Allied Exims

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 36.09 Crs. of Allied Exims.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (10 Jun 2020)	Present
Fund Based	0.00	5.09	Long Term		BWR B + /Stable Assignment
	32.00	29.00	Short Term	BWR A4 Reaffirmation	BWR A4 Reaffirmation
	(3.00)	(3.00)
Non Fund Based	7.00	2.00	Short Term	BWR A4 Reaffirmation	BWR A4 Reaffirmation
Grand Total	39.00	36.09	(Rupees Thirty Six Crores and Nine 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

Brickwork rating has assigned long-term rating as BWR B+ (stable) and reaffirmed the short-term rating to BWR A4 for the bank loan facilities of Allied Exims. BWR believes that the business risk profile of the company will be maintained over the medium term. The 'Stable' outlook indicates a low likelihood of rating change over the medium term. The rating outlook may be revised to 'Positive' in case the revenues and profit show sustained improvement. The rating outlook may be revised to 'Negative' if the revenues go down and profit margins show lower than expected figures. 

The rating draws comfort from established operational track record, extensive experience of partners, diversified product offering, improved profitability and moderate tangible net-worth. The rating however, is constrained by instability in scale of operations and margins, average financial risk profile, elongated conversion cycle, nature of the constitution, intense competition in the export markets and impact of COVID-19 in the industry.

KEY RATING DRIVERS

Credit Strengths:

• Experienced promoters and established operations :

  The Partners of the firm namely Mr. Akhtar Qaiyum, Mr. Arshad Qaiyum, Mr. Ishrat Qaiyum, Mr. Rafat Qaiyum, Mr. Sarbat Qaiyum and Mr. Farhat Qaiyum have almost two decades of experience in the leather business. The extensive experience of the promoters, their understanding of the business dynamics and established relationship with its customers and suppliers continue to support the business risk profile. Further, the entity has been in existence for the last two decades and has seen the complete business cycles.

• Diversified Product Offering :

  The firm manufactures leather goods such as finished leather which is used in a wide variety of applications such as footwear, leather accessories such as bags, jackets, garments, and upholstery etc. Apart from this, the entity also manufactures shoe upper and Saddlery.

• Improved profitability margins :

  The operating profit margin and net profit margin of the firm has improved from 4.46% and 0.38% in FY 19 to 6.15% and 1.11% in FY 20 due decrease in the operating expenses and interest and finance charges and support from non-operating income although the revenue of the firm declined in FY 20. It further improved to 6.48% and 1.97% in FY 21 respectively as per Provisionals'.

Credit Risks:

• Constitution risk :

  Allied Exim being a partnership firm, is exposed to inherent risk of capital withdrawal at the time of personal contingency which will affect its capital structure besides risk of dissolution and restricted avenues to raise capital, which could be a hindrance
  to its growth.

• Highly competitive industry and impact of Covid-19 :

  The global leather prices have been declining in the last two years on account of demand slowdown from the European countries. Being an average-sized exporter, it has limited bargaining power and faces stiff competition from China and other leather exporting countries like Bangladesh, Vietnam, etc. Due to COVID-19, the firm’s revenue is expected to be impacted in the short to medium term because of disruption in production and delay in execution of existing orders.

• Instability in scale of operations :

  Revenue of the company declined by 35.68% in FY 20 i.e. from Rs. 62.69 Crs in FY 19 to Rs. 40.32 Crs in FY 20. Restriction on slaughter of cattle and closure of multiple slaughter houses and tanneries in Uttar Pradesh impacted the revenue and margins of the entity; that coupled with the decision of National Green Tribunal (NGT) to lower the capacity utilization of tanneries in Uttar Pradesh which led to decline in its revenue. However, the revenue of the firm has increased by 14.40% in FY 21 i.e. to Rs. 46.13 Crs as per Provisionals'.

• Stretched Gearing :

  The tangible net-worth of the firm decreased from Rs.11.09 Crs in FY 19 to Rs. 10.93 Crs in FY 20 due to withdrawal of capital. However, the profits were retained in the firm and it stands at Rs. 11.09 Crs for FY 21 as per Provisionals'. The gearing of the company is stretched as Total Debt/TNW and TOL/TNW stands at 3.04x & 4.06x in FY 20 due to increase in total debt and decrease in net worth. It further increased to 3.31x and 4.24x in FY 21 respectively. The analyzed total debt/TNW stands at 2.16x for FY 20 due to unsecured loans from partners, friends and relatives.

• Elongated conversion cycle :

  The conversion Cycle is high at 263 days in FY 20. The average collection period is 107 days, inventory days of finished goods is 416 days and days payable is 260 days in FY 20. The unforeseen demand from the buyer results in higher stock of finished goods. Moreover, due to the pandemic, there was accumulation of stock as the lockdown was imposed in domestic and foreign markets which created disruption in the supply chain resulting in high inventory and elongated conversion cycle. It stands at 265 days for FY 21 as per provisionals'.

ANALYTICAL APPROACH - Standalone

BWR has factored in the standalone business parameters and financial risk profile of the entity to arrive at the rating. Reference may be made to the Rating Criteria hyperlinked detailed below (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Going forward, the ability of the entity to improve its scale of operations, improve its profitability margins, the debt servicing capability & liquidity would be key rating sensitivities.

• Positive: The rating may be upgraded if the entity is able to achieve significant growth in revenue along with a significant improvement in profit margins, improve its gearing and sustained improvement in its working capital management.
• Negative: The rating may be downgraded if revenue and profit margins substantially decline from the current level, withdrawal of capital by partners and if there is an overall deterioration in the financial position of the entity.

LIQUIDITY INDICATORS - Adequate

The cash and cash equivalent of the company stands at Rs. 0.26 Cr in FY 20. The net cash accruals stood at Rs. 1.30 Cr in FY 20 and Rs. 1.81 Crs in FY 21 as per Provisionals' against negligible debt repayments showing availability of funds to meet its debt obligations in time. The GECL facility availed has a moratorium period of 12 months. The packing credit facility is fully utilized and post shipment facilities are utilized an an average of 40-45%. The current ratio of the firm stands at 1.21x in FY 20 which is near to the industry average. Hence, overall the liquidity of the firm appears to be adequate.

ABOUT THE ENTITY

Allied Exim was set up in 1993 as a Partnership Firm having six partners within a family namely, Mr. Akhter Qaiyum ,Mr. Arshad Qaiyum , Mr. Rafat Qaiyum, Mr. Ishrat Qaiyum, Mr. Sarwat Qaiyum and Mr. Farhat Qaiyum, having its registered office in Kanpur (Uttar Pradesh) all in profit and loss sharing ratio. It is engaged in the manufacturing of leather products such as finished leather, shoe upper and saddlery which are exported majorly to countries like Italy, China, Malaysia, Albania, Germany, Portugal. It generally procures leather and chemicals locally and overseas market majorly from Italy and Brazil. It is 100% Export Oriented Unit.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	40.32	62.69
EBITDA	Rs.Crs.	2.48	2.79
PAT	Rs.Crs.	0.45	0.24
Tangible Net Worth	Rs.Crs.	10.93	11.09
Total Debt/Tangible Net Worth	Times	3.04	2.79
Current Ratio	Times	1.21	1.07

KEY COVENANTS OF THE FACILITY RATED

NA

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

NA

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	5.09	BWR B+/Stable (Assignment)	NA	NA	NA	NA	NA	NA
Fund Based	ST	29.00	BWR A4 (Reaffirmation)	10Jun2020	BWR A4 (Reaffirmation)	30Sep2019	BWR A4 (Downgrade/ISSUER NOT COOPERATING*)	04May2018	BWR A4+ (Assignment)
FB SubLimit	ST	(3.00)	BWR A4 (Reaffirmation)	10Jun2020	BWR A4 (Reaffirmation)	30Sep2019	BWR A4 (Downgrade/ISSUER NOT COOPERATING*)	04May2018	BWR A4+ (Assignment)
Non Fund Based	ST	2.00	BWR A4 (Reaffirmation)	10Jun2020	BWR A4 (Reaffirmation)	30Sep2019	BWR A4 (Downgrade/ISSUER NOT COOPERATING*)	04May2018	BWR A4+ (Assignment)
Grand Total		36.09	(Rupees Thirty Six Crores and Nine lakhs Only)

RNR on 05.08.2019 and 11.06.2021.

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

• Approach to Financial Ratios
• General Criteria
• Manufacturing Companies
• Short Term Debt

Analytical Contacts
Muskan Agrawal Rating Analyst muskan.a@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.)
1	Jammu and Kashmir Bank	Packing Credit (PC) - Sanctioned	_	12.00	12.00
2	Jammu and Kashmir Bank	Post Shipment Finance - Export Bill Discounting (Non-LC) - Sanctioned	_	6.00	6.00
	Sub-Limit (Advance against collection) - Sanctioned		(3.00)
3	Jammu and Kashmir Bank	Foreign Bill Negotiation under Letter of Credit (FBD/FUDBP/FBP/FBDN) - Sanctioned	_	11.00	11.00
4	Jammu and Kashmir Bank	ILC/FLC/BG - Sanctioned	_	2.00	2.00
5	Jammu and Kashmir Bank	Covid -19 Emergency Line Credit - Sanctioned	5.09	_	5.09
Total			5.09	31.00	36.09
TOTAL (Rupees Thirty Six Crores and Nine lakhs Only)