Lion Fabrics Private Limited

Brickwork Ratings revises the ratings for the Bank Loan Facilities of Rs. 90.87 Crs. of Lion Fabrics Private Limited ('LFPL' or 'the company')

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (25 May 2021)	Present
Fund Based	89.87	89.87	Long Term	BWR BB+ /Credit Watch with Developing Implications Reaffirmation	BWR BB - /Stable Downgrade
Non Fund Based	1.00	1.00	Long Term	BWR BB+ /Credit Watch with Developing Implications Reaffirmation	BWR BB - /Stable Downgrade
Grand Total	90.87	90.87	(Rupees Ninety Crores and Eighty Seven lakhs Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure

RATING ACTION / OUTLOOK

The downgrade reflects the significant deterioration in the financial risk profile marked by net loss incurred during FY21 (refers to April 1, 2020 to March 31, 2021) which further led to a yoy deterioration in the capital structure and debt coverage indicators in FY21 along with deterioration in the liquidity position. The rating continues to be constrained by LFPL’s modest and decreased scale of operations with weak profitability, leveraged capital structure and weak debt coverage indicators. The rating further continues to be constrained by high competition and slowdown in the textile industry and commodity price and forex risks. The rating, however, continues to derive strength from experienced management approval of One Time Restructuring proposal got approved from all lenders under consortium agreement and the prepayment of long term loan till FY23.

KEY RATING DRIVERS

Credit Strengths:

Experienced management :
The promoter has around three decades of extensive experience in textile industry and looks after overall management of the company with support of his son Mr. Himanshu Thukra who is associated with this company since inspection. Further LFPL has an experienced and qualified second line of management to carry out the day to day operations of the company. Over the years, the company has received funding support from the directors which is evident from infusion of funds in the form of unsecured loans to support the business operations.
Moderate Scale of Operations :
The Company’s total operating income has declined by 24.03% on y-o-y basis to Rs 77.96 Crs in FY21(Prov) due to COVID-19 and since the operations were completely closed for four month (April-July 2020). Furthermore in Q1FY22, the company has achieved Rs. 23.00 crore of sales with plant production at 60% capacity due to COVID-19 second wave.

Credit Risks:

Moderately weak financial risk profile :
The operating margin has significantly deteriorated to 3.10% during FY21(Prov) from 9.07% in FY20 mainly on account of fixed costs. With the decline in operating margin net profit margin also declined and the company incurred a net loss of Rs.10.07 crore during FY21(Prov) as against a PAT of Rs 0.17 crores in FY20. Consequently, debt protection metrics marked by ISCR & DSCR deteriorated and remained below unity level during FY21(Prov).
Impact of COVID-19 pandemic :
The commercial production of LFPL was closed till July 2020 due to lockdown, and from August 2020 onwards the company was operating at 50% capacity and from November 2020 LFPL had resumed normal operations.. Due to above reasons, the company had applied for relief under the RBI restructuring guidelines issued on August 6, 2020 and the same was approved by all the banks. The second wave of COVID-19 was unexpected and for garment companies the April to June period is the main season for manufacturing garments for retail business. But due to the second wave the retail business was impacted and dealers in Delhi, Mumbai, Bangalore were completely closed and due to which business was impacted and achieved Rs. 23.00 crore during Q1FY21(Operating at 60% capacity)
Commodity price and forex risks and high competition :
Cotton derivatives, cotton waste, polyester filament, and dyes and chemicals are the primary raw material used for the production of the denim fabric. Cotton is an agricultural commodity whose supply and prices are contingent upon agro climatic factors, which are beyond control. Therefore, operating margins are susceptible to adverse movement in commodity prices. Further, exports made by the company are unhedged exposing the company to forex risks.The presence of a large number of small and medium players in the industry/sector results in the commoditization of products and reduces bargaining power with buyers and suppliers.
Slowdown in the textile industry :
The ongoing slowdown in the textile industry mainly on account of COVID-19-led lockdown, has disrupted this sector adversely. Demand is expected to remain subdued owing to a general slowdown in the economy, with expected curtailment in discretionary spending by the public at large. However, the management is expecting a pick up in exports demand which is likely to compensate for the de-growth in its domestic demand for FY22.

ANALYTICAL APPROACH - Standalone

BWR has essentially relied upon the standalone audited financials of the company up to FY20, provisional financials for FY21, projections up to FY23, publicly available information and information/clarifications provided by the management. While assigning the ratings, BWR has applied its rating methodology as detailed in the Rating Criteria (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Positive:-

Substantial and Sustained improvement in scale of operations and key financial metrics.
Sustained improvement in liquidity position, profit margins and debt protection metrics.

Negative:-

Any further material decline in revenue, deterioration in profit margins, capital structure and debt coverage indicators.

LIQUIDITY INDICATORS - Stretched

The liquidity position remained stretched marked by net loss incurred during FY21 which led to tightly matched accruals against its repayment (GECL & COVID loan) obligations of Rs.2.44 cr in FY22 & Rs. 4.34 cr in FY23. However, LFPL one-time restructuring proposal is being approved by all lenders with consortium arrangement under the resolution framework for COVID-19 related stress, as a result company has nil term loan repayments till FY23 as per new repayment schedule company has prepaid its term loan installments upto March 31, 2023. Further, the average utilization of its working capital limits stood high at 88% during the past 4 months ended June 2021. Cash & Cash equivalents remained low at Rs. 0.34 Cr as on 31 March 2021.

ABOUT THE ENTITY

LFPL was incorporated on 6th August 2014 and is limited by shares. The registered office of the company is located at Gandhi Nagar, New Delhi-110031.The Company belongs to Lion Group which comprises Lion Jeans (earlier Lion Textile) and is a partnership firm. The company has a total plot area of 47.64 acres. Lion Textiles Pvt. Ltd. (LTPL) is engaged in the business of textiles for more than a decade and its promoters are engaged in the textiles business for more than 30 years. LFPL, which is majorly into manufacturing of textiles, is promoted by Mr. Raj Kumar Thukral, who has also promoted LTPL, which is engaged in the trading business. Mr. Sunil Kumar Aggarwal is the Chief Executive Officer of the Company. The Company has set up a Denim textiles project, at Village Dhobi Kheri, Tehsil Shyampur, District Sehore (Madhya Pradesh) over a total plot area of 42.81 acres and a built-up area of more than 16,600 Sq. Mt., with 80 weaving looms and other ancillary plant & machinery equipment, having a production capacity of about 11 Lakh Mtrs. of Denim fabric per month. The Company is engaged in the manufacturing, processing, dyeing, and weaving of Denim fabric.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	101.99	81.80
EBITDA	Rs.Crs.	9.25	8.89
PAT	Rs.Crs.	0.17	0.14
Tangible Net Worth	Rs.Crs.	28.55	28.42
Total Debt/Tangible Net Worth	Times	3.31	3.51
Current Ratio	Times	1.12	1.11

KEY COVENANTS OF THE FACILITY RATED

NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY

ANY OTHER INFORMATION

Nil

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2021)			2021 (History)		2020		2019		2018
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	89.87	BWR BB-/Stable (Downgrade)	25May2021	BWR BB+/Credit Watch with Developing Implications (Reaffirmation)	27Mar2020	BWR BB+/Stable (Reaffirmed )	31Jan2019	BWR BB+/Stable (Assigned)	NA	NA
Non Fund Based	LT	1.00	BWR BB-/Stable (Downgrade)	25May2021	BWR BB+/Credit Watch with Developing Implications (Reaffirmation)	27Mar2020	BWR BB+/Stable (Reaffirmed )	31Jan2019	BWR BB+/Stable (Assigned)	NA	NA
Grand Total		90.87	(Rupees Ninety Crores and Eighty Seven lakhs Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

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.

Hyperlink/Reference to applicable Criteria

Analytical Contacts
Roma Gupta Ratings Analyst roma.g@brickworkratings.com	Chintan Dilip Lakhani Director- Ratings chintan.l@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Lion Fabrics Private Limited

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Bank of Baroda	Cash Credit - Sanctioned	7.43	_	7.43
2	Bank of Baroda	Term Loan - Sanctioned	23.92	_	23.92
3	Bank of Baroda	Covid -19 Emergency Line Credit - Sanctioned	0.51	_	0.51
4	Bank of Baroda	GECL - Sanctioned	7.04	_	7.04
5	Canara Bank	Term Loan - Sanctioned	2.48	_	2.48
6	Canara Bank	Bank Guarantee - Sanctioned	1.00	_	1.00
7	Punjab National Bank	Term Loan - Sanctioned	24.18	_	24.18
8	Punjab National Bank	Cash Credit - Sanctioned	14.00	_	14.00
9	Punjab National Bank	Covid -19 Emergency Line Credit - Sanctioned	1.10	_	1.10
10	Punjab National Bank	GECL - Sanctioned	9.21	_	9.21
Total			90.87	0.00	90.87
TOTAL (Rupees Ninety Crores and Eighty Seven lakhs Only)

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