Rating Rationale
September 03, 2020 | Mumbai
Fabindia Overseas Private Limited
Rating reaffirmed at 'CRISIL AA / Stable'; rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.240 Crore (Enhanced from Rs.90 Crore)
Long Term RatingCRISIL AA/Stable (Reaffirmed)
The common independent director on CRISIL Ratings’ and Fabindia Overseas Private Limited boards did not participate in the rating committee meeting and the rating process of these instruments.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities of Fabindia Overseas Private Limited (FOPL; part of the Fabindia group) at 'CRISIL AA/Stable'.
 
The reaffirmation reflects Fabindia group's strong business profile driven by established market position in the ethnic and handicraft retail segment and healthy operating efficiency. The financial risk profile remains comfortable marked by strong net worth, healthy debt protection metrics and adequate liquidity. These rating strengths are partially offset by majority of group's revenue generated from highly competitive apparel segment.
 
CRISIL expects the group's revenue to de-grow by 20-25% in fiscal 2021 due to covid-19 pandemic. While FOPL's revenue is expected to de-grow by 30-35%, revenue of subsidiary, Organic India Private Limited (Organic India) is expected to grow by 15-20%. Healthy growth in Organic India is attributable to increase in demand for herbal products and ramp up of operations of the new manufacturing unit.
 
Lower scale of operations will lead to decline in group's earnings before interest, taxes, depreciation and amortization (EBIDTA) in current fiscal. However, cost optimisation measures undertaken by the group and healthy ramp up of Organic India operations will support EBIDTA margin.
 
The impact on the business risk profile in fiscal 2021 would be mitigated by strong financial risk profile. Debt protection metrics are expected to remain comfortable with interest cover of above 4 times. Liquidity is expected to remain adequate over the medium term.
 
For fiscal 2020, Fabindia Group reported operating income of Rs 1,565 crore and EBITDA margin of 12% against Rs 1,457 crore and 17% respectively in the previous fiscal. The revenue and EBITDA were impacted in the last quarter of fiscal 2020 due to lockdown in March. Further, EBIDTA margin was also impacted due to costs incurred while shifting operations of Organic India to the new manufacturing plant.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of FOPL and its subsidiaries, Organic India Private Limited, Fabindia International Pte Ltd (FIPL); and also of the step-down subsidiaries under FIPL. These entities have been consolidated and are collectively referred to as the Fabindia group, since they have operational and financial linkages. CRISIL has also amortised the goodwill of Rs. 50.64 crore, pertaining to the acquisition of Organic India, over five fiscals from fiscal 2017.

Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths:
* Established market position through brand, Fabindia, in the ethnic and handicraft retail segment
Fabindia group has a strong brand positioning in the ethnic/handicraft retail segment with a product portfolio comprising of apparel, home products, personal care products and organic products. The group had 327 stores across India (as on March 31, 2020) and plans to gradually increase the number over the medium term, supported by a prudent expansion policy. Increased focus on effective marketing and promotion avenues like advertisements and loyalty points are expected to drive the growth of FOPL over medium term. Increasing focus on organic products by customers, tie ups with professionals working in the wellness field and better scale of operations is expected to drive growth of Organic India segment.
 
* Healthy operating efficiency supported by efficient supply chain management
Fabindia group operates in a niche segment of the retail industry and sources its products from over 55000 artisans in rural areas and sells them through its stores across India and abroad. The group has set up an efficient sourcing and supplier management system which fulfils its product requirements and maintains its healthy relationships with its suppliers. 17-18% reported over the years. Though EBIDTA margin for fiscal 2020 has declined and is expected to be lower for fiscal 2021 as well, CRISIL expects EBIDTA margin to revert to 17-18% over the medium term.
 
* Strong financial risk profile, marked by healthy debt protection metrics
The financial risk profile is marked by healthy debt protection metrics with interest cover expected to remain above 10 times in the medium term. Net debt which stood at Rs. 241 crore as on March 31st 2020, increased by Rs. 72 crore towards the end of the fiscal 2020 on account of disruption in operations. However, it is expected to revert to previous levels from fiscal 2021 onwards. Over the medium term, Fabindia group is expected to maintain strong financial risk profile driven by sufficient internal accruals, prudent expansion plans and management's policy of maintaining low leverage.
 
Weakness:
* Revenue concentration in the highly competitive apparel segment
Fabindia group operates in the highly competitive consumer retail market deriving almost 60% of its revenue from the apparel segment, where a large number of established players vie for consumer spends. The consumer retail segment will be impacted by relatively lower discretionary spending and impact of lockdown on consumer's income levels. While the acquisition of Organic India has benefitted the diversity of the Fabindia group, the dependence on apparel will continue to remain high.
Liquidity Strong

Liquidity remains strong with sufficient internal accruals of over Rs.95 crore in the medium term against repayment obligations of approx. Rs 40 crore along with capital expenditure (capex) requirement of Rs 35 crore per annum. Also, FOPL has fund-based bank limits of Rs.356 crore that were moderately utilised with average utilization of 52% for the 12 months ended June 2020.

Outlook: Stable

CRISIL believes that Fabindia group shall maintain its business risk profile, aided by enhanced diversity and established market position in the ethnic and handicraft retail segment, while its financial risk profile will remain strong, supported by its conservative financial policy.

Rating sensitivity factors
Upward factors
* Significant improvement in scale of operations with diversified revenues and operating margin of more than 20% on a sustainable basis.
* Sustained strong financial risk profile marked by minimal reliance on debt.
 
Downward factors   
* More than expected decline in revenue.
* Significant impact on operating performance with operating margin below 12% on consistent basis.
* Weakening of financial risk profile due to higher than expected debt funded capex/acquisitions.

About the Group

FOPL was established by the late John Bissell in 1960 to export upholstery fabrics, durries, and rugs to the US and other western countries. The company sells ethnic garments, home products, personal care products, organic foods, and jewellery under the Fabindia brand. FOPL commenced domestic sales in 1976, when it opened its first outlet in New Delhi. The company's high-growth phase began after 2004, following which it increased the number of domestic stores to 327 as on March 31, 2020, from 20 in 2004.
 
In fiscal 2017, FOPL divested its majority stake in its UK based subsidiary, East Lifestyle. Subsequently, East Lifestyle went into administration in January 2018.
 
Further, FOPL increased its stake in Organic India, a Lucknow-based organic herbal and health products firm to 53.45% in June 2016 from 40% earlier.
 
For fiscal 2020, Group's revenue and PAT are estimated to be Rs 1,565 crore and Rs 86 crore respectively.

Key Financial Indicators
As on / for the period ended March 31 Unit 2019 2018
Revenue Rs crore 1457 1336
Profit after tax Rs crore 101 83
PAT margin % 6.9 6.2
Adjusted debt/adjusted networth Times 0.33 0.30
Interest coverage Times 10.43 11.10
 

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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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 Issue Size
(Rs Crore)
Complexity level Rating Assigned
with Outlook
NA Cash credit NA NA NA 145 NA CRISIL AA/Stable
NA Term loan NA NA 17-Aug-24 40 NA CRISIL AA/Stable
NA Term loan NA NA 30-Jul-24 55 NA CRISIL AA/Stable
 
Annexure - List of entities consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
Fabindia Overseas Pvt Ltd Full Operational and financial linkages
Fabindia International Pte Ltd Full Operational and financial linkages
Fabcafe Foods Pvt Ltd Full Operational and financial linkages
Organic India Pvt Ltd Full Operational and financial linkages
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  240.00  CRISIL AA/Stable  26-08-20  CRISIL AA/Stable  11-06-19  CRISIL AA/Stable  29-05-18  CRISIL AA-/Positive  20-02-17  CRISIL AA-/Positive  CRISIL AA-/Stable 
Non Fund-based Bank Facilities  LT/ST      26-08-20  CRISIL A1+  11-06-19  CRISIL A1+  29-05-18  CRISIL A1+  20-02-17  CRISIL A1+  CRISIL A1+ 
All amounts are in Rs.Cr.
 
Annexure - Details of Bank Lenders & Facilities
Facility Name of Lender Amount (Rs.Crore) Rating
Cash Credit Citibank N. A. 10 CRISIL AA/Stable
Cash Credit HDFC Bank Limited 55 CRISIL AA/Stable
Cash Credit Kotak Mahindra Bank Limited 30 CRISIL AA/Stable
Cash Credit Standard Chartered Bank Limited 30 CRISIL AA/Stable
Cash Credit The Hongkong and Shanghai Banking Corporation Limited 20 CRISIL AA/Stable
Term Loan HDFC Bank Limited 55 CRISIL AA/Stable
Term Loan Standard Chartered Bank Limited 40 CRISIL AA/Stable

This Annexure has been updated on 2-Sep-2021 in line with the lender-wise facility details as on 19-Aug-2021 received from the rated entity.

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 Retailing Industry
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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