| Aero Club | ||||||
| Rating outlook revised to 'Positive'; ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities | ||||||
| Detailed Rationale |
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CRISIL has revised its outlook on the long-term bank facilities of Aero Club (part of the Aero group) to 'Positive' and reaffirmed the ratings at 'CRISIL BBB'; also short term rating reaffirmed at 'CRISIL A3+'. |
| Analytical Approach |
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For arriving at the ratings, CRISIL has combined the business and financial risk profiles of Aero Club, Earthline Apparels Pvt Ltd (Earthline), Bora Knitwear Pvt Ltd (Bora), Jiwand Singh & Sons, Avtar Singh & Sons, College Shoes and Indo Apparels Pvt Ltd (Indo). This is because these entities, collectively referred to as the Aero group, are in similar lines of business and have the same promoters. |
| Key Rating Drivers & Detailed Description |
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Strengths * Stable business risk profile The Aero group's home-grown brand, Woodland, has been present in India for over 20 years, and is well known in the leather footwear market, both in the men's and women's segments. The diversified product profile also includes WOODS, an apparel and high-end footwear brand. Aero Club's retail stores increased from 350 in fiscal 2014 to 587 in fiscal 2018 and has total retail space of 1 million square feet (sq ft) as on March 31, 2018. CRISIL expects additions to retail space to continue at a moderate pace (20 stores per annum) over the medium term. Benefits from the group's established brand presence and diversified product portfolio should support business. * Moderate operating efficiency Operating margin, at 13-17% over the past three years, is expected to remain at 14-16% over the medium term with the increasing contribution of apparels to the group's revenues, reduced dependence on imports and increase in proportion of broken-even stores and expansion in capacity utilisation. * Adequate financial risk profile Post infusion of equity, total debt is estimated to have reduced to Rs 612 crore as on March 31, 2018 from Rs 771 crore as on March 31, 2017. As a result, debt metrics such as interest coverage is likely to improve to above 2.74 times in fiscal 2019 compared to 1.79 times in fiscal 2017. Financial risk profile is likely to improve gradually with increasing cash generation, lower capex requirement and expected efficient working capital cycle. Weakness * Large working capital requirement Manufacturing leather and leather goods is a working-capital-intensive process mainly because of the long processing period of over two months. Furthermore, the group has a policy of maintaining base inventory of 1500 to 2000 pairs per store at all times resulting in higher finished good inventory of 130-150 days. Aero Club's initiative to reduce dependence on imports for its key raw material (leather) over next 2 years is expected to result in lower raw material inventory days in the medium term. Further, Aero Club is taking initiatives to rationalise finished goods inventory through better planning and forecast, which will result in reduction in finished goods inventory over the next three years. Finished goods inventory increased to 179 days in fiscal 2017 from 117 days in fiscal 2014. * Exposure to intense competition The footwear industry is highly fragmented, with the unorganised sector accounting for 70% of the market share. Furthermore, given the increasing presence of international brands in India, competition is expected to increase. CRISIL, however, believes that the brand visibility of Woodland will help Aero group maintain its market position. |
| Outlook: Positive |
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CRISIL believes that Aero Club will continue to benefit from the established market position of its flagship brand 'Woodland' and its extensive distribution channel. Financial risk profile is also expected to improve supported by steady cash flows from operations, healthy capital structure and adequate liquidity. |
| About the Company |
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Aero Club, a partnership firm set up in 1992 by Mr Avtar Singh and Mr Harkirat Singh, manufactures shoes and garments under the Woodland and Woods brands. The Woodland brand was launched in 1992. The firm has set up its own network of exclusive showrooms and franchise outlets promoting its brands. Aero Club operates 587 exclusive showrooms as on March 31, 2018. |
| Key Financial Indicators | ||||||||||||||||||||||||
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Any other information: Not applicable |
| 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) | ||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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