ICRA Limited has reaffirmed the credit rating of Gokak Textiles Limited as [ICRA] A4 for an amount of Rs. 50.00 crores.
The reaffirmation in ratings of Gokak Textiles Limited's (GTL) favourably factor in the company's strong parentage-Shapoorji Pallonji and Company Private Limited (SPCPL), rated [ICRA]BBB+&/ ICRA]A2&. The parent provides regular financial support in the form of interest bearing unsecured loans/inter-corporate deposits (ICDs) (Rs 106.3 crore as on March 31,2021) to meet the company's funding requirements. ICRA notes that the company repaid all external borrowings in FY2020 and has no external debt in the books as on date. Consequently, GTL will remain dependent on SPCPL to meet its cash flow mismatches and other funding requirements.
The ratings however remained constrained by weak operational and financial performance for the last few years, characterised by stretched liquidity, negative net worth and inadequate coverage metrics owing to a moderate level of revenues and continuous losses at the operating level. The ratings also consider the highly fragmented and competitive industry structure, which restricts pricing flexibility and exposes the company's earnings to volatility in cotton prices and foreign exchange rates.