Sanathan Textiles edges higher after ICRA revises rating outlook to 'positive'

Sanathan Textiles advanced 2.77% to Rs 393.30 after the credit rating agency ICRA revised its outlook on the long-term ratings of the company to 'positive' from 'stable'.

The agency has affirmed the companys long-term and short-term rating at '[ICRA] A and '[ICRA] A2+, respectively.

ICRA stated that the positive outlook on the rating reflects ICRAs expectations that the revenues and profit margins of the Sanathan Group are likely to improve, going forward, led by the commercialisation of a new plant by the end of Q1 FY2026.

Post the completion of the ongoing expansion project in SPPL, the groups capacity will double by the end of Q1 FY2026 and will help the company to further strengthen its operating profile on the back of better product mix and proximity to both raw material sources and consumption centres.

The management also expects the new plant to report better operating profit margins given the savings in freight (due to proximity to customers) and fuel costs (due to usage of rice husk).

SPPLs ability to effectively and profitably ramp up the capacity would be a key rating monitorable. ICRA, however, notes STLs established relationships with customers and suppliers, which will help the company in receiving regular and repeat orders and, in turn, sweat its assets at optimal capacity utilisation rates.

The rating continues to factor in the groups position as one of the leading players in polyester yarn manufacturing in India and the extensive experience of its promoters in the industry. The ratings also derive strength from its diversified product portfolio, established distribution networkand location specific advantages owing to its proximity to raw material sources.

The rating alsoremains constrained by the susceptibility of the companys profit margins to the cyclicality inherent in the textile sector and the volatility in crude oil linked raw material prices and realisations.

The rating is also constrained by the intense competition and the fragmented nature of the yarn industry, which exertspricing pressure. The company furtherremains exposed to forex risks as about 40% of the total debt contracted for the ongoing capex is denominated in foreign currency, which in addition to its raw material imports would keep the company a net forex buyer in the near-to-medium term.

Sanathan Textiles is mainly engaged in the manufacturing and exports of polyester yarn, cotton yarn and yarn for technical textile. The total installed capacity stood at 2,00,750 metric tonnes per annum (MTPA) for polyester yarn, 14,000 MTPA for cotton yarn and 9,000 MTPA for industrial drawn yarn as on 31 December 2024.

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