CRISIL has upgraded its ratings on Abhitex International (Abhitex’s) bank facilities to ‘B+/Stable/P4’ from ‘D/P5’.

The upgrade reflects timely servicing of debt by Abhitex since October 2009. CRISIL believes that Abhitex will generate sufficient cash accruals to service its term debt obligations over the medium term.

For arriving at its rating, CRISIL has combined the business and financial risk profiles of Abhitex, Paliwal Overseas Pvt Ltd (POPL), and Paliwal Infrastructure Pvt Ltd (PIPL), together referred to as the Paliwal group. This is because the entities have a common promoter, and derive considerable financial synergies from each other. PIPL shares 12 per cent of Abhitex’s profits and POPL owns 20 per cent of PIPL’s equity shares. The promoter has expressed intent to consolidate the group structure over the medium term.

For the earlier rating, CRISIL had only combined the financial and business risk profiles of Abhitex and POPL. The change in the analytical approach follows increased financial linkages of these two entities with PIPL.

The ratings reflect the Paliwal group’s exposure to risks associated with intense competition in home furnishing segment along with high geographic and customer concentration in revenue profile, and constrained financial flexibility. These rating weaknesses are partially offset by the group’s established market position in the manufacturing home furnishings, high occupancy rate at its commercial property, and its moderate financial risk profile marked by moderate gearing and debt protection metrics.

Outlook: Stable
CRISIL believes that the Paliwal group will continue to benefit from its long-standing presence in the home furnishings market and high occupancy rate at its commercial properties in Bangalore and Hyderabad. The group’s financial risk profile is expected to remain moderate marked by moderate gearing and debt protection metrics. The outlook may be revised to ‘Positive’ if the group’s debt protection metrics improve beyond expectation, driven by increase in cash accruals because of more-than-expected improvement in operating profitability. Conversely, the outlook may be revised to ‘Negative’ if the group’s debt protection metrics deteriorate significantly because of decline in profitability or larger-than-expected debt-funded capital expenditure.

About the Group
Abhitex is a partnership firm set up by Mr. Avinash Paliwal and family in 1993. The firm manufactures handloom products in the home textiles segment. Its units are located in Panipat (Haryana). Abhitex’s products include tufted products, bath mats, rugs, organic towels, beach towels, and terry towels. In 2009-10 (refers to financial year, April 1 to March 31), it added cotton blankets and terry towels to its product portfolio. More than 80 per cent of Abhitex’s revenues come from exports.

Established by Mr. Avinash Paliwal in 1985, POPL manufactures and exports handloom products, including rugs, bath sheets, and bath mats. In 2004, the company purchased a commercial building, RMZ Titanium, in Bengaluru, and receives rentals of around Rs.120 million every year from this property. In 2008-09, POPL purchased a commercial property in Shalimar Bagh (Delhi) which is currently vacant. For POPL, its management intends to close the textile division and focus on leasing properties over the medium term.

PIPL was established in 2000 by Mr. Avinash Paliwal. The company bought a commercial property, RMZ Futura, in Hyderabad, from RMZ Corp in 2005, and has leased out the property to several tenants, including entities in the Deloitte group. PIPL acquired the property for Rs.2.15 billion, funded through bank debt of Rs.1.45 billion, lease deposits of Rs.250 million, and promoters’ funds. RMZ Futura, an approved software technology park, has over 0.38 million square feet of leaseable area, generating rental income of about Rs.340 million per annum.

Abhitex reported a book profit of Rs.1.5 million on net sales of Rs.1.67 billion for 2009-10 (refers to financial year, April 1 to March 31), against book profit of Rs 1.08 million on net sales of Rs.1.46 billion for 2008-09.