| Rainbow Fabart Private Limited | ||||||
| Rating outlook revised to 'Stable'; Ratings reaffirmed and withdrawn | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the long-term facilities of Rainbow Fabart Private Limited (RFPL) to ‘Stable’ from ‘Negative’ while reaffirming the rating at ‘CRISIL BB+’. The short-term rating has been reaffirmed at ‘CRISIL A1+’. The ratings have been withdrawn subsequently at the company’s request, and on receipt of a no-objection certificate from its bankers. The action is in line with the policy of CRISIL Ratings for withdrawal of ratings on bank facilities.
The revision in outlook factors in improvement in operating efficiency and financial risk profile of RFPL. Operating margin rose to 7% estimated in fiscal 2021, from 2.3% in fiscal 2020, aided by a drop in employee cost. Profit after tax also grew significantly to Rs 2.5 crore estimated in fiscal 2021. Interest coverage ratio estimated at 3.3 times for the fiscal 2021 also reflects an improvement in the financial risk policy. |
Key Rating Drivers & Detailed Description Strengths: Promoter's extensive experience: The strong market position in the women and children garments segments, and the healthy relationship with reputed customers such as Zara, Bershka, Mango, Next, Reliance Trends, and the Future group, should continue to support the business.
Presence of more than two decades in the ready-made garment export industry have helped the promoters to build strong understanding of industry dynamics.
Comfortable capital structure: The total outside liabilities to adjusted networth ratio, estimated at 1.77 times as on March 31, 2021, is expected at 1.7--1.9 times over the medium term. Comfortable capital structure is on account of healthy networth (estimated at Rs 24 crore as on March 31, 2021). In the wake of no major debt-funded capital expenditure (capex) plans, capital structure should remain comfortable over the medium term.
Weakness: Working capital-intensive operations: Gross current assets, inventory, and debtors were estimated at 276, 166, and 98 days, respectively, as on March 31, 2021. High inventory is primarily because of orders put on hold by the customers due to weak market sentiments in catered economies. A part of the working capital requirement has been met through payables (estimated at 377 days as on March 31, 2021) while the rest is covered by working capital bank lines. Operations are expected to remain working capital intensive over the medium term.
Moderate scale of revenue amid high customer and geographic concentration in revenue: Revenue is estimated around Rs 63 crore in fiscal 2021, against Rs 68.87 crore in fiscal 2020. Decline in the revenue is primarily because of economic slowdown leading to weaker demand of the non-essential commodities in the catered economies. Further a significant portion of the sale is from only one customer i.e. Zara, leading to customer as well as geographic concentration of the revenue. It further limits scalability of the company as any slowdown in the catered economy may adversely impact the business. Company's scale is expected to improve over the medium term owing to revival of the economy. |
Liquidity: Adequate In the absence of maturing debt obligations, cash accrual, expected at Rs 2-3 crore in each fiscal over the medium term, is likely to supports working capital requirements of the company. Further, bank lines of Rs 20 crore were moderately utilized 64.93% in the 14 months through Aug-21. Funding support from promoters in the form of unsecured loans have been withdrawn in FY21. |
Outlook: Stable CRISIL Ratings believe that RFPL will continue to benefit from the extensive experience of the promoters. |
Rating Sensitivity factors Upward Factors Sustained improvement in scale of operation and stable operating margin, leading to cash accrual of over Rs 4 crore Improvement in working capital cycle
Downward Factors Decline in scale of operations or profitability margin leading to net cash accrual of less than Rs 1.5 crore Large debt-funded capex weakens the capital structure Increase in working capital requirements weakens the financial risk profile, especially liquidity. |
About the Company RFPL was formed as a partnership firm by Mr Rajeev Mehta in 1992, and reconstituted as a private limited company in 2003, based in Noida, Uttar Pradesh. The company manufactures and exports premium fashion garments for women and children. |
Key Financial Indicators
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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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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 Bank Lenders & Facilities | ||
| Facility | Amount (Rs.Crore) | Rating |
| Export Packing Credit | 20 | CRISIL BB+/Stable (Outlook Revised, Rating Reaffirmed and Withdrawn) |
| Foreign Exchange Forward | 1.5 | CRISIL A4+ (Rating Reaffirmed and Withdrawn) |
| Letter of Credit | 2.5 | CRISIL A4+ (Rating Reaffirmed and Withdrawn) |
| Proposed Long Term Bank Loan Facility | 0.1 | CRISIL BB+/Stable (Outlook Revised, Rating Reaffirmed and Withdrawn) |
| Standby Line of Credit | 3 | CRISIL A4+ (Rating Reaffirmed and Withdrawn) |
| Term Loan | 2.9 | CRISIL BB+/Stable (Outlook Revised, Rating Reaffirmed and Withdrawn) |
Criteria Details
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