Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 34.00 Crs. of Fashion Knits
Particulars| Facilities** | Amount (Rs.Crs.) | Tenure | Rating# | |||
|---|---|---|---|---|---|---|
| Previous | Present | Previous (25 Mar 2022) |
Present | |||
| Fund Based | 34.00 | 34.00 | Short Term |
BWR A4
Reaffirmation/ISSUER NOT COOPERATING* |
BWR A4
removal from ISSUER NOT COOPERATING* category/Reaffirmed |
|
| Grand Total | 34.00 | 34.00 | (Rupees Thirty Four Crores Only) | |||
The ratings of Fashion Knits ('The Firm') draws strength from the growth of operating income of the firm, moderate interest coverage and current ratio and extensive experience of the partners with strong procurement network. The ratings are however constrained by high gearing, stretched debt coverage ratio, and elongated working capital cycle. BWR believes Fashion Knits' business risk profile will be maintained over the medium term. The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term.
KEY RATING DRIVERSCredit Strengths:
The firm is located in Tirupur cluster and thus has a competitive advantage in terms of skilled labor, logistics, production knowledge and vendors making the company more efficient and cost effective.
The partners of the firm have three decades of experience. The firm also has three decades of operational existence in the textile industry and that has helped the firm establish strong trade relations which is being reflected in repeat orders.
The firm is in operational existence for three decades and the total operating income of the firm stood at Rs. 32.48Crs in FY21 as against Rs.53.43Crs in FY20. The decline in sales is due to covid-19 impacts. However, the firm's revenue has improved by ~ 71% in FY22 and stood at Rs.55.62Crs.
Withdrawal of capital by the partners for any personal contingency would adversely affect the capital structure of the firm.
The firm has a high gearing ratio indicated by Total debt/TNW at 4.28 times and TOL/TNW at 6.18 times in FY22 due to moderate net worth of Rs.12.15Crs. The debt protection metrics were below benchmark indicated by stretched DSCR in past two fiscal, that is, 0.50 times and 0.61 times in FY21 and FY22 respectively. The estimated DSCR figure for the current year indicate that it is going to remain below 1, indicating stress in liquidity for the foreseeable future.
Around ~85% - 90% of the firm’s revenue are being generated from export sales, hence the firm is susceptible to forex rate fluctuations. However, it is being partially mitigated as the firm has been sanctioned forward contract limit by the bank.
The customer base of the firm is concentrated in European countries. Top five customers contributes to ~70%~80% of the firm's revenue. Revenues and earnings depend on the performances of its key customers . Suppliers of the firm for raw material procurement are also majorly concentrated in Tirupur, Tamilnadu that amounts to more than 70%.
For arriving at its ratings, Brickwork Ratings (BWR) has considered the audited financials of FY20, FY21 and FY22, and projections for FY23 and FY24, and information/clarifications provided by the company’s management. BWR has applied its rating methodology as described in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale).
RATING SENSITIVITIES
Going forward, the ability of the firm to achieve projected revenue & profitability margins and manage liquidity would be the key rating sensitivities.
Positive: The ratings may be upgraded in case if there is a substantial improvement in the financial risk profile and debt protection metrics of the firm.
Negative: The rating may be downgraded in case there is a significant deterioration in the business , financial risk liquidity profile profile of the firm.
Liquidity position of the firm is stretched with the adjusted current ratio at 1.22 times in FY22 . The debt protection metrics were below benchmark indicated by stretched DSCR in past two fiscals, that is, 0.50 times and 0.61 times in FY21 and FY22 respectively. The estimated DSCR figure for the current year also indicate that it is going to remain below 1, indicating stress in liquidity for the foreseeable future.
ABOUT THE ENTITYFashion Knits, established in 1991, is a Tamil Nadu based partnership firm engaged in manufacturing of knitted garments. The firm’s operation includes purchasing yarn and converting it into the grey cloth and dyeing fabrics. The firm exports majorly to Europe.The firm purchases its raw materials majorly from Tirupur, Tamilnadu. The partners of the firm are Mr R Ramu and Mrs. R P Rajee.
| Standalone Financial Indicators (in ₹ crore) | Units | FY 21-22 (A) | FY 20-21 (A) | |
|---|---|---|---|---|
| Operating Revenue | Rs.Crs. | 55.62 | 32.48 | |
| EBITDA | Rs.Crs. | 5.88 | 4.11 | |
| PAT | Rs.Crs. | 2.03 | 0.91 | |
| Tangible Net Worth | Rs.Crs. | 12.15 | 10.03 | |
| Total Debt/TNW | Times | 4.28 | 4.99 | |
| Current Ratio | Times | 3.01 | 3.97 | |
|
* A:Audited UA:Unaudited P:Provisional PROJ:Projected
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Note: These are latest available financial results. All ratios as per BWR's calculations; Amount in ₹ crore
|
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ACUITE B+ (Downgraded from ACUITE BB-) / ACUITE A4 (Downgraded from ACUITE A4+) ; Issuer not co-operating*; as of January 19th, 2022.
RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)| Facilities | Current Rating (2022) | 2022 (History) | 2021 | 2020 | 2019 | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating | Date | Rating |
| Fund Based | LT | 0.00 |
NA
|
NA |
NA
|
NA |
NA
|
NA |
NA
|
11Feb2019 |
BWR BB- Stable
(Downgrade/ISSUER NOT COOPERATING*) |
| Fund Based | ST | 34.00 |
BWR A4
(removal from ISSUER NOT COOPERATING* category/Reaffirmed) |
25Mar2022 |
BWR A4
(Reaffirmation/ISSUER NOT COOPERATING*) |
NA |
NA
|
11Dec2020 |
BWR A4
(Reaffirmation) |
11Feb2019 |
BWR A4
(Downgrade/ISSUER NOT COOPERATING*) |
| Grand Total | 34.00 | (Rupees Thirty Four Crores 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.
Hyperlink/Reference to applicable Criteria| Analytical Contacts | |
|---|---|
|
S. Adithya Ratings Analyst adithya.s@brickworkratings.com |
Varadarajan R Associate Director - Ratings Board : +91 044 24663326 varadarajan.r@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 | Canara Bank | Packing Credit (PC)Sanctioned | _ | 28.00 | 28.00 | |
| 2 | Canara Bank | FDB/FBESanctioned | _ | 6.00 | 6.00 | |
| Total | 0.00 | 34.00 | 34.00 | |||
| TOTAL (Rupees Thirty Four Crores Only) | ||||||
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