| Raymond UCO Denim Private Limited | ||||||
| Rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL BBB-/Stable/CRISIL A3’ ratings on the bank facilities of Raymond UCO Denim Private Limited (Raymond UCO).
The ratings continue to reflect the strong position of the company in the premium denim segment, its diversified clientele and efficient working capital management. The ratings also factor in the proportional financial support it receives from its 50% joint venture (JV) owner, Raymond Ltd (Raymond; ‘CRISIL AA/Stable/CRISIL A1+’; ‘CRISIL AA-/Watch Developing’). These strengths are partially offset by modest financial risk profile and susceptibility to volatility in raw material prices and foreign exchange (forex) rates and to intense competition.
Raymond UCO’s consolidated operating performance in the first six months of fiscal 2024 was modest, with revenue at Rs 413 crore and earnings before interest, tax, depreciation and amortisation (Ebitda) loss of Rs 2 crore, owing to decline in export despite support from domestic sales. While performance is expected to be better in the second half of the fiscal, moderate operating profitability will result in continued profit after tax (PAT) loss, pressure on debt and coverage metrics and further delay in turnaround. Though working capital management has been efficient, expected refinancing of working capital debt through term loan of Rs 100 crore will provide additional funding and cushion liquidity. Further support required from the promoters will be forthcoming, as demonstrated in the past.
In February 2023, the JV partners had infused equity totalling Rs 50 crore, shared equally. This was in addition to the Rs 125 crore equity and Rs 20 crore debt infusion in fiscal 2022, shared equally, and resulted in improvement in the credit metrics, with gearing and total outside liabilities to tangible networth ratio improving to 1.69 times and 2.80 times, respectively, as on March 31, 2023, from 2.79 times and 4.91 times, respectively, a year earlier.
Operating income will remain impacted by subdued export demand over the near-to-medium term while domestic demand will remain robust. Further, operating margin is expected at a modest 2-3% owing to Ebitda loss in the first half of fiscal 2024, with material improvement expected from the next fiscal, which is a key monitorable.
Prudent working capital management and fund infusion by the promoters have supported liquidity, with fund-based utilisation moderating to 61% on average over the six months through August 2023 from 80-85% a year ago. The JV partners remain committed to provide timely support to Raymond UCO and the extent of support remains a key monitorable. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of Raymond UCO and its wholly owned subsidiaries and JVs, collectively referred to as Raymond UCO, because all these entities are in related businesses and have the same management.
CRISIL Ratings has revised its analytical approach and is now assessing the credit risk profile of Raymond UCO. However, CRISIL Ratings continues to factor in the support it receives from its 50% JV owner, Raymond Ltd.
Please refer Annexure – List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Strong position in the premium denim segment, backed by a diversified clientele Raymond UCO has strong market position in the global and domestic denim markets and is one of the largest denim manufacturers in India, with installed capacity of 43 million metre per annum (mmpa). Revenue is split evenly between the domestic and overseas markets. Key clients include Tommy Hilfiger, French Connection, Levis Strauss, DKNY, Celio and Guess. The company is continuously adding clients in both the domestic as well as international markets.
Strong operational and financial support from Raymond Raymond UCO is a value-added proposition for its 50% JV owner, Raymond. The JV manufactures denim fabric and garments, completes the value chain and provides Raymond with a global platform internationally. Raymond UCO is important to the business strategy of Raymond as it offers product, revenue and geographic diversity. UCO NV, the other partner in Raymond UCO, functions primarily as an investment arm; however, any financial support is shared equally. The company has a small manufacturing unit in Romania, which handles technical know-how and research and development activities for the JV.
Raymond and UCO NV have extended financial support to Raymond UCO in the form of additional equity and debt (including subordinate debt) aggregating Rs 230 crore as on March 31, 2023. Both the JV partners infused Rs 50 crore equity, shared equally in February- 2023.
Weaknesses: Modest financial risk profile The financial risk profile remains constrained by large debt, high gearing and modest debt protection metrics. Debt-funded capital expenditure (capex) undertaken in the past and sizeable working capital requirement have kept the debt high. The company had inventory and receivables of 99 and 55 days, respectively, as on March 31, 2023, compared with 81 and 100 days, respectively, a year earlier, while payables stood at 77 days, against 137 days. Driven by modest Ebitda, the financial risk profile will likely remain average over the medium term.
Exposure to volatility in raw material prices and forex rates The denim industry is raw material-intensive, and thus, input prices (primarily cotton) account for half of the total cost of sales. Operating margin, hence, is susceptible to fluctuations in cotton prices. With the global market contributing to around 50% of the revenue, Raymond UCO remains vulnerable to volatility in forex rates.
Susceptibility to cyclicality and intense competition The denim industry is highly cyclical, with periods of excess capacity following tight demand-supply conditions, because of the small gestation period in setting up a manufacturing unit. The number of denim manufacturers offering a variety of value-added products has also increased over the years. |
Liquidity: Adequate Cash and equivalent stood at Rs 7 crore as on June 30, 2023. Working capital limit (fund- and non-fund-based) utilisation moderated to 54% on average over the six months through August 2023 from more than 70% a year earlier. Liquidity will be supported by improved availability under fund-based lines following term loan refinancing and need-based support from the promoters. The company should be able to meet annual debt obligation of Rs 16-17 crore in the next two fiscals and yearly capex of Rs 3-4 crore over the medium term through its internal accrual. |
Outlook: Stable CRISIL Ratings believes the operating performance of Raymond UCO will improve gradually over the medium term supported by better demand. However, debt protection metrics will remain modest in the near term. |
Rating Sensitivity Factors Upward Factors
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About the Company Raymond UCO, incorporated in 2006, is an equal JV between Raymond and UCO NV, Belgium. The company manufactures denim fabric and garments. It has capacity of 49 mmpa in Yavatmal, Maharashtra, and 7 mmpa in Giurgiu, Romania. It also has a garmenting unit in Bengaluru, with manufacturing capacity of 1.8 mmpa. |
About the JV partners Raymond Incorporated in 1925, Raymond is one of the leading integrated producers of worsted suiting fabrics globally. On standalone basis, the company manufactures fabric and has production capacity of 38 mmpa. It offers more than 20,000 designs and colours of suiting fabric and exports to over 55 countries.
The company operates in two major segments: lifestyle and engineering. Lifestyle includes suiting, garments, apparel, denim and shirting; engineering includes tools and hardware and automotive components. Raymond has 13 plants across Maharashtra, West Bengal, Gujarat, Madhya Pradesh and Karnataka.
UCO NV UCO NV, incorporated in 1750, was a textile major, with interests in denim, flat, filament fabric and yarn. It used to manufacture a diverse collection of denim for leisure wear, focusing on innovative high value-added fabrics. It has sold the denim business and now acts as an investment entity. |
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure: Details of instrument(s)
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Annexure: List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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