Rating Rationale
December 04, 2024 | Mumbai
Finesse International Design Private Limited
Rating continues on 'Watch Negative'
 
Rating Action
Total Bank Loan Facilities RatedRs.27 Crore
Long Term RatingCRISIL A/Watch Negative (Continues on ‘Rating Watch with Negative Implications’)
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 continues its rating on the bank facilities of Finesse International Design Pvt Ltd (FIDPL, part of Aditya Birla Group) on ‘Rating Watch with Negative Implications’. Earlier on April 29, 2024, following a similar rating action on the company’s parent Aditya Birla Fashion and Retail Ltd (ABFRL; ‘CRISIL AA+/Watch Negative/CRISIL A1+’), FIDPL ratings had also been placed on ‘Rating watch with negative Implication’.

 

CRISIL Ratings placed ABFRL’s rating on watch with negative implications following an announcement it made on April 19, 2024, that its Board of Directors have approved a scheme of arrangement between ABFRL and Aditya Birla Lifestyle Brands Limited (‘ABLBL’) and their respective shareholders and creditors. The scheme, inter alia, provides for demerger, transfer and vesting of the Madura Fashion and Lifestyle Business (MF&L) from ABFRL into ABLBL. As the final rating of FIDPL factors in operational, managerial and ongoing financial support from the parent ABFRL, any rating action in the rating of the parent might have an impact on the rating of FIDPL.

 

CRISIL Ratings also takes note that ABFRL have received no observation / no objection letter from the stock exchanges pertaining to the scheme of arrangement among ABFRL, ABLBL, and their respective shareholders and creditors, and the said letters have a validity of six months, within which the scheme shall be submitted to the National Company Law Tribunal (NCLT). ABFRL has initiated the filing process with the NCLT, and the demerger is subject to requisite approvals and will be executed through a scheme of arrangement under the NCLT.

 

The rating reflects the strong managerial and financial support from the parent, ABFRL and favourable business prospects for luxury apparel retail in India. These strengths are partially offset by the small scale of operations of the company and its weak financial risk profile, driven by continued losses.

 

ABFRL has extended support to FIDPL through equity infusion to cover losses and debt obligation. The parent will also meet capital expenditure (capex) for store expansion, considering its focus on expanding presence in the ethnic apparels segment.

 

On a standalone basis, the business risk profile of the company remains constrained because of its small scale of operations. Revenue stood at Rs 85 crore in fiscal 2024, as against Rs 71 crore in fiscal 2023 driven by addition of 7 new stores during the fiscal. The company reported EBITDA (earnings before interest, tax, depreciation and amortisation, including other income) of Rs 10 crore in fiscal 2024 (Rs 7 crore in fiscal 2023). Revenue growth will be driven by store expansions and higher brand awareness.

 

The financial risk profile will be supported by the parent over the medium term, to cover losses and capex. ABFRL infused additional equity of Rs 20 crore in December 2023, increasing its stake to 63.50% from 58.69% in March 2023.

Analytical Approach

CRISIL Ratings has applied its parent notch-up framework and factored in the operational, managerial and need-based financial support from the parent, ABFRL.

Key Rating Drivers & Detailed Description

Strengths:

  • Financial support from the parent: FIDPL is a 63.5% subsidiary of ABFRL, and the latter has been funding the growth plans of the company. ABFRL infused equity of around Rs 60 crore as of December 2023 to fund the capex and meet operational losses of the company. FIDPL will continue to receive need-based support from the parent because of its strategic importance. Key personnel of ABFRL, including Mr. Ashish Dikshit, Managing Director, and Mr. Jagdish Bajaj, CFO, are on the board of FIDPL and are actively involved in daily operations, financial decisions and determining long-term strategy.

 

  • Healthy business prospects of the domestic organised retail sector: The share of organised retail in the overall retail industry is low. While under-penetration of the designer apparel segment provides ample headroom for growth, the presence of relatively less price-sensitive customers offers scope for better profitability, compared with other retail segments.

 

Weaknesses:

  • Small scale of operations: The company had limited presence with 21 stores across the major metro cities of India as on Jun 30, 2024, and modest operating income of Rs 85 crore in fiscal 2024 (Rs 71 crore in fiscal 2023). The scale of operations will improve with total stores expected to increase in the medium term.

 

  • Modest financial risk profile: The company reported EBITDA (including other income) of Rs 10 crore in fiscal 2024 (previous fiscal : Rs: 7 crore). The gross margin was healthy at 80-90%, which is offset by high overheads and suboptimal operating leverage on account of the small scale of operations. Operating profitability should improve with better leverage. Capital structure and debt protection metrics are likely to remain constrained over the medium term. Total borrowing of FIDPL stood at Rs 26 crore as on March 31, 2024, as against Rs 16 crore as on March 31, 2023. The parent, ABFRL, will continue to provide funding support for the expansion plans and operational losses of the company.

Liquidity: Adequate

Cash and equivalent stood at Rs 11 crore (including investments) as on March 31, 2024. Liquidity will remain supported by external debt, internal accrual and support from ABFRL. The company is expected to undertake a capex of Rs 10 crore per annum over the next three fiscals.

Rating sensitivity factors

Upward factors:

  • Upgrade in the credit rating of the parent, ABFRL, by one notch or any change in its stance of support or strategic importance
  • Significant and sustained increase in revenue and profitability
  • Material improvement in financial risk profile

 

Downward factors:

  • Downgrade in the credit rating of the parent, ABFRL, by more than one notch or change in the parent's stance of support or strategic importance
  • Lower-than-expected ramp-up in operations resulting higher losses weakening the credit risk profile

About the Company

FIDPL, incorporated under the provisions of the Companies Act, 1956, manufactures and retails high-end fashion clothing. The company was initially owned by India’s leading designers “Shantanu & Nikhil” and is primarily engaged in the business of occasional and ceremonial contemporary apparel for men and women under the brand name ‘Shantanu & Nikhil’.

 

On July 26, 2019, the existing shareholders of the company transferred certain equity shares to Aditya Birla Fashion and Retails Limited (“ABFRL or the Holding Company”). The company also allotted 2,38,570 equity shares of Rs. 10 each at a premium of Rs. 905.80 per share. Consequently, the Company became subsidiary of ABFRL with effect from July 26, 2019.

 

In December 2023, ABFRL increased its stake in Finesse to 63.50% from previously 58.69% by acquiring equity shares on rights basis aggregating Rs.20 crore.

About the Parent

ABFRL is the apparel retail venture of the Aditya Birla group, which merged the Madura division (formerly, a division of Aditya Birla Nuvo Ltd) with the erstwhile PFRL on January 9, 2016, with appointed date of April 1, 2015; PFRL was renamed ABFRL subsequent to the merger. The Madura division holds leading brands while the departmental stores are under Pantaloons. ABFRL acquired Forever 21 in India in 2016 to ramp up its fast fashion segment. As of September 2024, the company operated on a retail area of 12.0 million square feet with 4,121 brand outlets, 37,952 multi brand outlets, and 417 Pantaloons stores.

Key Financial Indicators - CRISIL Ratings Adjusted Financials

As on / for the period ended March 31

Unit

2024

2023

Reported operating income

Rs crore

85

71

Reported profit after tax (PAT)

Rs crore

-14

-12

PAT margin

%

-16.2

-16.4

Adjusted debt / adjusted networth (pre Ind-AS basis)

Times

1.12

1.31

Interest coverage (pre Ind-AS basis)

Times

-1.7

-3.7

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 the
instrument		 Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Working Capital Facility& NA NA NA 13 NA CRISIL A/Watch Negative
NA Term Loan NA NA 31-Mar-26 5 NA CRISIL A/Watch Negative
NA Term Loan NA NA 30-Sep-24 9 NA CRISIL A/Watch Negative

 & - non-fund based limit as sub-limits

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 27.0 CRISIL A/Watch Negative 11-09-24 CRISIL A/Watch Negative 23-02-23 CRISIL A/Stable   -- 01-12-21 CRISIL A/Stable --
      -- 22-07-24 CRISIL A/Watch Negative   --   --   -- --
      -- 29-04-24 CRISIL A/Watch Negative   --   --   -- --
      -- 19-04-24 CRISIL A/Stable   --   --   -- --
      -- 07-03-24 CRISIL A/Stable   --   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Term Loan 9 Axis Bank Limited CRISIL A/Watch Negative
Term Loan 5 ICICI Bank Limited CRISIL A/Watch Negative
Working Capital Facility& 5 ICICI Bank Limited CRISIL A/Watch Negative
Working Capital Facility& 8 Axis Bank Limited CRISIL A/Watch Negative
& - non-fund based limit as sub-limits
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
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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