Detailed Rationale

Crisil Ratings continues its rating on the bank facilities of Jaypore E-Commerce Pvt Ltd (JEPL; 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, rated ‘Crisil AA+/Watch Negative/Crisil A1+’), JEPL ratings had also been placed on ‘Rating watch with negative Implication’.

 

The ratings were placed on watch with negative implications on April 29, 2024, following an announcement on April 19, 2024, by the company that its board of directors have approved a scheme of arrangement between ABFRL and Aditya Birla Lifestyle Brands Ltd (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 to ABLBL. The MF&L business comprises four lifestyle brands (Louis Phillippe, Van Heusen, Allen Solly and Peter England), casual wear brands (American Eagle and Forever 21), a sportswear brand (Reebok) and an innerwear brand (Van Heusen). The balance retail portfolio, inclusive of Pantaloons (Masstige), along with the ethnic, luxury and digital portfolios will remain under ABFRL. As the final rating of JEPL 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 JEPL.

 

Crisil Ratings has taken note of the completion of fundraise by ABFRL of around Rs. 4,239 crore in January 2025. Out of the total fundraise of Rs. 4,239 crore, around Rs. 2,379 crore is raised through preferential issue and balance is raised from QIP issuance. The preferential issue has been subscribed by Pilani Investment and Industries Corporation Ltd (Pilani, rated ‘Crisil AA+/Stable/Crisil A1+’), part of the Promoter Group aggregating Rs. 1,298 crore at an issue price of Rs. 307.45 per share and ‘Qualified Institutional Buyers’ aggregating Rs. 1,081 crore at an issue price of Rs. 272.37 per share. Crisil Ratings will continue to engage with the management of ABFRL and monitor developments in regard to the demerger and will resolve the watch after consummation of the transaction.

 

The rating reflects strong operational, managerial and financial support from the parent, ABFRL, and the favourable business prospects for the domestic ethnic products segment. These strengths are partially offset by the nascent stage of operations of JEPL and exposure to intense competition.

 

Revenue in fiscal 2024 was Rs 80 crore against Rs 76 crore in fiscal 2023, driven by increased store expansion. Reported earnings before interest, tax, depreciation and amortisation (EBITDA) loss (including other income) narrowed to Rs 22 crore in fiscal 2024 from Rs 25 crore in fiscal 2023. JEPL had 27 stores as on June 30, 2023. Total borrowings rose to Rs 101 crore as on March 31, 2024, from Rs 48 crore as on March 31, 2023, with capital structure and debt protection metrics muted on account of losses.

 

The company plans capital expenditure (capex) of Rs 15-20 crore over the fiscal period 2025-27 for new store addition. The parent has articulated it will fund losses as well as capex till the operations of JEPL stabilise.

Analytical Approach

Crisil Ratings has applied its parent notch-up framework and factored in the operational, managerial and need-based financial support JEPL will receive from ABFRL. Crisil Ratings has also evaluated the business and financial risk profile of JEPL on a standalone basis, as the company has no subsidiaries, associate companies, or joint ventures.

Key Rating Drivers & Detailed Description

Strengths:

• Strong operational, managerial and financial support from the parent, ABFRL: JEPL is a wholly owned subsidiary of ABFRL. Key personnel of ABFRL, including Managing Director, Mr. Ashish Dikshit and chief financial officer Mr. Jagdish Bajaj, are on the board of JEPL and are actively involved in its daily operations, as well as in financial and long-term strategy decisions.

 

• Benefits expected from healthy business prospects for the domestic ethnic products segment: Jaypore is a prominent ethnic brand. It is one of India's leading brands for all things craft and artisanal across apparel, jewellery and home products. The small share of organised retailers in the designer apparel segment indicates room for growth. Furthermore, customers are less price-sensitive, which provides scope for better pricing power compared to other retail segments.

 

Weaknesses:

• Nascent stage of operations: The scale of operations is small with only twenty-seven stores in place, which are reeling from operational losses. The company plans to increase the store count to over 30 by fiscal 2025 to expand its presence and achieve topline of over Rs 120 crore by the next couple of fiscals. Due to the high fixed costs in the business, JEPL will likely incur operational losses in the initial years owing to sub-optimal operating leverage. However, the parent is likely to fund the losses as well as capex during the stabilisation phase.

 

• Exposure to intense competition: The premium ethnic products segment has several large and established brands such as Manyavar, Fabindia and W. JEPL operates on a smaller scale compared with these players, and hence faces intense competition. The company plans to increase its store count to 30-35 over the next three years to garner a reasonable slice of the market share. However, due to the high fixed costs in the business, a lower-than-expected ramp-up in operations could significantly dent profitability. This will remain monitorable.

Liquidity: Adequate

The company is likely to incur cash losses over the medium term, which will be funded by the parent. Capex of Rs 15-20 crore over fiscals 2025-27 is expected to be funded through support from the parent.

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 substantial losses.

About the Company

JEPL is a 100% subsidiary of ABFRL acquired in June 2019 for Rs 110 crore. Jaypore was set up in 2012 by Mr Puneet Chawla and Ms Shilpa Sharma as an online platform to service the US market. However, the co-founders saw huge demand in the domestic market and Jaypore was launched in India in 2013. Angel investor, Mr Haresh Chawla, and Aavishkaar Venture Fund were among its early investors. Challenges in accelerating sales growth over the past three years prompted the sale to ABFRL.

 

Jaypore is a prominent ethnic brand, renowned for making artisanal products. It sells apparel and accessories and has presence in both online and offline retail. It provides a curated collection of handmade and handcrafted apparel, jewellery and home textiles sourced from across India through its own website. It deals in ethnic fashion merchandise under its own brand as well as third-party brands. JEPL sources from more than 70 craft clusters and curates them on its website Jaypore.com.

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 December 2024, the company operated on a retail area of 11.9 million square feet with around 4,080 brand outlets, 38,206 multi brand outlets, and 412 Pantaloons stores.

Any other information: Not Applicable