Rating Rationale
February 07, 2025 | Mumbai
 
Sobhagia Sales Private Limited
‘Crisil BBB-/Stable’ assigned to bank debt
 
Rating Action
Total Bank Loan Facilities Rated Rs.17 Crore
Long Term Rating Crisil BBB-/Stable (Assigned)
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 assigned its ‘Crisil BBB-/Stable’ rating to the long-term bank facility of Sobhagia Sales Pvt Ltd (SSPL).

 

The rating reflects the extensive experience of the promoters in the textiles industry, established store network, own brand and strong financial risk profile due to low reliance on external debt. These strengths are partially offset by fluctuations in revenue, volatility in raw material prices and exposure to intense competition.

 

Operating income is expected to increase 5-8% in fiscal 2025 to Rs 120-130 crore from Rs 116 crore in fiscal 2024 due to opening of new stores under the franchise owned franchisee operated (fo-fo) model. However, the company continues to face challenges from cheap imported garments and e-commerce brands. SSPL plans to increase its online presence via existing channels. The operating margin is expected to be 8-10% in fiscal 2025, similar to previous fiscal level (8.3%). The margin is lower than the historical margin due to higher discounts during reduced demand and lower operating leverage.

 

The financial risk profile is strong, as indicated by low reliance on external debt. In the absence of any major debt-funded capital expenditure (capex), the company is likely to remain debt-free. It is estimated to open two new stores in Punjab this fiscal, which will be funded through internal accrual. The debt protection metrics are likely to remain healthy, as indicated by interest coverage and net cash accrual to adjusted debt (NCAAD) ratios of 6.0-6.5 times and 3.5-4.0 times, respectively, in fiscal 2025 (5.46 times and 1.22 times, respectively, in fiscal 2024). The capital structure is expected to remain comfortable, with total outside liabilities to tangible networth (TOLTNW) ratio of 0.20-0.25 time over the medium term (0.25 time as on March 31, 2024).

 

The company is expected to transfer the manufacturing division by next fiscal to its group entity, Sportking India Ltd, subjected to regulatory approvals. This is not expected to impact the retail business of SSPL.

 

Total sanctioned limit of Rs 22 crore was utilised 25% on average in the four months through October 2024. Furthermore, SSPL holds 12.7% stake in Sportking India Ltd, which was valued at Rs 145-150 crore as on January 31, 2025.

Analytical Approach

Crisil Ratings has considered the standalone business and financial risk profile of SSPL. Crisil ratings has treated unsecured loans of Rs 9.56 crore as on March 31, 2024, from the promoters as neither debt nor equity as the funds are subordinated to bank debt.

Key Rating Drivers & Detailed Description

Strengths:

  • Extensive experience of the promoters and established track record in the readymade garments industry: The key promoter, Mr Raj Avasthi, has been in the garment manufacturing business since 1970. Through other entities and SSPL (formed in 1993), he has been manufacturing yarn and readymade garments. In 2007, he diversified the business through SSPL to include retail operations via a network of owned showrooms. The company is currently managed by Mr Munish Awasthi. SSPL has a network of 25 owned stores, 46 rented stores and 8 franchise stores and sells under the Sportking, Mentor, Sublime and Woodburn brands.

 

  • Healthy financial risk profile: SSPL has low reliance on external debt. In the absence of any major debt-funded capex, the company is expected to remain debt-free. Furthermore, the promoters have provided unsecured loan of Rs 9.56 crore as on March 31, 2024, to support the operations. The debt protection metrics are likely to remain healthy, as indicated by interest coverage and NCAAD ratios of 6.0-6.5 times and 3.5-4.0 times, respectively, in fiscal 2025 (5.46 times and 1.22 times, respectively, in fiscal 2024). The capital structure is expected to remain comfortable, with TOLTNW ratio of 0.20-0.25 time over the medium term (0.25 time as on March 31, 2024).

 

Weaknesses:

  • Fluctuating scale amid intense competition: The company has strong presence in the Punjab, Haryana and Jammu markets. However, operating income has remained volatile (Rs 176 crore in fiscal 2019 and Rs 116 crore in fiscal 2024). Furthermore, the readymade garments industry is highly fragmented with many players in the market. The resultant competition, along with low product differentiation, limits the bargaining power of entities against customers.

 

  • Working capital-intensive operations: The gross current assets are expected to remain at 300-330 days fiscal 2026 onwards with ramp up in operations. The company offers diversified products, resulting in a large inventory, which is expected to be more than 250 days. This is backed by credit of 100-120 days from the suppliers.

Liquidity: Adequate

Cash accrual is expected to be Rs 15-20 crore per annum over the medium term. Total sanctioned limit of Rs 22 crore was utilised 25% on average through the four months through October 2024.

Outlook: Stable

Crisil Ratings believes SSPL will continue to benefit from the experience of its promoters and will sustain its healthy financial risk profile over the medium term.

Rating sensitivity factors

Upward factors:

  • Improvement in scale of operations while maintaining operating margin above 10-12%
  • Higher cash generation and efficient working capital management

 

Downward factors:

  • Weak operating performance resulting in operating income lower than Rs 100 crore or decline in profitability below 6-7%
  • Weakened cash generation, along with stretch in working capital cycle and increased capex, impacting debt metrics

About the Company

SSPL was established in 1993 by Mr Raj Avasthi and Mr Munish Avasthi. On October 26, 2016, Classic Wears Pvt Ltd, which manufactured sweaters was merged with the company. Part of the Sportking group, SSPL manufactures and retails hosiery and readymade garments for men, women, and children. It has two units in Ludhiana (Punjab) and sells through 25 owned stores, 46 rented stores and 8 franchise stores in Punjab, Haryana and Jammu & Kashmir.

Key Financial Indicators

As on/for the period ended March 31

Unit

2024

2023

Operating income

Rs crore

116

127

Reported profit after tax (PAT)

Rs crore

9

22

PAT margin

%

7.8

17.7

Adjusted debt/adjusted networth

Times

0.10

0.01

Interest coverage

Times

5.46

8.64

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

Crisil Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the Crisil Ratings` complexity levels please visit www.crisilratings.com. 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) Complexity Levels Rating Outstanding with Outlook
NA Proposed Working Capital Facility NA NA NA 17.00 NA Crisil BBB-/Stable
Annexure - Rating History for last 3 Years
  Current 2025 (History) 2024  2023  2022  Start of 2022
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 17.0 Crisil BBB-/Stable   -- 17-01-24 Withdrawn (Issuer Not Cooperating)* 20-09-23 Crisil B /Stable(Issuer Not Cooperating)* 14-07-22 Crisil B /Stable(Issuer Not Cooperating)* Crisil BB+ /Stable(Issuer Not Cooperating)*
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Proposed Working Capital Facility 17 Not Applicable Crisil BBB-/Stable
Criteria Details
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for rating short term debt

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