| Mangla Apparels India Private Limited | ||||
| Rating outlook revised to 'Negative', rating reaffirmed | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has revised its outlook on the long-term rating of Mangla Apparels India Pvt Ltd (MAIPL) to 'Negative' from 'Stable' and reaffirmed the rating at 'CRISIL BBB'. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Established market position: The promoters' family has been in the Indian textile industry since 1930. This has enabled the promoters to establish healthy relations and strong tie-ups with multi-brand outlets (MBOs) such as Reliance Trends, Mega-Mart and Future Group (Big Bazaar). The strong brand equity, increasing retail footprint and robust in-house design team should continue to support the business. Operations span the spring, summer, autumn, and winter seasons, wherein catalogues are launched in-keeping with the latest trends. Revenues increased to an estimated Rs 265 crore in fiscal 2020 from Rs 240.8 crore the previous fiscal. The growth in topline is backed by increased brand presence due to continuous addition of exclusive brand outlets (EBOs) and MBOs ' particularly Reliance Trends, and the addition of kids wear to its product portfolio. However, this is partially offset by the concentration of sales through Reliance Trends outlets. Continued focus on design and marketing, despite intense competition, remains a key growth driver. * Moderate financial risk profile: Networth was estimated at a healthy Rs 102 crore, while total outside liabilities to tangible networth stood comfortable at 1.45 times as on March 31, 2020 supported by moderate profitability. The financial risk profile has been stable despite the large working capital requirement as dependence on working capital debt is low due to steady internal cash accrual. Debt-protection metrics have been comfortable with estimated interest coverage and net cash accrual to adjusted debt ratios of 4.0 times and 0.23 time, respectively, in fiscal 2020. The ratios are however likely to weaken in fiscal 2021 with the expected drop in profitability. Weaknesses: * Large working capital requirements: Working capital requirements are progressively increasing owing to high dependence on MBOs (60% of sales). Gross current assets were estimated at 297 days as on March 31, 2020 driven by large receivables and inventory of 200 and 100 days, respectively. The large inventory may expose the company to obsolescence risk if the designs are not in vogue. Also, garments of the previous season will have to be sold at a steep discount. * Exposure to intense competition from other domestic and global brands: Competition is increasing within the retail apparel segment. Though the company has been increasing its retail distribution network and advertising to capture growth and maintain brand awareness, other established brands, such as Indian Terrain, Numero Uno, Pepe Jeans, Van Heusen, and Allen Solly, along with various regional brands, are also embarking on similar strategies. Furthermore, MBOs, such as Reliance Trends, Shoppers Stop and Lifestyle are promoting their own in-house brands, which are priced lower than Crimsoune Club. |
| Liquidity Adequate |
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Cash accrual is expected at a mere Rs 4 crore in fiscal 2021 owing to the expected decline in revenue due to the measures taken to contain Covid-19 outbreak. However, it should comfortably cover debt repayment obligation of Rs 1.2 crore. With expected revival of business operations, cash accrual is likely to be Rs 16-17 crore (in-line with historical levels) in fiscal 2022, providing adequate cushion against expected repayment obligations of Rs 1.3-1.4 crore. Fund-based limit was utilised at a moderate 80.6% in the 12 months through March 2020, which provides financial flexibility. Moreover, funding support from the promoters in the form unsecured loans (increased to Rs 34.6 crore as on March 31, 2020 from Rs 31.3 crore a year ago) is expected to continue. |
| Outlook: Negative |
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CRISIL believes MAIPL's business risk profile will remain constrained over the medium term. |
| Rating Sensitivity factors |
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Upward Factors: * Stable revenue and profitability resulting in net cash accrual of more than Rs 8.0 crore * Improved working capital cycle Downward Factors: * Significant decline in revenue or operating margin (less than 6%) * Any stretch in working capital cycle, or large capex, weakens the financial risk profile |
| About the Company |
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MAIPL, promoted by Mr Vivek Aggarwal and his family, was incorporated in 2007. It manufactures garments for men, women and kids, and sells them under its Crimsoune Club brand and also supplies designer fabric to other apparel manufacturers either directly or through dealers. Its sells apparel primarily through four channels: MBOs, EBOs, Shop-in-Shop (SIS) and online. The company has three manufacturing facilities in Kundli (Haryana) and one in Noida (Uttar Pradesh). |
| Key Financial Indicators | ||||||||||||||||||||||||
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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) | |||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||
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| For further information contact: | ||||||
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