RATING RATIONALE
19Feb2025
Rainbow Denim Ltd.
Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs. 92.56 Crs. of Rainbow Denim Ltd.
Particulars| Facilities** | Amount(Rs.Crs.) | Tenure | Rating# | |
|---|---|---|---|---|
| Fund Based | 92.56 | Long Term |
BWR BB
/Stable Assignment |
|
| Grand Total | 92.56 | (Rupees Ninety Two Crores and Fifty Six lakhs Only) | ||
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure RATING ACTION / OUTLOOK
Brickwork Ratings has assigned a rating of BWR BB (Stable) to the bank loan facilities of the Company aggregating to Rs. 92.56 Crs. The rating draws strength from the vast business experience of the promoters, a relatively moderate scale of operations and adequate liquidity. However, the ratings are constrained by the risk associated with exposure to volatility in the raw material prices and, cyclical nature of the industry.
BWR believes that the business risk profile of Rainbow Denim Limited will be maintained over the medium term. The long-term rating has been assigned a ‘Stable’ outlook as the business risk profile of the company is stable and its present financial performance is expected to be maintained in the medium term. The rating outlook may be revised to 'Positive' in case there is an improvement in revenues and profit margins on a sustained basis. The rating outlook may be revised to 'Negative' if there is any deterioration in the financial risk profile or liquidity issues.
Brickwork Ratings (BWR) has essentially relied upon the audited financial statements of the company upto FY24(A), relevant data to the extent available for 8MFY25(Prov.), projected financials for FY25 and FY26, as well as information/clarifications provided by the company’s management and its bankers, to arrive at the present ratings.
KEY RATING DRIVERSCredit Strengths:
-
Experience of the promoters :
Rainbow Denim Limited(RDL) is promoted by Ramesh Kumar, Sunny Garg, and Ajay Garg along with the other promoters having decades of experience in the textile industry business. The company specializes in manufacturing of the denim, primarily focusing on the premium denim variety using rope-dyeing technology. Ramesh Garg is the promoter director of Aggarsain Spinners Limited. He became the chairman of the company and has since led the company to become a well-structured spinning company. Sunny Garg joined Aggarsain Spinners Limited in August 2010 as a Director. He became the Managing Director of the Company in December 2017. Further, he also became a director in the company namely “M/s Fortune Multitech Pvt Ltd.” Ajay Garg joined the Aggarsain Spinners Limited in June 2017 as an additional director and later joined M”/s Fortune Multitech Pvt Ltd.” in the year 2017.
-
Moderate scale of operations :
In FY24, the TOI(Total operating income) improved to Rs. 14.92 cr due to an increase in the sales of denim. It is expected to grow tremendously to Rs. 175.72 Cr in FY25 as the company has already achieved a revenue of more than Rs. 100 Crs up to Dec 2024.
-
Adequate liquidity position of the company :
The liquidity of the company is adequate, marked by an average utilization of the Cash Credit facility of ~44%. Low working capital utilization does leave adequate cash for contingency purposes. Net Cash accrual stood at Rs. 3.47 Cr in FY24 against the CPLTD of Rs. 2.98 Crs in FY24 to support the current debt obligations. The current ratio remains comfortable at 1.84 times in FY24(FY23: 0.16 times) and as per FY25(Nov Prov), it is 1.49 times. The tangible net worth of the company stood at Rs.23.63 Crs in FY24. Further, the cash and bank balance is Rs. 1.57 cr for FY24 and it is projected to be Rs.13.30 for FY25. The conversion cycle stood at 100 days as of FY24.
-
Competitive and cyclical nature of denim industry :
The Indian textile industry is highly competitive and fragmented, with numerous organized and unorganized players. As a relatively small player in this sector, RDL is unable to leverage economies of scale. Additionally, the intense competition in this fragmented market limits its ability to fully pass on fluctuations in input costs to its customers. Also, the entities operating in this industry have to adhere to stringent pollution control norms set by the regulatory authorities; noncompliance of which shall adversely impact operations.
-
Volatility of raw materials :
The profitability of denim fabric manufacturing units is impacted by fluctuations in cotton and cotton yarn prices, which are influenced by factors such as cultivation area, monsoon conditions, and more. In recent years, the cotton yarn production market has faced instability due to the volatility of cotton prices.
BWR has principally relied upon the audited financial results of FY24, FY25(Prov), and projections of FY25 and FY26 as per information/clarification provided by the company.
RATING SENSITIVITIES
Going forward, the ability of the company to improve the scale of operations and profitability, maintain a strong liquidity position, effectively manage working capital, and strengthen the overall credit profile would be the key rating sensitivities.
Positive :
- A steady increase in turnover or profitability, leading to increased cash accruals.
- Maintenance of an optimum capital structure and liquidity position.
- ISCR of over 2.5x and DSCR of over 2.0x on a sustained basis
Downward:
- Decline in revenue and deterioration of the financial position of the Company, including deterioration in liquidity, leverage, and TNW on a continuous basis.
- Delayed payments of its debt obligations.
- ISCR of below 1.40x and DSCR of below 1.0x on a sustained basis.
The liquidity of the company is adequate, marked by an average utilization of the Cash Credit facility of ~44% during the periods of 01- April-24 to 01-Nov-24. Low working capital utilization does leave adequate cash for contingency purposes. Net Cash accrual stood at Rs. 3.47 Cr in FY24 against the CPLTD of Rs. 2.98 Crs in FY24 to support the current debt obligations. The current ratio remains comfortable at 1.84 times in FY24(FY23: 0.16 times). The tangible net worth of the company stood at Rs.23.63 Crs in FY24. Further, the cash and bank balance is Rs. 1.57 cr for FY24 and it is projected to be Rs.13.30 for FY25. The conversion cycle stood at 100 days as of FY24.
ABOUT THE ENTITY| Macro Economic Indicator | Sector | Industry | Basic Industry |
|---|---|---|---|
| Consumer Discretionary | Textiles | Textiles & Apparels | Other Textile Products |
The Rainbow Denim Limited (“RDL”) was incorporated on 08-04-1999. The Registered Office of Rainbow Denim Limited is situated at Village Chaundheri, Post Office Dappar, Chandigarh-Ambala National Highway, Tehsil Derabsssi, District SAS Nagar, Mohali, Punjab - 140 506.The promoters, SH. Ramesh Kumar, SH. Sunny Garg, and SH. Ajay Garg has 30 years of knowledge and background of the textile industry
The limited company is engaged in the manufacturing of denim. It has a fully integrated unit from cotton to finished fabrics.
KEY FINANCIAL INDICATORS (Standalone)| Key Parameters | Units |
FY 22 - 23 (Audited) |
FY 23 - 24 (Audited) |
FY 24 - 25 (Projected) |
|---|---|---|---|---|
| Operating Revenue | 0.08 | 14.92 | 175.00 | |
| EBITDA | -1.40 | 3.49 | 19.33 | |
| PAT | -2.18 | 2.36 | 4.29 | |
| Tangible Net Worth | -166.12 | 23.63 | 34.95 | |
| Total Debt / Tangible Net Worth | -0.88 | 2.98 | 4.87 | |
| Current Ratio | 0.16 | 1.84 | 1.39 |
The terms of sanction include standard covenants normally stipulated for such facilities.
STATUS OF NON-COOPERATION WITH PREVIOUS CRA
Not Applicable
RATING HISTORY FOR LAST THREE YEARS (including withdrawal and suspended)| Facilities | Current Rating (2025) | 2024 | 2023 | 2022 | |||||
|---|---|---|---|---|---|---|---|---|---|
| Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating |
| Fund Based | LT | 92.56 |
BWR BB/Stable
(Assignment) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
| Grand Total | 92.56 | (Rupees Ninety Two Crores and Fifty Six lakhs Only) | |||||||
| Analytical Contacts | |
|---|---|
|
Sejal Santosh Jaiswal Ratings Analyst sejal.sj@brickworkratings.com |
Hari Kishan Yadav Associate Director - Ratings hari.ky@brickworkratings.com |
| 1-860-425-2742 | media@brickworkratings.com | |
| SL.No. | Name of the Bank/Lender | Type Of Facilities | Long Term(Rs.Crs.) | Short Term(Rs.Crs.) | Total(Rs.Crs.) | Complexity of the Instrument |
|---|---|---|---|---|---|---|
| 1 | Bank of Maharashtra | Term LoanSanctioned | 15.00 | _ | 15.00 | Simple## |
| 2 | Bank of Maharashtra | Cash CreditSanctioned | 4.00 | _ | 4.00 | Simple## |
| 3 | HDFC Bank | Working Capital Term LoanSanctioned | 22.82 | _ | 22.82 | Simple## |
| 4 | HDFC Bank | Cash CreditSanctioned | 26.00 | _ | 26.00 | Simple## |
| 5 | Union Bank of India | Term LoanSanctioned | 5.74 | _ | 5.74 | Simple## |
| 6 | Union Bank of India | Cash CreditSanctioned | 19.00 | _ | 19.00 | Simple## |
| Total | 92.56 | 0.00 | 92.56 | |||
| TOTAL (Rupees Ninety Two Crores and Fifty Six lakhs Only) | ||||||
## BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.
| Instrument | Issue Date | Amount (Rs.Crs) | Coupon Rate (%) | Maturity Date | ISIN Particulars | Complexity of the Instrument |
|---|---|---|---|---|---|---|
| Nil | Nil | Nil | Nil | Nil | Nil | Nil |
| Name of Entity | % Ownership | Extent of consolidation | Rationale for consolidation |
|---|---|---|---|
| Nil | Nil | Nil | Nil |
The Rating Rationale is sent to you for the sole purpose of dissemination through your print, digital or electronic media. While it may be used by you acknowledging credit to BWR, please do not change the wordings in the rationale to avoid conveying a meaning different from what was intended by BWR. BWR alone has the sole right of sharing (both direct and indirect) its rationales for consideration or otherwise through any print or electronic or digital media.
About Brickwork RatingsBrickwork Ratings (BWR), a Securities and Exchange Board of India [SEBI] registered Credit Rating Agency and accredited by Reserve Bank of India [RBI], offers credit ratings of Bank Loan, Non- convertible / convertible / partially convertible debentures and other capital market instruments and bonds, Commercial Paper, perpetual bonds, asset-backed and mortgage-backed securities, partial guarantees and other structured / credit enhanced debt instruments, Security Receipts, Securitization Products, Municipal Bonds, etc. BWR has rated over 11,560 medium and large corporates and financial institutions’ instruments. BWR has also rated NGOs, Educational Institutions, Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations. BWR has Canara Bank, a leading public sector bank, as one of the promoters and strategic partner.
Disclaimer
Brickwork Ratings India Pvt. Ltd. (BWR), a Securities and Exchange Board of India [SEBI] registered Credit Rating Agency and accredited by the Reserve Bank of India [RBI], offers credit ratings of Bank Loan facilities, Non- convertible / convertible / partially convertible debentures and other capital market instruments and bonds, Commercial Paper, perpetual bonds, asset-backed and mortgage-backed securities, partial guarantees and other structured / credit enhanced debt instruments, Security Receipts, Securitization Products, Municipal Bonds, etc. [ hereafter referred to as "Instruments"]. BWR also rates NGOs, Educational Institutions, Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations.
BWR wishes to inform all persons who may come across Rating Rationales and Rating Reports provided by BWR that the ratings assigned by BWR are based on information obtained from the issuer of the instrument and other reliable sources, which in BWR's best judgment are considered reliable. The Rating Rationale / Rating Report & other rating communications are intended for the jurisdiction of India only. The reports should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in Europe and also the USA).
BWR also wishes to inform that access or use of the said documents does not create a client relationship between the user and BWR.
The ratings assigned by BWR are only an expression of BWR's opinion on the entity / instrument and should not in any manner be construed as being a recommendation to either, purchase, hold or sell the instrument.
BWR also wishes to abundantly clarify that these ratings are not to be considered as an investment advice in any jurisdiction nor are they to be used as a basis for or as an alternative to independent financial advice and judgment obtained from the user's financial advisors. BWR shall not be liable to any losses incurred by the users of these Rating Rationales, Rating Reports or its contents. BWR reserves the right to vary, modify, suspend or withdraw the ratings at any time without assigning reasons for the same.
BWR's ratings reflect BWR's opinion on the day the ratings are published and are not reflective of factual circumstances that may have arisen on a later date. BWR is not obliged to update its opinion based on any public notification, in any form or format although BWR may disseminate its opinion and analysis when deemed fit.
Neither BWR nor its affiliates, third party providers, as well as the directors, officers, shareholders, employees or agents (collectively, "BWR Party") guarantee the accuracy, completeness or adequacy of the Ratings, and no BWR Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Rating Rationales or Rating Reports. Each BWR Party disclaims all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. In no event shall any BWR Party be liable to any one for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Rating Rationales and/or Rating Reports even if advised of the possibility of such damages. However, BWR or its associates may have other commercial transactions with the company/entity. BWR and its affiliates do not act as a fiduciary.
BWR keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of BWR may have information that is not available to other BWR business units. BWR has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.
BWR clarifies that it may have been paid a fee by the issuers or underwriters of the instruments, facilities, securities etc., or from obligors. BWR's public ratings and analysis are made available on its web site, www.brickworkratings.com. More detailed information may be provided for a fee. BWR's rating criteria are also generally made available without charge on BWR's website.
This disclaimer forms an integral part of the Ratings Rationales / Rating Reports or other press releases, advisories, communications issued by BWR and circulation of the ratings without this disclaimer is prohibited.
BWR is bound by the Code of Conduct for Credit Rating Agencies issued by the Securities and Exchange Board of India and is governed by the applicable regulations issued by the Securities and Exchange Board of India as amended from time to time.