CRISIL has downgraded its ratings on the bank facilities of Asian Leather Ltd (ALL) to ‘BBB-/Stable/P3’ from ‘BBB/Negative/P3+’. The downgrade reflects severe pressure on ALL’s business risk profile because of steep year-on-year decline in its revenues in 2009-10 (refers to financial year, April 1 to March 31) arising out of significant reduction in export orders during the year. The downgrade also reflects CRISIL’s belief that the ALL’s business risk profile will remain weak in the medium term because of the company’s high reliance on few customers for substantial portion of its revenues.

The ratings continue to reflect healthy financial profile of the company marked by low gearing and healthy debt protection measures and promoter’s experience having longstanding relationship with its clients. However the strengths are mitigated by ALL’s exposure to risks relating to customer concentration in the revenue profile and its limited pricing power on account of extensive competition.

Outlook: Stable
CRISIL believes that ALL will maintain its financial risk profile over the medium term, on the back of its comfortable capital structure, as also because the company has not planned any major debt-funded capital expenditure (capex) for the medium term. However, the company’s business risk profile will remain weak, given the customer concentration in its revenue profile. The outlook may be revised to ‘Positive’ if ALL reduces it customer concentration by diversifying into new markets, and reports sustainable increase in revenues. Conversely, the outlook may be revised to ‘Negative’ in case of any further degrowth in sales or deterioration in profitability, or if the company undertakes fresh debt-funded capex programme.

About the Company
Promoted in 1992 by Mr. N Kalwani, ALL is in the business of manufacturing women’s bags, wallets, and purses. The company exports its products to Europe, the US, Australia, and South Africa, and has reputed clientele, which includes large retailers, such as Tesco, Wal-Mart, GCT International, Hamled, and My Lady.

ALL reported a profit after tax (PAT) of Rs.24 million on net sales of Rs.492 million for 2008-09, against a PAT of Rs.6 million on net sales of Rs.471 million for 2007-08.