Rating Rationale
December 02, 2024 | Mumbai
Bhandari Hosiery Exports Limited
Ratings upgraded to 'CRISIL BBB/Stable/CRISIL A3+'
 
Rating Action
Total Bank Loan Facilities RatedRs.125.91 Crore
Long Term RatingCRISIL BBB/Stable (Upgraded from 'CRISIL BBB-/Stable')
Short Term RatingCRISIL A3+ (Upgraded from 'CRISIL A3')
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has upgraded its ratings on the bank facilities of Bhandari Hosiery Exports Ltd (BHEL) to ‘CRISIL BBB/Stable/CRISIL A3+’ from ‘CRISIL BBB-/Stable/CRISIL A3’.

 

The upgrade factors in the improvement in the business risk profile of the company supported by increase in operating margin to 10.65% in the first half of fiscal 2025 (9.5% in fiscal 2024). This increase was driven by commencement of operations post capital expenditure (capex) for printed fabric from March 2024, leading to an increased share of value-added products. Operating income is expected at Rs 270-280 crore for full fiscal 2025 (Rs 267 crore in fiscal 2024). Improvement in the operating income and sustenance of operating margin above 10% will remain key monitorable. Net cash accrual is expected to be over Rs 15 crore in fiscal 2025.

 

The ratings also factor in the expected improvement in the debt protection metrics, with interest coverage ratio expected around 3 times in fiscal 2025 (2.26 times in fiscal 2024) driven by prepayment of term debt and reduction in working capital utilisation through rights issue of Rs 48 crore in fiscal 2025.

 

The ratings reflect the company’s established market position, backed by the promoters' extensive experience in the textile industry, and comfortable financial risk profile. These strengths are partially offset by susceptibility to volatility in cotton prices and large working capital requirement.

Analytical Approach

CRISIL Ratings has considered the standalone business and financial risk profiles of BHEL.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position, and extensive experience of the promoters: The three-decade-long experience of the promoters and the comfortable market position of BHEL in the cotton yarn and grey and denim fabric businesses will continue to support the business. Revenue is expected to grow by 3-5% to Rs 270-280 crore in fiscal 2025 (Rs 267 crore in fiscal 2024); the company has achieved revenue of around Rs 126 crore in the first half of fiscal 2025.

 

  • Comfortable financial risk profile: The financial risk profile improved following a rights issue, through which BHEL raised Rs 48 crore in August 2024. Networth is expected to improve to above Rs 150 crore as on March 31, 2025 (Rs 105.6 crore as on March 31, 2024). These funds have been utilised for the prepayment of debt (prepayment of ~Rs 15 crore), leading to improvement in the capital structure; gearing is expected to improve to 0.5-0.6 time as on March 31, 2025, from 1.05 times as on March 31, 2024. Reduction in debt, along with improved profitability, will lead to better debt protection metrics. Interest coverage and net cash accrual to adjusted debt ratios are expected around 3 times (2.3 times in fiscal 2024) and 0.2 time (0.1 time in fiscal 2024), respectively, in fiscal 2025.

 

Weaknesses:

  • Large working capital requirement: Operations are working capital intensive, as reflected in gross current assets (GCAs) of 200-230 days over the three fiscals through 2024, driven by inventory of 100-130 days and receivables of 80-90 days. The company maintains a large inventory of yarn, fabric and dyes on account of its diverse product profile. GCAs are expected at 240-250 days as on March 31, 2025. A further stretch in the working capital cycle, weakening the financial risk profile and liquidity, will remain monitorable.

 

  • Susceptibility to volatility in cotton prices: The cost of the key raw material, cotton, accounts for 80-85% of net sales. Any fluctuation in price because of the vagaries of monsoon could impact profitability. Operating margin was 8-9% over the five fiscals through 2024 as the company is able to pass on an increase in raw material prices to customers, albeit with lag of a quarter. The operating margin is expected to be 10-11% in the near term driven by benefits from sale of printed fabrics.

Liquidity: Adequate

Net cash accrual, expected at Rs 15-20 crore per annum, will comfortably cover yearly debt obligation of Rs 5.5-6.0 crore over the medium term. Bank limit utilisation was 84% on average for the 12 months through October 2024. Current ratio was 1.48 times and cash and equivalent stood at Rs 1.92 crore as on March 31, 2024.

Outlook: Stable

BHEL will continue to benefit from the extensive experience of its promoters.

Rating sensitivity factors

Upward factors

  • Increase in operating income by 30-35% and sustenance of operating margin at 10-11% leading to higher net cash accrual
  • Efficient working capital management

 

Downward factors

  • Decline in revenue or operating profitability leading to lower cash accrual and net cash accrual to repayment obligation ratio below 1.5 times
  • Further stretch in the working capital cycle or large debt-funded capex weakening the financial risk profile and liquidity.

About the Company

Incorporated in 1994, BHEL manufactures high-fashion knitted garments at its unit in Ludhiana, Punjab. Operations are managed by Mr Naresh Bhandari and Mr Nitin Bhandari. The company is part of the Bhandari group, which was set up in 1942 to trade in knitted cotton garments.

Key Financial Indicators

As on / for the period ended March 31

 

2024

2023

Operating income

Rs crore

266.7

283.3

Reported profit after tax (PAT)

Rs crore

5.7

5.8

PAT margin

%

2.15

2.05

Adjusted debt / adjusted networth

Times

1.05

1.02

Interest coverage

Times

2.26

2.27

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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 Issue Size (Rs. Crore) Complexity Levels Rating Outstanding with Outlook
NA Bank Guarantee NA NA NA 0.20 NA CRISIL A3+
NA Cash Credit NA NA NA 78.00 NA CRISIL BBB/Stable
NA Fund-Based Facilities NA NA NA 0.24 NA CRISIL BBB/Stable
NA Proposed Fund-Based Bank Limits NA NA NA 16.20 NA CRISIL BBB/Stable
NA Standby Line of Credit NA NA NA 2.00 NA CRISIL BBB/Stable
NA Working Capital Demand Loan NA NA NA 10.13 NA CRISIL BBB/Stable
NA Term Loan NA NA 31-Mar-28 19.14 NA CRISIL BBB/Stable
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 125.71 CRISIL BBB/Stable   -- 07-09-23 CRISIL BBB-/Stable / CRISIL A3 19-10-22 CRISIL BBB-/Stable / CRISIL A3 22-10-21 CRISIL BBB-/Stable / CRISIL A3 CRISIL A3+ / CRISIL BBB/Stable
      --   -- 17-03-23 CRISIL BBB-/Stable / CRISIL A3   -- 20-05-21 CRISIL A3+ / CRISIL BBB/Negative --
Non-Fund Based Facilities ST 0.2 CRISIL A3+   -- 07-09-23 CRISIL A3 19-10-22 CRISIL A3 22-10-21 CRISIL A3 CRISIL A3+
      --   -- 17-03-23 CRISIL A3   -- 20-05-21 CRISIL A3+ --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 0.2 State Bank of India CRISIL A3+
Cash Credit 10 HDFC Bank Limited CRISIL BBB/Stable
Cash Credit 41 State Bank of India CRISIL BBB/Stable
Cash Credit 10 The South Indian Bank Limited CRISIL BBB/Stable
Cash Credit 17 Union Bank of India CRISIL BBB/Stable
Fund-Based Facilities 0.24 State Bank of India CRISIL BBB/Stable
Proposed Fund-Based Bank Limits 16.2 Not Applicable CRISIL BBB/Stable
Standby Line of Credit 2 State Bank of India CRISIL BBB/Stable
Term Loan 19.14 State Bank of India CRISIL BBB/Stable
Working Capital Demand Loan 0.91 Union Bank of India CRISIL BBB/Stable
Working Capital Demand Loan 1.18 Union Bank of India CRISIL BBB/Stable
Working Capital Demand Loan 4.2 State Bank of India CRISIL BBB/Stable
Working Capital Demand Loan 1.4 The South Indian Bank Limited CRISIL BBB/Stable
Working Capital Demand Loan 2.44 HDFC Bank Limited CRISIL BBB/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Cotton Textile Industry

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