Rating Rationale
July 28, 2017 | Mumbai
Rupa & Company Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.293 Crore (Reduced from Rs.345 Crore)
Long Term Rating CRISIL A+/Positive (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.180 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities and commercial paper of Rupa & Company Limited (Rupa; part of the Rupa group) at 'CRISIL A+/Positive/CRISIL A1+'.

The ratings reflect a strong business risk profile driven by an established position in the domestic innerwear industry, a robust marketing and distribution network, and well-recognised brands. The ratings also factor in a healthy financial risk profile because of a robust capital structure and strong liquidity, along with sound financial flexibility, supported by adequate cash accrual and positive cash flows from operations. These rating strengths are partially offset by large, though reducing, working capital requirement, and exposure to intensifying competition in the domestic innerwear industry.

Analytical Approach

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of Rupa and its wholly owned subsidiaries, Euro Fashion Inners International Pvt Ltd (Euro), Imoogi Fashions Pvt Ltd (Imoogi), and Oban Fashions Pvt Ltd (Oban). That's because all these companies, together referred to as the Rupa group, have significant operational and financial linkages.

Key Rating Drivers & Detailed Description
Strengths
* Strong business risk profile: The group has established its position in the domestic hosiery industry over the past three decades. The industry, particularly the economy segment, is intensely competitive. But the group benefits from its strong brand recall in the premium and economy segments. It has over 10 sub-brands and caters to all segments economy, medium, premium, and super-premium. Furthermore, acquisition of license rights for certain products of French Connection Group PLC (FCUK brand) and Fruit of the Loom, INC. (Fruit of the Loom brand) is expected to support the business profile further.
 
* Healthy financial risk profile: The networth is strong at Rs 402.12 crores, backed by steady accretion to reserves, while the gearing is low at 0.21 time as on March 31, 2017, thus enhancing financial flexibility, especially to cope with sudden changes in business conditions. The gearing is expected to remain low over the medium term as well, in the absence of any large capital expenditure (capex) plans. Debt protection metrics too remained strong with interest coverage at 11.41 times and net cash accruals to total debt at 0.71 time for fiscal 2017.

* Strong Liquidity: The Rupa group has strong liquidity, marked by healthy cash accruals, and positive cash flow from operations, and low bank limit utilisation. Accrual of around Rs 70-80 crores per annum should comfortably cover negligible maturing debt obligations. Driven by prudent working capital management, cash-flow from operations have been positive for the past 2 years through fiscal 2017. Utilisation of fund-based working capital bank lines, including commercial paper placement, have been low at around 30% in the 14 months through May 2017; the substantial unutilised bank lines enhance financial flexibility.
 
Weakness
* Large, though reducing, working capital requirement: Intense competition in the hosiery industry necessitates offering substantial credit to distributors, and maintaining large inventory to minimise delays in delivery to customers. Inventory management has, however, improved considerably with a focus on optimising production in line with sales patterns.
 
* Exposure to intensifying competition in the innerwear industry: India's innerwear market is dominated by the unorganised sector, despite the robust market potential for branded innerwear, leading to intense competition. Competition could also increase with the advent of other established foreign brands through the franchisee route, strong domestic readymade garment manufacturers venturing into innerwear segments, and other large players spending heavily on brand-building and product-positioning. Intensifying competition could hence result in market challenges for players in the industry, including Rupa.
Outlook: Positive

CRISIL expects the Rupa group's business risk profile to improve over the medium term due a focus on better working capital management and benefit to be derived from the licence acquired for FCUK and Fruit of the Loom products. Furthermore, the strong market position and established distribution network will continue to support the business risk profile. The ratings may be upgraded in case of significant and sustained improvement in operating profitability, most likely driven by the stabilisation of operations of the FCUK and Fruit of the Loom business vertical, while the capital structure, debt protections metrics, and liquidity remain stable. The outlook may be revised to 'Stable' in case of pressure on the operating margin, deterioration in working capital management or any large, debt-funded capex or acquisition,  adversely impacting the financial risk profile.

About the Group

Rupa, incorporated in 1985, is promoted by the Kolkata-based Agarwala brothers. The company manufactures knitted innerwear, casual wear, and thermal wear for men, women, and children. The Agarwala family has been in this business since 1968 through proprietorship and partnership firms. After incorporation, Rupa took over the business of Binod Hosiery, a partnership firm of the Agarwala brothers.

Euro, incorporated in 2005 in Mumbai, owns the Euro brand, whereas Imoogi, incorporated in 2010 in Kolkata, owns the Imoogi brand. Oban, incorporated in 2015, has acquired the exclusive licence rights for sale of certain products under the FCUK and Fruit of the Loom brand in India.

On a consolidated basis, profit after tax was Rs 72.25 crore on operating income of Rs 1093.76 crore in fiscal 2017, against Rs 65.93 crore and Rs 1014.92 crore, respectively, in the previous fiscal.

Status of non-cooperation with previous CRA
Rupa has not cooperated with India Ratings and Research Ltd (India Ratings) which suspended its ratings vide a release dated September 14, 2016. The reason provided by India Ratings was lack of adequate information.

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 crore)
Rating assigned with outlook
NA Cash credit NA NA NA 278 CRISIL A+/Positive
NA Bank Guarantee NA NA NA 4 CRISIL A1+
NA Letter of Credit NA NA NA 1 CRISIL A1+
NA Proposed Long Term Bank Loan Facility NA NA NA 10 CRISIL A+/Positive
NA Commercial Paper NA NA 7-365 days 180 CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  180  CRISIL A1+    No Rating Change    No Rating Change  15-07-15  CRISIL A1+    --  -- 
Fund-based Bank Facilities  LT/ST  288 CRISIL A+/Positive    No Rating Change  08-07-16  CRISIL A+/Positive/ CRISIL A1+  15-07-15  CRISIL A+/Stable/ CRISIL A1+  27-05-14  CRISIL A+/Stable/ CRISIL A1  -- 
Non Fund-based Bank Facilities  LT/ST  CRISIL A1+    No Rating Change    No Rating Change  15-07-15  CRISIL A1+  27-05-14  CRISIL A1  -- 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
 
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 4 CRISIL A1+ Bank Guarantee 4 CRISIL A1+
Cash Credit 278 CRISIL A+/Positive Cash Credit 231 CRISIL A+/Positive
Letter of Credit 1 CRISIL A1+ Letter of Credit 1 CRISIL A1+
Proposed Long Term Bank Loan Facility 10 CRISIL A+/Positive Overdraft 50 CRISIL A+/Positive
-- 0 -- Short Term Loan 45 CRISIL A1+
-- 0 -- Term Loan 14 CRISIL A+/Positive
Total 293 -- Total 345 --
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 Criteria for Consolidation
Criteria for rating Short-Term Debt (including Commercial Paper)

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

Tanuja Abhinandan
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
tanuja.abhinandan@crisil.com

Jyoti Parmar
Media Relations
CRISIL Limited
D: +91 22 3342 1835
B: +91 22 3342 3000
 jyoti.parmar@crisil.com

Arvind Rao
Director - CRISIL Ratings
CRISIL Limited
D:+91 22 4097 8278
arvind.rao@crisil.com


Argha Chanda
Associate Director - CRISIL Ratings
CRISIL Limited
D:+91 33 4011 8210
Argha.Chanda@crisil.com


Keshav Somani
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 33 4011 8200
Keshav.Somani@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 global, agile and innovative 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 100,000 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 NOTICE

CRISIL respects your privacy. We 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 and other parts of S&P Global Inc. and its subsidiaries (collectively, the “Company) you may find of interest.

For further information, or to let us know your preferences with respect to receiving marketing materials, please visit www.crisil.com/privacy. You can view the Company’s Customer Privacy at https://www.spglobal.com/privacy

Last updated: April 2016


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.

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: http://www.crisil.com/ratings/highlightedpolicy.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