Rating Rationale
April 29, 2021 | Mumbai
Safari Industries India Limited
Ratings Reaffirmed at 'CRISIL A-/Stable/CRISIL A2+'
 
Rating Action
Total Bank Loan Facilities RatedRs.150 Crore
Long Term RatingCRISIL A-/Stable (Reaffirmed)
Short Term RatingCRISIL A2+ (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A-/Stable/CRISIL A2+’ ratings on the bank facilities of Safari Industries India Ltd (Safari).

 

The outbreak of Covid-19 pandemic and the resultant nation-wide lockdown, restrictions on travel, weddings and closure of education institutions, malls and hypermarkets, starting from the middle of March 2020, significantly impacted company’s operating performance.

 

Revenue is estimated to have dropped by 50-60% and profitability was subdued in fiscal 2021. While demand saw a pick up especially starting Q3FY21 supported by opening up of the economy and price discounts offered, the current resurgence in Covid-19 infection rate has again led to imposition of strict restrictions, which may prolong the recovery in revenue.

 

Various cost control measures adopted by the management starting FY21, have partially restricted the negative impact of the sales shock and price discounts, on the profitability. These cost control measures are expected to continue and should help the company to be profitable in fiscal 2022, despite the slower recovery expected in revenue.

 

The overall impact on the operating performance, though significant, is expected to be transitionary and is likely to gradually recover over medium term.

 

Additionally, despite the impact of pandemic, the financial risk profile has remained strong with marginal debt and healthy capital structure. The company has also recently raised Rs 75 crore through issuance of compulsory convertible debentures (CCD). This coupled with unutilized bank lines has helped the company to build a strong liquidity buffer to tide over the current situation.             

 

The ratings continue to reflect an established market position in the Indian luggage industry and a strong financial risk profile. These strengths are partially offset by working capital-intensive operations and exposure to volatility in foreign exchange (forex) rates and input prices.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of Safari and its fully owned subsidiary, Safari Lifestyles Ltd (SLL). This is because the two companies, together referred to as Safari, are in the same line of business with operational synergies, and have a common management.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths

  • Established brand in the luggage industry: The organised Indian luggage industry is oligopolistic in nature. Safari is one among the largest luggage brand domestically and claims market share of around 17-18% in the oligopolistic organised luggage sector. A pan India distribution network, comprising over 3,500 customer touch points, and an established product portfolio, further strengthen its market position.

 

  • Strong financial risk profile: The networth was healthy at Rs 229.1 crore as on March 31, 2020, (Rs 197.5 crore as on March 31, 2019). The total outside liabilities to adjusted networth ratio was comfortable at 0.8 time as on March 31, 2020, and is likely to improve to less than 0.5 times, over the medium term. The company is expected to be almost debt free as on March 31 2021 and debt levels are likely to remain marginal over the medium term. The financial risk profile is expected to remain strong, backed by healthy cash accrual and absence of any debt-funded capital expenditure (capex), over the medium term

 

Weaknesses

  • Exposure to volatility in raw material prices and forex rates: Profitability is susceptible to prices of imported soft luggage and raw materials, which account for 45-50% of operating cost. Any sharp fluctuation is likely to impact the operating margin. Majority of the soft luggage is imported against nil exports. While forex exposure is mitigated through forward contracts, profitability continues to be susceptible to volatility in forex rates.

 

  • Working capital-intensive operations: Gross current assets (GCAs) were high at 171 days, driven by debtors and inventory of 78 days and 95 days, respectively, as on March 31, 2020. While debtors are expected to be sustained at 80-90 days, inventory is likely to improve to around 90 days over the medium term. The improvement in inventory is backed by lower import of luggage from China and higher revenue contribution from hard luggage, which is manufactured in India and has lower inventory levels. Change in the product mix and local procurement is expected to reduce reliance on China, over the medium term.

Liquidity: Strong

Net cash accruals is expected to be over Rs 20-45 crore per annum over the medium term against nil debt obligations. Average bank limit utilisation was 42% over the 12 months through December 2020. The current ratio was at 2.05 times as on March 31, 2020, and is expected to remain healthy, over the medium term. The company recently raised Rs 75 crore through issuance of CCD, the proceeds remain as liquid asset and strengthens the liquidity profile of the company. The accrual, along with an unutilised portion of bank limits and liquid assets, would provide ample liquidity to meet incremental working capital requirement and capex, over the medium term.

Outlook: Stable

CRISIL Ratings believes that the business risk profile is expected to be benefited by a strong distribution network and robust positioning in the mid- to lower-segment of the market.

Rating Sensitivity Factors

Upward Factors:

  • Sustained growth in revenue and market share; and improvement in operating margins to above 12% leading to better cash accruals
  • Improvement in working capital cycle and low reliance on external debt sustains healthy financial risk profile

 

Downward Factors:

  • Slower than expected recovery in revenue over the medium term and operating margins sustained below 6%, weakening net cash accruals
  • Stretch in working capital cycle or large debt funded capex/acquisition weakens the financial risk profile

About the Company

Safari was incorporated in 1980 by Mr Mehta and family. The company was taken over by Mr Sudhir Jatia in 2012. It manufactures and sells luggage under the brand, Safari. The manufacturing unit is in Halol, Gujarat. Safari is listed on both Bombay Stock Exchange and National Stock Exchange

Key Financial Indicators

Particulars

Unit

2020

2019

Revenue

Rs.Crore

689

578

Profit After Tax (PAT)

Rs.Crore

30.7

27.2

PAT Margin

%

4.5

4.7

Adjusted debt/adjusted networth

Times

0.3

0.5

Interest coverage

Times

7.1

12.0

 

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of instrument

Date of

allotment

Coupon

rate (%)

Maturity date

Complexity Levels

Issue size

(Rs.Crore)

Rating assigned

with outlook

NA

Fund-Based Facilities

NA

NA

NA

NA

23.8

CRISIL A-/Stable

NA

Non-Fund Based Limit

NA

NA

NA

NA

27.5

CRISIL A2+

NA

Working Capital Facility

NA

NA

NA

NA

98.7

CRISIL A-/Stable

 

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Safari Industries India Ltd

Full Consolidation

Parent company, in the same line of business with operational synergies, and have a common management.

Safari Lifestyles Ltd

Full Consolidation

Wholly owned subsidiary, in the same line of business with operational synergies, and have a common management.

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 122.5 CRISIL A-/Stable   -- 31-03-20 CRISIL A-/Stable   -- 21-12-18 CRISIL A-/Positive CRISIL A-/Stable
      --   --   --   -- 14-12-18 CRISIL A-/Positive CRISIL BBB/Positive
Non-Fund Based Facilities ST 27.5 CRISIL A2+   -- 31-03-20 CRISIL A2+   -- 21-12-18 CRISIL A2+ CRISIL A2+
      --   --   --   -- 14-12-18 CRISIL A2+ --
All amounts are in Rs.Cr.
 
 
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Fund-Based Facilities 23.8 CRISIL A-/Stable Fund-Based Facilities 23.8 CRISIL A-/Stable
Non-Fund Based Limit 27.5 CRISIL A2+ Non-Fund Based Limit# 27.5 CRISIL A2+
Working Capital Facility 98.7 CRISIL A-/Stable Working Capital Facility# 98.7 CRISIL A-/Stable
Total 150 - Total 150 -
#Fully fungible between fund based and non-fund based facilities
Criteria Details
Links to related criteria
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Fast Moving Consumer Goods Industry
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation
The Rating Process
Understanding CRISILs Ratings and Rating Scales
CRISILs Bank Loan Ratings

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