| Sabs Exports | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ratings on the bank facilities of Sabs Exports (SE) at 'CRISIL BBB/Stable/CRISIL A3+'.
The firm has sustained its healthy business risk profile despite Covid-19, as reflected in revenue of Rs 153.9 crore in fiscal 2021 (Rs 175.58 crore in fiscal 2020). Operating margin remained high at around 20%, driven by integrated cost-effective manufacturing processes (24.81% in fiscal 2020). Working capital has been managed efficiently, backed by timely realisation of receivables and better inventory management.
The ratings continue to reflect the extensive experience of SE’s partners in the garment manufacturing business, established customer relationships and comfortable financial risk profile. These strengths are partially offset by geographical and customer concentration in revenue and working capital-intensive operations. |
Key Rating Drivers & Detailed Description Strengths Extensive experience of the partners and strong customer base: Presence of more than two decades in the garment manufacturing business has enabled the partners to establish a strong customer base comprising Engbers, Fynch Hatton, Casa Moda, Pierre Cardin and s.Oliver in the European market; it recently added Tommy Hilfiger to its portfolio. Furthermore, in-house design, sampling and quality assurance teams has led to a high operating margin of more than 20% for the past two fiscals. Margin is expected to remain high over the medium term. The partners regularly upgrade product portfolio through continuous market research, which helps build tie-ups with new customers and get repeat orders from old ones. Business risk profile will remain stable over the medium term.
Comfortable financial risk profile Capital structure is robust, backed by healthy estimated networth and gearing of more than Rs 65 crore and 0.24 time (less than 0.30 time over the five fiscals through 2021), respectively, as on March 31, 2021. Debt protection metrics were also strong, with interest coverage and net cash accrual to adjusted debt ratios of more than 17.5 times and 0.67 time, respectively, in fiscal 2021. Financial risk profile should remain steady over the medium term because of substantial accrual, moderate capital expenditure (capex), absence of term debt, and low reliance on working capital limit.
Weaknesses: Exposure to geographical and client concentration in revenue: About 90% of sales come from the US and European markets, which exposes the firm to fluctuations in foreign exchange (forex) rates and slowdown in these economies. Furthermore, the top three customers account for 45% of the revenue, which makes revenue growth and profitability susceptible to these clients’ growth plans. Although SE is a preferred supplier on account of timely delivery and high-quality products, any vendor rationalisation efforts by key clients may significantly impact business. Also, the firm does not hedge its forex exposure.
Working capital-intensive operations: Gross current assets (GCAs) were moderate at 180 days as on March 31, 2021 (123 days in the previous fiscal), because of sizeable inventory of 84 days (78 days) and cash reserves maintained to fund working capital requirement; receivables were 25 days (14 days). Credit of 50-60 days from the suppliers partially supports working capital cycle. Working capital requirement may increase in sync with ramp-up in operations over the medium term. However, cash accrual and reserves can be used to meet incremental working capital requirement in the absence of any debt obligation. |
Liquidity: Adequate Bank limit utilisation was moderate at 43% during the 12 months through June 2021. Expected cash accrual of over Rs 10.0 crore will be sufficient to meet yearly debt obligation of Rs 0.50 crore, over the medium term. Fund withdrawal remains critical for the ratings and is a key monitorable. Current ratio is estimated at 2.7 times on March 31, 2021. Cash and bank balance stood at Rs 21.0 crore as of June 2021. |
Outlook: Stable The firm will continue to benefit from its established relationships with marquee clients, healthy profitability, and robust financial risk profile over the medium term. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the firm Established as a partnership firm in 1996 by Mr Chetan Sabharwal and Mr Nitin Sabharwal, New Delhi-based SE manufactures readymade garments such as T-shirts, woven shirts and circular knitwear mainly for men. Most of the garments are exported to branded retail outlets and buying houses in the European Union. |
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 |
| Foreign Bill Discounting | 14 | CRISIL A3+ |
| Long Term Loan | 2.34 | CRISIL BBB/Stable |
| Packing Credit | 13.5 | CRISIL A3+ |
| Proposed Fund-Based Bank Limits | 2.16 | CRISIL BBB/Stable |
Criteria Details
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