Rating Rationale
May 15, 2019 | Mumbai
Jinaams Dress Limited
Ratings upgraded to 'CRISIL BBB-/Stable/CRISIL A3'
 
Rating Action
Total Bank Loan Facilities Rated Rs.37 Crore
Long Term Rating CRISIL BBB-/Stable (Upgraded from 'CRISIL BB+/Stable')
Short Term Rating CRISIL A3 (Upgraded from 'CRISIL A4+')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has upgraded its ratings on the bank facilities of Jinaams Dress Limited (JDL) to 'CRISIL BBB-/Stable/CRISIL A3'from 'CRISIL BB+/Stable/CRISIL A4+'.
 
The ratings upgrade reflect improvement in JDL's business and financial risk profile supported by growth in revenue with enhanced profit margin in fiscal 2018 and 2019 and improvement in capital structure on back of equity infusion through initial public offering (IPO) in April, 2019.
 
Revenue increased to Rs 153 crore in fiscal 2018 from Rs 135 crore in fiscal 2017, estimated to be at Rs. 153 crores in fiscal 2019. The operating margin expanded to 12.66% in fiscal 2018 from 8.87% in fiscal 2017 and is estimated to be at similar levels for fiscal 2019. The expansion in operating margin was on back of materialization of cost benefits through backward integration. JDL has raised equity funds of Rs.42.48 crore through IPO resulting in improved networth base and capital structure. Accordingly, the TOLANW (total outside liabilities to adjusted net worth) is expected to improve to around 0.75 times during fiscal 2020 as against 2.48 times at the end of fiscal 2018. The liquidity scenario is also expected to improve with these funds being partially used for reduce working capital bank limit utilisation and for repayment of higher cost debt.
 
The ratings continue to reflect the company's established market presence supported by extensive experience of the promoters and a moderate financial risk profile. These rating strengths are partially offset by JDL's large working-capital requirements along with risks related to its proposed debt funded expansion.

Key Rating Drivers & Detailed Description
Strengths:
* Established market presence backed by experience of promoters
Supported by extensive experience of the promoters, JDL has established its position in domestic readymade garments markets for more than a decade. The promoters have maintained longstanding relations with customers while successfully navigating through several business cycles over the years.
 
* Moderate financial risk profile
Networth has been adequate at Rs 40.41 crore as on March 31, 2018, with moderate total outside liabilities to adjusted net worth ratio of 2.48 time. Also, interest coverage and net cash accrual to adjusted debt ratios were 3.12 times and 0.19 time, respectively, in fiscal 2018. Financial risk profile is expected to significantly improve over the medium term supported by equity infusion of Rs. 42.48 crores through IPO in April 2019.
 
Weaknesses:
* Large working capital requirement
Operations have been working capital intensive, with gross current assets, inventory, and receivables at 273 days, around 172 days, and 108 days, respectively, as on March 31, 2018.
 
* Exposure to risks related to its proposed debt funded expansion
The Company plans to incur capital expenditure (capex) to add machines and accessories to venture into new textile segment. The same is expected to be commissioned by fiscal 2020. Although the company has experience in implementing such expansion projects, timely completion of capex without any cost over-run is a rating sensitive factor.
Liquidity

JDL has moderate liquidity driven by expected cash accruals of more than Rs. 10 crore per annum in FY19 and FY20 and cash and cash equivalents of Rs.1.55 crore as on March 31, 2018. JDL also has access to bank limits of Rs.30 crore which were fully utilized over the 12 months ended March, 2019. The company has long term repayment obligations around Rs.6.27 crore and Rs. 5 crore each in FY19 and FY20 which will be funded through a mix of IPO proceeds and internal accruals. JDL plans to incur capex of around Rs.11 crore which will be funded through a mix of IPO proceeds and debt in the ratio of around 3:2. While financial closure is yet to be achieved for its capex plans, CRISIL expects internal accruals, cash & cash equivalents and IPO proceeds to be sufficient to meet its incremental working capital requirements and capex plans.

Outlook: Stable

CRISIL believes that JDL will continue to benefit over the medium term from its promoters' extensive experience in the RMG industry. The outlook may be revised to 'Positive' if significant and sustainable growth in scale of operations and profitability, and efficient management of working capital cycle result in sizeable net cash accruals. Conversely, the outlook may be revised to 'Negative' if low profitability and cash accruals, or large working capital requirements or unexpected large debt funded capital expenditures weaken the financial risk profile, particularly liquidity.

About the Company

Set up in 2002, in Surat, by Mr. Hemraj Oswal, JDL is engaged in manufacturing of Readymade Garments, primarily women's wear, which it sells under its own brands. Jinaam is currently managed by Mr. Rahul Oswal and his brothers Mr. Pritam Oswal and Mr. Vishal Oswal.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs crore 153.22 134.57
Profit after tax (PAT) Rs crore 7.83 2.92
PAT margin % 5.1 2.2
Adjusted debt/adjusted networth Times 1.68 1.79
Interest coverage Times 3.12 1.96

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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 cr.)
Rating Assigned
with Outlook
NA Bank Guarantee NA NA NA 0.24 CRISIL A3
NA Term Loan NA NA Mar-20 6.76 CRISIL BBB-/Stable
NA Cash Credit NA NA NA 30 CRISIL BBB-/Stable
 
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  36.76  CRISIL BBB-/Stable      30-08-18  CRISIL BB+/Stable  25-07-17  CRISIL BB+/Stable  02-11-16  CRISIL BB+/Negative  CRISIL BBB-/Stable 
Non Fund-based Bank Facilities  LT/ST  0.24  CRISIL A3      30-08-18  CRISIL A4+  25-07-17  CRISIL A4+  02-11-16  CRISIL A4+  CRISIL A3 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee .24 CRISIL A3 Bank Guarantee .24 CRISIL A4+
Cash Credit 30 CRISIL BBB-/Stable Cash Credit 30 CRISIL BB+/Stable
Term Loan 6.76 CRISIL BBB-/Stable Term Loan 6.76 CRISIL BB+/Stable
Total 37 -- Total 37 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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