| Bhandari Hosiery Exports Limited | ||||||
| Ratings reaffirmed at 'CRISIL BBB- / Stable / CRISIL A3 ' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed rationale CRISIL Ratings has reaffirmed its ‘CRISIL BBB-/Stable/CRISIL A3’ ratings on the bank facilities of Bhandari Hosiery Exports Ltd (BHEL; part of the Bhandari group).
The ratings continue to reflect the company’s established market position, backed by the promoters' extensive experience in the textile industry and an above-average financial risk profile. These strengths are partially offset by susceptibility to volatility in cotton prices and large working capital requirement. |
Analytical approach Unsecured loan of Rs 9.09 crore provided by the promoters as on March 31, 2022, has been treated as neither debt nor equity because the loan is expected to remain in the business over the medium term. |
Key rating drivers and detailed description Strengths Established market position and extensive experience of the promoters The two-decade-long experience of the promoters and the comfortable market position of BHEL in the cotton yarn and grey and denim fabric segments should continue to support the business. Revenue remained stable and registered compounded annual growth rate of 5.8% over the five fiscals through 2022. Amid the Covid-19 pandemic, it dropped to Rs 226 crore in fiscal 2021, when the manufacturing unit was operational for only nine months. However, revenue crossed the pre-pandemic level in fiscal 2022, when it stood at Rs 283 crore. The company earned sales of Rs 46 crore in the first quarter of fiscal 2023, and revenue is expected at Rs 290-295 crore for the full fiscal.
Above-average financial risk profile The financial risk profile of BHEL has remained above average, as reflected in networth of Rs 88 crore and gearing of 1.2 times as on March 31, 2022. Gearing has remained at 1.1-1.3 times over the five fiscals through 2022. Networth is expected to increase further to Rs 95 crore as on March 31, 2023, with modest gearing of 1 time on account of healthy accretion to reserve and absence of any large debt-funded capital expenditure (capex). Debt protection metrics were adequate, indicated by interest coverage and net cash accrual to total debt ratios of 2.2 times and 0.11 time, respectively, in fiscal 2022. The metrics are expected to remain stable in fiscal 2023.
Weaknesses Large working capital requirement Operations are working capital intensive, as reflected in gross current assets of 180-210 days over the three fiscals through 2022, driven by inventory of 90-100 days and receivables of 75-90 days. The company maintains large inventory of yarn, fabric and dyes on account of its diverse product profile. Large working capital requirement has led to high bank limit utilisation. Any further stretch in the working capital requirement weakening the financial risk profile and liquidity will remain a key monitorable.
Exposure to volatility in cotton prices The cost of the key raw material, cotton, accounts for 80-85% of net sales. Any fluctuation in its price because of the vagaries of monsoon could impact profitability. Operating margin was 7-8% over the five fiscals through 2022 as the company is able to pass on increase in raw material prices to its customers with a lag of a quarter on account of its established market position and longstanding relationships with clients. |
Liquidity Adequate Cash accrual, expected at Rs 12-15 crore in fiscals 2023 and 2024, will be just about sufficient to meet yearly debt obligation of Rs 10-11 crore. Bank limit utilisation averaged 90% over the 12 months through July 2022 and is expected to remain high over the medium term on account of large working capital requirement. Improvement in the cushion between cash accrual and debt obligation remains a key monitorable. Current ratio was moderate at 1.68 times as on March 31, 2022. |
Outlook: Stable BHEL will continue to benefit from the extensive experience of its promoters. |
Rating sensitivity factors Upward factors
Downward factors
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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 established in 1942 to trade in knitted cotton garments. |
Key financial indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: 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.crisil.com/complexity-levels. 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 Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 19-Oct-2022 in line with the lender-wise facility details as on 22-Oct-2021 received from the rated entity.
Criteria Details
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