The Company’s short-term borrowings rose to Rs 48.80 crore

The Company’s short-term borrowings rose to Rs 48.80 crore at March 31, 2025, from Rs 27.54 crore a year earlier, as a larger operating scale required more working capital. The Company raised its sanctioned cash-credit limit to Rs 45 crore, while finance costs doubled to Rs 5.27 crore in FY 2024-25.

Why did The Company’s short-term borrowings rise to Rs 48.80 crore?

The Company’s short-term borrowings increased by Rs 21.26 crore between FY 2023-24 and FY 2024-25, reaching Rs 48.80 crore at March 31, 2025. Short-term borrowings are obligations used to finance near-term operating requirements, including inventory purchases and the period between making sales and collecting payments. The FY 2024-25 balance was more than three times the Rs 15.64 crore reported in FY 2022-23.

The Company attributes the increase in short-term borrowings to higher working-capital requirements from larger production volumes and sales. Its sanctioned cash-credit limit, a bank facility permitting borrowing up to an approved amount for operating needs, rose from Rs 25 crore to Rs 45 crore. Access to and utilisation of this facility therefore supported the higher level of short-term funding.

Why did The Company need more working capital for expansion?

The Company needed more working capital because receivables and inventories increased as operations expanded in FY 2024-25. Revenue from operations rose 23.5% to Rs 335.37 crore in FY 2024-25, while trade receivables increased to Rs 87.37 crore from Rs 76.49 crore. Although receivables rose in rupee terms, they declined to 26.0% of revenue from operations from 28.2% in FY 2023-24 and 32.6% in FY 2022-23.

The Company’s inventory rose to Rs 60.33 crore at March 31, 2025, from Rs 45.56 crore a year earlier and Rs 21.93 crore at March 31, 2023. The disclosure links the increase to capacity utilisation of 88.18% in FY 2024-25, compared with 85.57% in FY 2023-24. Closing inventory represented about 21.3% of cost of goods sold in FY 2024-25, compared with 19.8% and 13.2% in the preceding two financial years; cost of goods sold is defined as material consumed plus stock-in-trade purchases, adjusted for inventory changes.

What happened to The Company’s long-term borrowings and finance costs?

The Company’s long-term borrowings declined to Rs 17.48 crore at March 31, 2025, even as short-term borrowings rose to Rs 48.80 crore. Long-term borrowings were Rs 19.47 crore at March 31, 2024, and Rs 19.24 crore at March 31, 2023. The Company says the FY 2024-25 reduction reflected scheduled term-loan repayments and its strategy to limit fresh long-term debt.

The Company commissioned a Drying Range Machine and Jigger Phase IV, taking installed capacity to 225 lakh metres annually, according to the disclosure. The financing mix shifted towards short-term facilities while long-term loans were repaid. Finance costs increased to Rs 5.27 crore in FY 2024-25 from Rs 2.62 crore in FY 2023-24, after Rs 1.31 crore in FY 2022-23; The Company specifically attributes the FY 2024-25 increase to utilisation of cash-credit facilities.

Can The Company’s operating cash flow support its working-capital cycle?

The Company did not report positive net cash from operating activities in any of the three financial years disclosed, making financing inflows relevant to its working-capital cycle. Net cash used in operating activities was Rs 11.85 crore in FY 2024-25, compared with outflows of Rs 6.68 crore in FY 2023-24 and Rs 5.86 crore in FY 2022-23. These operating cash outflows occurred despite profit before tax of Rs 12.37 crore in FY 2024-25 and Rs 7.08 crore in FY 2023-24.

The Company reported net cash generated from financing activities of Rs 14.00 crore in FY 2024-25, following Rs 10.51 crore in FY 2023-24. The FY 2024-25 financing movement reflected Rs 21.26 crore of change in secured and unsecured short-term borrowings, Rs 1.99 crore of repayment of secured and unsecured long-term loans, and finance costs of Rs 5.27 crore. Cash and cash equivalents ended FY 2024-25 at Rs 21.05 lakh, compared with Rs 13.93 lakh at the prior year-end.

What supplier and guarantee exposures sit alongside The Company’s borrowings?

The Company’s trade payables were broadly stable in absolute terms but represented a smaller share of purchases as procurement increased. Trade payables were Rs 70.38 crore at March 31, 2025, compared with Rs 72.60 crore in FY 2023-24 and Rs 56.09 crore in FY 2022-23. As a percentage of total purchases, defined as cost of materials sold plus stock-in-trade purchases, trade payables declined from about 32.9% in FY 2022-23 to 29.5% in FY 2023-24 and 24.2% in FY 2024-25.

The Company disclosed Rs 39.63 crore owed to Vinod Cotfab Private Limited at March 31, 2025, the largest named material creditor in its trade-payables disclosure. The Company also disclosed contingent liabilities of Rs 77.28 crore, comprising a Rs 22.86 lakh goods and services tax demand, Rs 77.64 lakh of bank guarantees and a Rs 76.27 crore corporate guarantee to a private limited company. Aggregate contingent liabilities equalled 2.42 times net worth, and the disclosure says invocation could affect liquidity and cash flows.

Conclusion

The Company’s short-term borrowings rose as the working-capital requirement of its expanded operations exceeded cash generated from operating activities. Short-term borrowings increased by Rs 21.26 crore in FY 2024-25 while long-term borrowings fell by Rs 1.99 crore, and receivables plus inventories increased by Rs 25.65 crore. The resulting funding mix relied more on the enlarged Rs 45 crore cash-credit facility and coincided with finance costs of Rs 5.27 crore.

The next measure to watch is whether the installed capacity of 225 lakh metres annually supports cash conversion sufficient to moderate financing needs. Relevant disclosed indicators are short-term borrowing levels, inventory as a percentage of cost of goods sold, receivables as a percentage of revenue, and the status of Rs 77.28 crore of contingent liabilities, particularly the Rs 76.27 crore corporate guarantee.