RATING RATIONALE
16Jun2021
AKR Industries Pvt. Ltd. (Formerly Known as AKR Textile)
Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 223.90 Crs. of AKR Industries Pvt. Ltd. (Formerly Known as AKR Textile)
Particulars| Facilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
|---|---|---|---|---|---|
| Previous | Present | Previous (19 Mar 2020) |
Present | ||
| Fund Based | 110.74 | 133.90 | Long Term |
BWR BBB
/Stable Reaffirmed |
BWR BBB
/Stable Reaffirmation |
| (10.00) | (10.00) | ||||
| (0.00) | (5.00) | ||||
| 100.00 | 90.00 | Short Term |
BWR A3+ Reaffirmed
|
BWR A3 +
Reaffirmation |
|
| (60.00) | (60.00) | ||||
| (60.00) | (60.00) | ||||
| (2.00) | (4.00) | ||||
| Grand Total | 210.74 | 223.90 | (Rupees Two Hundred Twenty Three Crores and Ninety lakhs Only) | ||
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure
RATING ACTION / OUTLOOK
The reaffirmation of rating continues to factor extensive experience of the promoters in the garment manufacturing business, integrated manufacturing operations, established operational track record,established & long standing customer base and diversified product portfolio along with locational advantages. However, the ratings remain constrained by decline in scale of operations, average debt protection metrics, working capital intensity, fragmented and competitive industry limiting the bargaining power and susceptibility of company's margins to volatility in the raw materials and foreign exchange rates.Brickwork Ratings (BWR) notes the impact of Covid-19 pandemic globally resulting in decline in the scale of operations in FY21 on provisional basis in line with BWR's expectations.
BWR notes that company had availed relief under the Covid-19 moratorium package during Mar'20 - Aug'20 for term loans' interest payment and principal repayment. The company has been regular in debt obligation
payments in the post-moratorium period, as confirmed by the lenders. BWR also notes the company has not availed for one time restructuring (OTR) of loans under RBI Resolution Framework for Covid-19 related Stress.
The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. BWR believes AKR Industries Pvt Ltd’s business risk profile will be maintained over the medium term. The outlook may be revised to Positive if a sustained increase in scale of operations, higher than envisaged profitability, improved gearing and debt protection metrics result in an improved financial risk profile. The outlook may be revised to Negative if lower than expected revenue or profitability, any adverse impact of COVID19, stretch in the working capital cycle, sizeable and unanticipated capex or weakening gearing adversely impact the financial risk profile.
KEY RATING DRIVERSCredit Strengths:
-
Experienced management :
The company is promoted by Mr K.Loganathan, who has vast experience in garment exports. The management is supported by a qualified team of experienced professionals. The extensive promoter experience results in a strong relationship with European and American Clientele.
-
Reputed Clientele and longstanding relationships with customers :
The company has established long term relationships with multinational apparel companies. The company primarily exports its products to private label brands in the European and American markets. The company’s clientele includes major companies like Tom Tailor (Germany), Tommy Hilfiger (pan Europe), Calvin Klein (USA), OVS (Italy). The longstanding relationships with some globally renowned clients with some associations exceeding 15 years, translate into repeat business for the company, providing near to medium term revenue visibility and stability.
-
Established and integrated manufacturing facilities: :
The company's operations are vertically integrated from spinning, knitting, dyeing to manufacture of ready made garments. The company’s manufacturing facilities are based in Tirupur and Bangalore which has ensured availability of raw material and manpower. The Company operates from 5 production units in Tirupur and 2 units in Bangalore, 1 unit each in Chittoor and Perundurai. The firm has 9 units housed with 5500 Machineries located in Tamilnadu, Karnataka & Andhra Pradesh. BWR notes that company has focused on cost control measures and as part of it, has merged some of its units during FY21 while maintaining the number of machines for operations. The said measures are expected to lead to significant savings for the company.
-
Average Financial Risk :
The company's financial risk profile is considered adequate as reflected in the Total operating income of ~Rs.432 crs in FY20. Out of Rs.296 Crs (70%) and the balance is from domestic sales. Operating profit has marginally improved from Rs. 41.91 Crs in FY19 to Rs. 44.87 Crs in FY20. Tangible Net Worth improved from Rs.65.94 Crs as on March 31, 2019 to Rs.74.26 Crs as on March 31, 2020 on account of retention of profit. Gearing has improved from 4.44 times in FY19 to 3.35 times in FY20, ISCR is moderate with at 2.06 times as on 31 March 2020 (PY2.14 times) and DSCR is low at 0.96 times as on 31 March 2020 (PY 1.61 times). However, any shortfalls are being supported by the unsecured loans from the promoters. As on March 31. 2021 the company has earned a revenue of Rs 343.20 Crs, EBITDA of Rs. 54.29 Crs and PAT of Rs. 14.83.
-
Working capital intensive nature of operations :
The Company’s operations are working capital intensive operations as reflected by higher inventory and receivables period owing to the nature of the business
-
Concentration risk and foreign exchange risk :
AKR’s exports constitute ~75% of its revenues with majority exports to Europe and America. The Company has forward contract limits and bill discounting facilities from the bankers to mitigate the associated risks, to a certain extent. Further, during FY20, ~50% of the revenue was from Tommy Hilfger exposing it to customer concentration risks. However, the said customer has a long standing relationship with the promoters. Revenue and profitability are vulnerable to foreign exchange fluctuations.
-
Impact of COVID-19 on business operations :
Due to the Covid 19 induced lockdown, the operations of the company were temporarily halted from the end of Mar 2020. Operations have slowly ramped up since May 2020, the company has reportedly started operating at full capacity only from Dec 2020. However, the ongoing second wave of pandemic has disrupted the company’s operations which is expected to continue for the near term and may impact Q1FY22. Steady inflow of fresh orders, efficient management of supply chain and timely execution of the orders would be key monitorables.
-
Exposure to intense competition and moderate Scale of operations :
The ready made garment manufacturing segment is fragmented and intensely competitive. Despite the group's presence in the business for over three decades and established relationships with customers and suppliers, the company has a moderate scale of operations and remains exposed to competition from various players in India and other low-cost ready made garment manufacturers from other countries. This places pressure on its business risk and financial risk profiles.
Going forward, the ability of the company to increase its revenue and profitability, effectively manage any impact on business operations due to the extended COVID19 pandemic and manage its working capital efficiently would be the key rating sensitivities
Positive
- Increase in scale of operations with significant growth in revenues and profitability on a sustainable basis.
- Decline in Total Debt/ TNW to below 1.50 times on sustained basis.
Negative
- Deterioration in key credit metrics on account of decline in scale of operations/ order book and sustained pressure on net margins.
- Specific credit metrics which may result in a rating downgrade include deterioration in EBITDA to <5%,
- DSCR and ISCR declining to below 1.00 times on a sustained basis.
EBITDA at Rs.44.87 Crs for FY20 was sufficient to cover the interest and finance charges of Rs.21.83 Crs for FY20. Net cash accruals at Rs. 17.63 Crs for FY20 were insufficient to cover the CPLTD of Rs. 11.06 Cr as on 31Mar2019. However, the estimated Net cash accrual of Rs. 30.46 Cr for FY21 is sufficient to cover the CPLTD of Rs.13.55 Crs as on 31 Mar 2020. Cash and cash equivalents are low at Rs.3.57 Crs as on 31 Mar 2020. Cash conversion cycle remained ~100 days as on 31 Mar 2020. Current ratio marginally improved from 1.14 times as on 31 Mar 2019 to 1.21 times as on 31 Mar 2020. The average utilization of WC limits in past 6 months is ~90% and the same is confirmed by the bankers. BWR notes that the company has availed COVID Term loans from its lenders to support the liquidity in the short term. Future cash accruals are expected to be sufficient to cover the debt obligations arising out of these loans. The liquidity is further supported by the timely infusion from the promoters' unsecured loans
ABOUT THE ENTITYAKR Industries Pvt Limited ("AKRIPL" or "the company") was established in 2003 as a proprietary concern in Tirupur,Tamil Nadu. Subsequently, during 2011, the concern was reconstituted as a partnership firm AKR Textile. The partnership firm was converted into a private limited company in Feb 2019.
It is engaged in manufacturing and exports of knitted garments where in exports contribute 75% of the revenue. The company manufactures a wide range of knitted fabrics such as men’s wear (50%), ladies’ wear (45%), kid's wear (5%) etc. AKR has fully integrated manufacturing facilities with the in house production process of knitting, dyeing, embroidery, printing and garmenting. It is an ISO 9001: 2000 company with most of the factories also being certified as a green factory by PVH (Phillips-Van Heusen Corporation) Social compliance.
Mr. K.Loganathan and Mrs.L.Radhika who were the partners in the erstwhile partnership firm continue to hold the entire stake in the incorporated company. Mr. K. Loganathan is Chairman and Managing Director, Mrs. L. Radhika is the director and Mr. V Balasubramaniam and Mr. C. Anbarasu are the independent directors.
KEY FINANCIAL INDICATORS (Standalone)| Key Parameters | Units |
FY 19-20 (Audited) |
FY 18-19 (Audited) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | 431.99 | 460.82 |
| EBITDA | Rs.Crs. | 44.87 | 41.91 |
| PAT | Rs.Crs. | 12.44 | 12.50 |
| Tangible Net Worth | Rs.Crs. | 74.26 | 65.94 |
| Total Debt/Tangible Net Worth | Times | 3.35 | 4.44 |
| Current Ratio | Times | 1.21 | 1.14 |
RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)
| Facilities | Current Rating (2021) | 2020 | 2019 | 2018 | |||||
|---|---|---|---|---|---|---|---|---|---|
| Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating |
| Fund Based | LT | 133.90 |
BWR BBB/Stable
(Reaffirmation) |
19Mar2020 |
BWR BBB/Stable Reaffirmed
() |
28Mar2019 |
BWR BBB/Stable Reaffirmed
() |
NA |
NA
|
| FB SubLimit | LT | (10.00) |
BWR BBB/Stable
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
| (5.00) |
BWR BBB/Stable
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
||
| Fund Based | ST | 90.00 |
BWR A3+
(Reaffirmation) |
19Mar2020 |
BWR A3+ Reaffirmed
() |
28Mar2019 |
BWR A3+ Reaffirmed
() |
NA |
NA
|
| FB SubLimit | ST | (60.00) |
BWR A3+
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
| (60.00) |
BWR A3+
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
||
| (4.00) |
BWR A3+
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
||
| Grand Total | 223.90 | (Rupees Two Hundred Twenty Three Crores and Ninety lakhs Only) | |||||||
Press Release, as on 22Mar2021
An advisory was issued on 22 March 2021 for non receipt of requisite information.
COMPLEXITY LEVELS OF THE INSTRUMENTS - NA
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.
| Analytical Contacts | |
|---|---|
|
Kaushik Srikanth V Rating Analyst kaushik.s@brickworkratings.com |
Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com |
| 1-860-425-2742 | media@brickworkratings.com | |
| SL.No. | Type Of Facilities | Long Term(Rs.Crs.) | Short Term(Rs.Crs.) | Total(Rs.Crs.) | ||
|---|---|---|---|---|---|---|
| 1 | GECLSanctioned | 31.00 | _ | 31.00 | ||
| 2 | Packing Credit (PC)Sanctioned | _ | 60.00 | 60.00 | ||
| Sub-Limit (Cash Credit) Sanctioned | (10.00) | |||||
| Sub-Limit (FOBNLC & FOUBNLC ) Sanctioned | (60.00) | |||||
| Sub-Limit (FOBP & FOBUP) Sanctioned | (60.00) | |||||
| 3 | Term LoanOut-standing | 81.89 | _ | 81.89 | ||
| 4 | Covid -19 Emergency Line CreditOut-standing | 3.89 | _ | 3.89 | ||
| 5 | GECLSanctioned | 10.22 | _ | 10.22 | ||
| 6 | Export Packing Credit (EPC)Sanctioned | _ | 20.00 | 20.00 | ||
| Sub-Limit (Forward Contract Limit) Sanctioned | (4.00) | |||||
| 7 | Foreign Bill DiscountingSanctioned | _ | 10.00 | 10.00 | ||
| Sub-Limit (Cash Credit) Sanctioned | (5.00) | |||||
| 8 | Standby Line of CreditSanctioned | 5.50 | _ | 5.50 | ||
| 9 | Covid -19 Emergency Line CreditOut-standing | 1.40 | _ | 1.40 | ||
| Total | 133.90 | 90.00 | 223.90 | |||
| TOTAL (Rupees Two Hundred Twenty Three Crores and Ninety lakhs Only) | ||||||
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