Rating Rationale
April 09, 2019 | Mumbai
Lifestyle International Private Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.445 Crore (Reduced from Rs.590 Crore)
Long Term Rating CRISIL AA/Positive (Reaffirmed)
 
Rs.100 Crore Commercial Paper (Reduced from Rs.250 Crore) CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL ratings on the bank loan facilities and debt programme of Lifestyle International Private Limited (LIPL) continue to reflect LIPL's established market position in the departmental stores category, diversified revenue profile, and healthy operating efficiency. The ratings also factor in healthy long-term growth prospects for the organised retail sector, and the company's robust financial risk profile. These strengths are partially offset by the moderate susceptibility of LIPL's performance to economic cycles, increasing competition in the apparel retail and furniture segments, and risks related to sizeable expansions.
 
CRISIL has withdrawn its rating on Rs 150 crores of commercial paper programme on confirmation from the Issuing and Paying Agent as not outstanding and also withdrawn its rating on Rs 145 crore of proposed term loan facility. The rating withdrawn is in line with CRISIL's policy.
 
Earlier on March 29, 2019, CRISIL had revised its outlook on the long-term bank loan facilities to 'Positive' from 'Stable' and reaffirmed the ratings at 'CRISIL AA'. CRISIL has also reaffirmed the rating on the commercial paper programme of LIPL at CRISIL A1+.
 
CRISIL expects LIPL to sustain healthy double digit revenue growth of around 15-20% over the medium term, driven by healthy prospects for organized brick and mortar retailers, steady like-to-like store performance and continued addition of new stores. The value fashion business, which includes 'Max' and 'Easybuy' verticals, accounting for 40% of revenues, is expected to register the fastest growth driven by large store openings, faster breakeven and healthy like-to-like growth from existing stores. Earlier, revenue growth slowed down to 13% for 9 months ending December 2018, as the company undertook renovations at 5-6 of its large stores simultaneously. Growth thereafter has recovered, as these stores have become operational.
 
LIPL's operating profitability is expected to improve to over 9% during fiscal 2019, from an average of 8.3% during the past three years ended fiscal 2018, despite continuous store additions. Improvement in store profitability in 'Lifestyle' and 'Max' division, improving operating efficiencies in 'Home Center' division and expected breakeven of 'Easybuy' division are expected to aid the improvement in profitability. Also, the high proportion of stores which have broken even is expected to absorb gestation losses from the new stores, thereby providing stability to profitability.
 
Complementing LIPL's strong business performance is its robust financial risk profile. Healthy annual cash generation, and prudent capital expenditure (capex) as well as working capital management, has led to minimal reliance on debt, translating into robust credit protection metrics; these are expected to be sustained despite annual capex of Rs.320-375 crores over the medium term.

Analytical Approach

For arriving at the ratings of LIPL, CRISIL has not consolidated the business and financial risk profile of LIPL and group company, Max Hypermarket India Pvt Ltd (Max Hyper, rated 'CRISIL BB+/Stable'). This is because the two companies are separate legal entities without any operational dependence.

Key Rating Drivers & Detailed Description
Strengths:
* Established position in departmental stores segment and diversified revenue profile
LIPL is among the top three players in the domestic departmental store format with an area of 70.03 lakh square feet as on December 31, 2018. The company benefits from its diversified revenue profile due to its presence in the premium apparel segment ('Lifestyle' division - 48% of revenues during for fiscal 2018), value fashion segment ('Max' and 'Easybuy' divisions - 40% of revenues), and furniture, home furnishings & household items ('Home Center' division - 11% of revenues).
 
LIPL also benefits from the Landmark group's extensive retail experience of over 40 years particularly its sourcing strength in the Home Center and Max divisions.
 
The company has a pan India presence, which adds to geographical diversity of its revenues. Its future plans too, involve opening stores across the country, including in tier II & III cities, strengthening its position in India.
 
* Healthy operating efficiency
LIPL's operating efficiency is improving and supported by the increasing proportion of broken even stores, strong revenue growth (estimated CAGR of over 18% over 3 years ended fiscal 2019), healthy revenue per square foot (expected to be around Rs.13,000 per annum in fiscal 2020 as against Rs.11,000 in fiscal 2016) and well managed working capital cycle. This is reflected in LIPL's strong return on capital employed of 54.2% in fiscal 2018. CRISIL expects LIPL's healthy operating efficiencies will help sustain its strong performance over the medium term.
 
* Healthy long-term growth prospects for domestic organized retail industry
CRISIL believes the organized brick & mortar retail sector is expected to grow at 17-18% over the medium term, driven by India's demographic advantages, such as a growing middle class with increasing disposable incomes. The apparel retail vertical will continue to remain attractive for the organized players, driven primarily by higher gross margins and increasing brand consciousness.
 
* Robust financial risk profile
LIPL has a robust financial risk profile, marked by a debt free balance sheet as of December 2018. Strong cash generation as well as prudent capital spending and working capital management have enabled it to limit reliance in debt.
 
LIPL is expected to undertake annual capex of ~Rs.320 - 375 crore over the medium term, funded largely through accruals. Besides, the company is also expected to pay out moderate portion of profits as dividend to its promoter. CRISIL believes the inter-corporate deposits to its associate, Max Hyper, is not expected to increase from current levels. Further, LIPL is likely to sustain its robust financial risk profile over the medium term.
 
Weakness
* Moderate susceptibility of operating performance to economic down-cycles and to large annual addition of stores
The branded apparel segment relies heavily on the disposable income of its customer segment and is susceptible to economic cycles because of the discretionary nature of purchases. Furthermore, large expansion by retailers can lead to pressure on their operating margins as earnings from existing stores may not adequately offset losses from high proportion of new stores added. While large portion of LIPL's stores have broken even, significant improvement in its operating profitability from here on, is unlikely due to gestation losses from new stores. The renovation of some of the high grossing Lifestyle stores in fiscal 19 is likely to have a bearing on revenue growth and profitability though offset by stronger growth from 'Max' and 'Easybuy' segments.
 
* Exposure to increasing competitive intensity in apparel and furniture retail segment
The attractiveness of the apparel segment is expected to lead to increasing competition in the sector. For instance, large global apparel brands, including The GAP Inc (rated 'BB+/Watch Neg' by S&P Global Ratings), Aeropostale Inc and H&M Hennes & Mauritz AB, have entered the Indian markets in the recent past. CRISIL expects the entry of global apparel brands is expected to continue over the medium term. The competitive intensity is also increasing due to increasing presence of the domestic brands. Further, the furniture segment of the 'Home Center' vertical is facing intense pressure, due to increasing competitive intensity, including from online retailers. The company has reworked its strategy in this space, which has resulted in improvement in profitability in fiscal 2018.
Liquidity

LIPL has strong liquidity. The company is estimated to generate sufficient cash accruals of over Rs.550 crore over the medium term, as against current nil long term debt obligations. The liquidity is also supported by nil to low utilisation of its Rs.355 crore of bank lines in the current fiscal. LIPL's financial flexibility is also supported by the promoters' willingness to infuse equity when required; the promoters infused equity of Rs.360 crore to fund capex, incremental working capital requirements, and losses between fiscal 2007 and fiscal 2012. LIPL has charted a medium-term expansion plan, entailing an investment of around Rs.320-375 crore per annum, which will be funded through internal accruals.

Outlook: Positive

CRISIL believes LIPL's business risk profile will continue to benefit over the medium term from its strong franchise, leading to faster-than-industry growth, and healthy operating efficiency. Also, its financial risk profile is expected to remain healthy over the medium term.
 
Upside Scenario:
* Continued strong operating performance, leading to healthy compounded annual growth rate of over 15%in revenues while sustaining it operating profitability
 
Downside Scenario:
* Significant weakening of operating margins, mostly due to large gestation losses from new stores
* Larger than expected debt funded capex, leading to LIPL's TOL/TNW ratio exceeding 2 times
* Higher than expected payout to promoters/support to Max Hyper

About the Company

LIPL, incorporated in 1997, is a part of the Landmark group, led by Mr. Mukesh Jagtiani, which has business interests mainly in the retail segment in the Middle East and North African (MENA) region besides Asia; the group is also present in the hospitality and healthcare sectors.
 
LIPL set up its first Lifestyle departmental store in 1999 in Chennai. It had 76 Lifestyle departmental stores, 42 Home Centre outlets, 260 Max stores, 64 Easybuy stores and 13 stores for its Exclusive Business Outlets (EBOs) with a combined retail space of 70.03 lakh square feet as on December 31, 2018. Lifestyle operates primarily in the premium apparel segment, footwear, watches and fashion accessories, while Max operates mainly in the value apparel segment. Home Centre operates in the furniture, household goods, and home furnishings segment. Easybuy is an affordable, family retailer operating in regional towns.

Key Financial Indicators
As on March 31 Unit 2018 2017
Revenue Rs. Cr. 7,516 6,435
Profit After Tax Rs. Cr. 405 268
PAT margins % 5.4 4.2
Adjusted Debt/Adjusted Net worth Times 0.02 0.04
Interest coverage Times 125.67 39.14

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. Crs.) Rating Assigned with Outlook
NA Cash Credit NA NA NA 355 CRISIL AA/Positive
NA Proposed Cash Credit Limit NA NA NA 90 CRISIL AA/Positive
NA Commercial Paper NA NA 7-365 days 100 CRISIL A1+
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
Commercial Paper  ST  100.00  CRISIL A1+  29-03-19  CRISIL A1+  05-03-18  CRISIL A1+  10-07-17  CRISIL A1+  08-09-16  CRISIL A1+  CRISIL A1+ 
                28-02-17  CRISIL A1+       
Fund-based Bank Facilities  LT/ST  445.00  CRISIL AA/Positive  29-03-19  CRISIL AA/Positive  05-03-18  CRISIL AA/Stable  10-07-17  CRISIL AA/Stable  08-09-16  CRISIL AA-/Stable  CRISIL A+/Positive 
                28-02-17  CRISIL AA-/Positive       
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
Cash Credit 355 CRISIL AA/Positive Cash Credit 355 CRISIL AA/Positive
Proposed Cash Credit Limit 90 CRISIL AA/Positive Proposed Cash Credit Limit 90 CRISIL AA/Positive
Proposed Term Loan 145 Withdrawn Proposed Term Loan 145 CRISIL AA/Positive
Total 590 -- Total 590 --
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
Rating Criteria for Retailing Industry
CRISILs Criteria for rating short term debt

For further information contact:
Media Relations
 Analytical Contacts
 Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com

Vinay Rajani
Media Relations
CRISIL Limited
D: +91 22 3342 1835
M: +91 91 676 42913
B: +91 22 3342 3000
vinay.rajani@ext-crisil.com

 Anuj Sethi
Senior Director - CRISIL Ratings
CRISIL Limited
B:+91 44 6656 3100
anuj.sethi@crisil.com

Gautam Shahi
Director - CRISIL Ratings
CRISIL Limited
D:+91 124 672 2180
gautam.shahi@crisil.com

Rahim Dhanani
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 22 4047 2651
rahim.dhanani@crisil.com 		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
 
We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
 
For more information, visit www.crisil.com 

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.

CRISIL PRIVACY
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.

DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.CRISIL or its associates may have other commercial transactions with the company/entity.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL