Rating Rationale
December 04, 2024 | Mumbai
Indivinity Clothing Retail Private Limited
Rating continues on 'Watch Negative'
 
Rating Action
Total Bank Loan Facilities RatedRs.70 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 ratings on the bank facilities of Indivinity Clothing Retail Pvt Ltd (ICRPL; part of the 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+’), ICRPL ratings had also been placed on ‘Rating watch with negative Implication’.

 

CRISIL Ratings had placed ABFRL’s rating on watch with negative implications in April 2024, 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 ICRPL 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 ICRPL.

 

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 ratings continue to reflect the strong operational, managerial and financial support from the parent, ABFRL, and the favourable business prospects of the ethnic apparel business. These strengths are partially offset by nascent stage of operations and exposure to risks owing to major capital expenditure (capex) and intense competition.

 

Revenue doubled to Rs 100 crore during fiscal 2024 from Rs 49 crore in fiscal 2023. Revenue is expected to grow by 20-25% in the medium term supported by aggressive store expansion and the strong reputation of the designer, Tarun Tahiliani. The company added 6 new stores in the first quarter of the current fiscal taking the overall store count to 63 as on June 30, 2024. The company plans to add around 30 stores per annum over the medium term.

 

Company reported Earnings before interest, tax, depreciation, and amortisation (EBITDA) loss (including other income) at Rs 70 crore during fiscal 2024 (as against Rs. 60 crore during the previous fiscal). The nascent stage of operations coupled with negative operating leverage shall lead to continued EBITDA losses over the near to medium term

 

ABFRL will cover the losses of ICRPL during the ramp-up phase as well as capex of Rs 30 crore per annum over fiscal 2025 to 2027. The parent has investment equity of Rs 154 crore and provided intercorporate deposits of around Rs 190 crore as on March 31, 2024.

Analytical Approach

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

Key Rating Drivers & Detailed Description

Strengths:

  • Strong operational, managerial and financial support from the parent: The company is 80% owned by ABFRL and 20% by Mr. Tarun, a leading fashion designer in the premium ethnic wear segment. Key personnel of ABFRL, such as Mr. Ashish Dikshit, MD, and Mr. Jagdish Bajaj, CFO, are on the board of the company. The parent provides back-end support, such as logistics management, while front-end operations, such as design and marketing, are handled by Mr. Tarun.

 

  • Healthy business prospects for the ethnic wear segment in India: Mr Tarun is one of the leading designers in the luxury and premium ethnic wear segments and enjoys strong brand advantage over competitors. The company’s brand TASVA is targeted to give the Indian consumer a new range of celebration wear. The share of organised retailers in the designer apparels segment is low, providing ample headroom for growth. Furthermore, customers are less price-sensitive, which provides robust pricing power, compared with other retail segments.

 

Weaknesses:

  • Nascent stage of operations: The company plans to add around 30 stores per annum over the medium term to expand its presence; it is expected to achieve revenue around Rs 150 crore by fiscal 2026. Being a fixed cost-intensive business, the company is likely to suffer operational losses over the medium term. However, the parent will cover the losses as well as capex during the stabilisation phase.

 

  • Exposure to risks related to large capex and intense competition: The company has planned an annual capex of Rs 30 crore over the medium term to be funded through a mix of debt and funds from parent. However, as the business is fixed cost-intensive, a lower-than-expected ramp-up in operations may lead to significant weakening in profitability. Although Tarun Tahiliani is a strong brand, it remains exposed to risks related to competition and changing customer preferences. Scale of operations and profitability will remain monitorable.

Liquidity: Adequate

The company is expected to incur cash losses over the medium term which, along with the annual capex of Rs. 30 crore will be covered by the parent. As on March 31, 2024, cash and equivalent stood at around Rs 98 crore (including investments).

Rating sensitivity factors

Upward factors

  • An 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 scale and profitability
  • Material improvement in financial risk profile

 

Downward factors

  • Downgrade in the credit rating of 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 in higher losses, weakening the credit risk profile of the company

About the Company

ICRPL was acquired in 2021 by ABFRL (80% stake) by way of Share Subscription and Shareholders Agreement. The company operates in the premium ethnic wear segment and offers high quality, sophisticated celebration wear for men. The combined expertise of Mr. Tarun and ABFRL will enable the brand, TASVA, to make a strong impact in the market.

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

 

2024

2023

Revenue

Rs crore

100

49

Profit after tax (PAT)

Rs crore

-163

-68

PAT margin

%

-163.21

-136.81

Adjusted debt / adjusted networth (pre Ind-AS)

Times

3.89

0.44

Interest coverage (pre Ind-AS)

Times

-6.90

-27.09

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 Cash Credit / Overdraft facility* NA NA NA 5.00 NA CRISIL A/Watch Negative
NA Working Capital Facility* NA NA NA 15.00 NA CRISIL A/Watch Negative
NA Term Loan NA NA 31-Mar-27 50.00 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 70.0 CRISIL A/Watch Negative 11-09-24 CRISIL A/Watch Negative 17-03-23 CRISIL A/Stable 18-05-22 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
Cash Credit / Overdraft facility& 5 ICICI Bank Limited CRISIL A/Watch Negative
Term Loan 50 ICICI Bank Limited CRISIL A/Watch Negative
Working Capital Facility& 15 ICICI 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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