Akruthi Apparrel

Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs.27.82 Crs. of Akruthi Apparrel

Particulars

Facility**	Amount (Rs.Crs)	Tenure	Rating*
Fund Based
Term Loan - Out-standing Covid -19 Emergency Line Credit - Out-standing Emergency Credit Line Guarantee Scheme (ECLGS) - Out-standing	01.02 01.41 03.89	Long Term	BWR BB + (Stable)
Packing Credit (PC) - Sanctioned Foreign Bill Negotiation under Letter of Credit (FBD/FUDBP/FBP/FBDN) - Sanctioned	20.00 01.50	Short Term	BWR A4 +
Sub Total	27.82
Grand Total	27.82	(Rupees Twenty Seven Crores and Eighty Two lakhs Only)

*Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank facilities are provided in Annexure-I RATING ACTION / OUTLOOK : Stable

BWR believes that Akruthi Apparrel business risk profile 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.

KEY RATING DRIVERS

Credit Strengths:

• Experienced Management:

  The firm has a long track record of more than 15 years in the business and partners of the firm have rich experience of more than a decade in the same line of business that helps them to maintain a better relationship with their customers and suppliers as well.

• Established client base and integrated manufacturing facilities:

  The firm’s operations are vertically integrated, with facilities across knitting, printing, stitching, embroidery. The firm outsources the bleaching and dyeing operations on a job-work basis. The firm has 7 manufacturing units of which 6 units are located at Tirupur and 1 unit is located at Theni(both in Tamil Nadu). The firm's revenue is primarily derived from exports. In the export market U.S.A, UK and European countries are the key destinations for the firm's products. The firm enjoys long-term relationships with most of its customers such as RNA Resources Group, Paradise Ltd, Apparel Partnership Group which leads to repeat business.

• Moderate Networth and debt coverage indicators:

  The tangible Net worth of the firm was comfortable at Rs.16.97Crores in FY20 mainly due to infusion capital by partners and accumulated profits of past years The debt protection metrics of the firm are comfortable with ISCR and DSCR at 4.60 times and 3.23 times inFY20.

• Locational advantages:

  The firm is located at Tirupur, which is a major textile hub. This provides location-specific advantages in terms of easy accessibility to raw materials and availability of labour.

Credit Risks:

• Moderate financial risk profile:

  The revenue of the firm has declined from Rs 180.69 crores in FY19 to Rs.140.42 Crores in FY20. on account of the closedown of business operations towards the end of March 2020 owing to COVID 19. However, capacity added in FY20 should help the firm take up more orders, thereby increasing the scale of operations to some extent. As confirmed by the firm, they have achieved sales revenue of Rs.176.71 crores for April’20 to Mar’21 as against projected revenue (FY21) of Rs.120.20 crs. Net profit margin has declined to 2.44% in FY20 as against 3.27% in FY19. Gearing was relatively high at 1.32 times as on 31 Mar 2020.

• Susceptibility to volatility of raw-material prices :

  The firm faces stiff competition from China, Vietnam and Bangladesh, who are major exporters of garments in the international markets. This limits the firm's pricing flexibility and bargaining power with the customers thereby placing pressure on the firm's revenue and margins.

• Geographic and customer concentration risks :

  The top three customers account for ~75% of revenues in FY19 /FY20. The firm operates in the highly fragmented and price-sensitive Ready made garment segment, and loss of any one of its top customers could adversely impact its revenue over the medium term. However, this risk is mitigated to some extent as the company has long-standing relationships with its clientele and has been able to bag repeat orders.

• Risk Inherent as a Partnership Constitution:

  The withdrawal of capital by the partners for any personal contingency would adversely affect the capital structure of the firm.

• Exposure to foreign exchange risk and impact on covid-19:

  Akruti derives the majority of its revenues through exports, and hence the margins remain exposed to forex fluctuations. The majority of the firm’s revenues are euro-denominated. The firm hedges its receivables through forward contracts, thereby, mitigating the exchange rate fluctuation risk to some extent. The firm operates in a highly competitive market and unorganized market. Also contributing to the credit risk is the slowdown faced by the Textile industry coupled with Covid-19 lockdown has severely impacted the overall industry.

ANALYTICAL APPROACH AND APPLICABLE RATING CRITERIA

For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Going forward, the ability of the firm to increase its scale of operations by improving its profitability margins, strengthen its credit profile, efficiently manage its working capital and timely payment of debt obligations will be the key rating sensitivities.

Positive: Significant improvement in financial risk profile aided by growth in revenues, margins and reduction in overall debt will be a positive for the rating.

Negative: Deterioration in financial risk profile on account of profitability pressures/lower cash accruals, weakening of capital structure resulting from increased capital expenditure will be negative for the rating.

LIQUIDITY POSITION

The firm’s liquidity profile is stretched driven by a current ratio of 1.07 times in FY20 as against 1.10 times in FY19. However, it is expected to improve 1.22 times in FY21. The debt protection metrics of the firm are comfortable with ISCR and DSCR at 4.60 times and 3.23 times in FY20. Cash and cash equivalents were at Rs.1.43 crs and Net cash accruals/Total Debt was low at 0.18 times as on 31 Mar 2020 .

PROFILE

Akruthi Apparel is a partnership firm established at Tirupur, Tamil Nadu in 2007. The firm is engaged in the manufacturing and exporting of garments for men, women and children. It exports the products to U.S.A, Dubai and Hong kong. The firm in total has 7 manufacturing units of which 6 units are located at Tirupur and 1 unit is located at Theni, both in Tamil Nadu. The Installed capacity of the units are 15,40,000 pieces per month and they operating at ~80-90% capacity. The firm’s operations are vertically integrated, with facilities across knitting, printing, stitching, embroidery. The firm outsources the bleaching and dyeing operations on a job-work basis.

KEY FINANCIAL INDICATORS

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	140.42	180.69
EBITDA	Rs.Crs.	7.20	10.81
PAT	Rs.Crs.	3.42	5.90
Tangible Net Worth	Rs.Crs.	16.97	15.40
Total Debt/Tangible Net Worth	Times	1.32	1.39
Current Ratio	Times	1.05	1.10

KEY COVENANTS OF THE INSTRUMENT/FACILITY RATED

NA

RATING HISTORY (INCLUDING WITHDRAWAL AND SUSPENSION)

S.No	Current Rating (2021)				Rating History
	Facilities	Tenure	Amount (Rs.Crs)	Rating	2020	2019	2018
Fund Based
1	Term Loan - Out-standing Covid -19 Emergency Line Credit - Out-standing Emergency Credit Line Guarantee Scheme (ECLGS) - Out-standing	Long Term	01.02 01.41 03.89	BWR BB+ (Stable)	NA	NA	NA
2	Packing Credit (PC) - Sanctioned Foreign Bill Negotiation under Letter of Credit (FBD/FUDBP/FBP/FBDN) - Sanctioned	Short Term	20.00 01.50	BWR A4+	NA	NA	NA
Total			27.82	(Rupees Twenty Seven Crores and Eighty Two lakhs Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS

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 :

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

For More Information Contact:

Analytical Contacts
Vijayalakshmi R Ratings Analyst B : +91 044 24663326 vijayalakshmi.r@brickworkratings.com	Varadarajan R Associate Director - Ratings B : +91 044 24663326 varadarajan.r@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	Term Loan - Out-standing	1.02	_	1.02
2	Covid -19 Emergency Line Credit - Out-standing	1.41	_	1.41
3	Emergency Credit Line Guarantee Scheme (ECLGS) - Out-standing	3.89	_	3.89
4	Packing Credit (PC) - Sanctioned	_	20.00	20.00
5	Foreign Bill Negotiation under Letter of Credit (FBD/FUDBP/FBP/FBDN) - Sanctioned	_	1.50	1.50
Total		6.32	21.50	27.82
TOTAL (Rupees Twenty Seven Crores and Eighty Two lakhs Only)