Unlisted Shares

Established market position in the textile industry for more than 8 decades in the finer cotton yarn segment driven by promoter extensive experience and are well known for their quality products that meet or exceed customer expectation, which has helped them build a loyal customer base of satisfied customer across the globe.

The company has diversified their revenue by forward integration of operation to fabric weaving capacity which provides the flexibility to manage operations between spinning and weaving based on customer orders and has the potential to become ) Rs. 250 crore revenue stream for the company.

RSCML benefits significantly from being a part of the Ramco group, which enjoys a strong relationship with lending community and has a demonstrated track record of supporting entities in the group during exigencies by extending ICDs on an arm’s-length basis and through corporate guarantees.

The financial risk profile is constrained by sizeable debt and moderate networth. Gearing is at adverse levels due to acquisition of weaker entity, Harini Textiles. Debt protection metrics such as net cash accrual to total debt and interest coverage ratios is at minimal levels.

Investment Thesis: The company's revenue has declined y-o-y due to challenges in the home textile market, marking its most significant downturn in a decade along with yarn prices dropping later in the year. The net profit decreased on account of higher costs of goods sold (COGS), driven by increased cotton prices resulting from lower productivity. Moreover, finance and power costs rose due to increased repo rates by the RBI and tariff hikes by the Tamil Nadu Electricity Regulatory Commission. The company's increased debt to manage working capital exacerbated the situation. However, moving forward, healthy revenue growth, sustained profitability of over 11-12%, prudent working capital management, and substantial debt reduction, possibly through equity infusion, could significantly improve the company's condition.

Conclusion: Considering the current state of the company amidst a slowdown in the global home textile market, the stock is currently priced at a multiple of sales of 0.81x. Through relative valuation, we've determined the company's value to be in the range of Rs 220 to Rs 260. However, this valuation includes a 40% discount due to lack of marketability. Shareholders currently holding shares are advised to sell until there's an improvement in year-over-year revenue, a decrease in debt, and improvements in other margin ratios.