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CRISIL has downgraded its rating on the long-term bank loan facilities of Mahameru Fashion Apparel Ltd (MFAL) to ‘B-/Negative’ from ‘B/Negative’; the rating on the short-term facilities has been reaffirmed at ‘P4’. The downgrade reflects CRISIL’s belief that MFAL will face pressure in repayment of its term loan instalment commencing from June 2010. This is because of MFAL’s weakened liquidity as a result of cash losses incurred in 2008-09 (refers to financial year, April 1 to March 31) and 2009-10. Its cash accruals are inadequate for meeting its large, maturing debt in 2010-11. The company is expected to apply for restructuring the term loan; however; this is unlikely to be sanctioned before the due date of the first instalment payment. However, MFAL’s parent, Busana Apparel Group, Indonesia (BAG) is likely to provide adequate funds to ensure timely servicing of the loan. CRISIL expects MFAL’s liquidity to remain weak over the medium term till its operations break-even.
The ratings reflect MFAL’s low revenue visibility (as it is a new player in the garment exports business), below average financial risk profile, marked by high gearing and poor debt-protection indicators, and exposure to risks relating to intense competition and fragmented industry. These weaknesses are partially offset by the benefits that MFAL derives from its new plant, and the operational and financial support that it receives from BAG.
Outlook: Negative
CRISIL believes that MFAL’s liquidity to be stretched over the medium term because of its inadequate operational cash flows vis-à-vis its upcoming term-debt-related repayments. The rating may be downgraded if MFAL continues to incur losses, leading to significant deterioration of its financial risk profile, or if it defaults on its term debt obligation. Conversely, the outlook may be revised to ‘Stable’ if MFAL gets its term debt obligation restructured, and generates robust revenue growth and profitability, while maintaining its capital structure, upon full stabilisation of its new facility.
About the Company
Incorporated in 2006 by Mr. M. Maniwanen and Mr. M. Arunachalam, MFAL manufactures woven garments for export. Mr. Maniwanen, a non-resident Indian, is also the promoter of BAG, which manufactures garments and generated a turnover of Rs.10 billion in 2007. Mr. Arunachalam also has businesses in Hong Kong and India. MFAL commenced commercial production in December 2008.
For 2008-09, MFAL reported a net loss of Rs.16 million on net sales of Rs.10.6 million.
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