kaur, K., & Kaur, R. (2011). Credit Rating in India: A Study of Rating Methodology of
Rating Agencies. Global Journal of Management and Business Research, 11(12).
4. Ali, L. (2011). The determinants of leverage of the listed-textile companies in
India. European Journal of Business and Management, 3(12), 54-59.
5. Anand, M. (2014). A study of financial analysis in textile sector. Journal of Business
Management & Social Sciences Research, 3(6), 80-86.
6. Raghunathan, V., & Varma, J. R. (1993). When AAA Means B: The State of Credit Rating
in India (No. WP1993-09-01_01217). Indian Institute of Management Ahmedabad,
Research and Publication Department.
7. Jain, N. (2014). Credibility of Credit Ratings In The Present Scenario. Sai Om Journal of
Commerce & Management. p, 2-4.
8. Marimuthu, K. N. (2012). Financial Performance of Textile Industry: A Study on Listed
Companies of Tamil Nadu. International Journal of Research in Management, Economics
and Commerce, 2(11), 365-377.
9. Ramachandran, D. K., & Madhumathy, M. (2016). A study on capital structure and
financial performance of Indian textile industry. International Journal of
Management, 7(3).
10. Dad, S., & Jain, A. A Study on the Process of Credit Rating Agencies and its relevance in
India.
11. https://www.moneycontrol.com/
12. https://www.crisil.com/
13. https://www.brickworkratings.com/
14. https://www.careratings.com/
15. https://www.ibef.org/industry/textiles.aspx
16. https://www.investopedia.com/

30
PLAGIARISM REPORT

31