| Aarnav Fashions Limited | ||||||
| Ratings reaffirmed at 'CRISIL BBB-/Stable/CRISIL A3' | ||||||
| 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’ rating on bank facilities of Aarnav Fashions Limited (AFL; a part of the Aarnav group).
The ratings continue to reflect extensive experience of the promoters in the textile industry and locational benefit because of proximity to the textile-processing hub. These strengths are partially offset by large working capital requirement and exposure to intense competition. |
Analytical Approach:
Unsecured loan extended by the promoters and their family members has been treated as neither debt nor equity as the loan is subordinated to bank debt and is expected to remain in the business over the medium term.
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: Extensive experience of promoters: The promoter, Mr Champalal G Agarwal, is the founder chairman of the entire group. He has more than four decades of experience in the textile business. Another director, Mr Sumit Agarwal, has around two decades of experience in marketing, finance and general administration. Expertise of the promoters, their strong understanding of market dynamics and healthy relations with customers and suppliers led to a well-established distribution network and strong credit risk profile of the group. Revenue group has been steady, driven by high-quality printing and finishing of cloth.
Locational advantage: The manufacturing facilities are in Ahmedabad, which is a major textile processing hub in India. This leads to competitive advantage in terms of proximity to raw material, trained workforce, and marketing.
Weaknesses: Large working capital requirement: The working capital cycle is likely to remain stretched. Gross current assets (GCAs) were 265-270 days as on March 31, 2021, against historical levels of 200 days, driven by inventory and receivables of around 80 days and 155 days, respectively. The working capital is partially supported by payables of 90 days. GCAs were high due to increase in sales during the fourth quarter of fiscal 2022.
The group provides credit of around 90 days, but customers are able to stretch it on account of their long-term relationship. Inventory is usually 60-70 days owing to easy availability of raw material and strategic location of the plant.
Large working capital requirement and moderate credit from suppliers led to a moderately leveraged capital structure, as reflected in total outside liabilities to tangible networth ratio of 2 times as on March 31, 2022.
Exposure to intense competition: The textile industry is largely unorganised, as indicated by the presence of several players with small capacities. Entry barriers are low because of limited capital and technology requirement and small differentiation in the end products of different players. Also, players have limited pricing and bargaining power in case of fluctuations in raw material prices. Hence, the operating margin has been at 7-9%, leading to modest debt protection metrics, indicated by interest coverage and net cash accrual to total debt ratios of 2 times and 0.10 time, respectively, in fiscal 2022. |
Liquidity: Adequate Bank limit utilisation was around 88% over the 12 months through December 2022. Moderate cushion is expected between cash accrual and debt obligation. Cash accrual is expected at Rs 32-40 crore versus repayment obligation of Rs 20-22 crore. Large working capital requirement led to higher dependence on the short-term working capital limit and on suppliers, which in turn resulted in moderately leveraged capital structure, thus limiting financial flexibility. However, the timely, need-based funds extended by the promoters and their relatives and friends will continue to boost financial flexibility. |
Outlook: Stable The Aarnav group will continue to benefit from extensive experience of the promoters. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Group
Incorporated in 1984, GSPL is the flagship company of the Aarnav group. It processes (bleaching, dyeing, printing and finishing) fabrics such as suiting, shirting, dress material and dupattas and trades in grey fabrics. It also undertakes job work for other companies.
AIPL processes fabrics such as bedsheets and heavy suiting. The company has capacity to process cotton as well as polyester and blended fabrics and wider width cloth up to 120 inches. It was taken over by Mr Champalal Agarwal under a demerger scheme and given its current name. The demerger has been effective from April 2013 onwards.
ASPL was incorporated in February 2016 to size and weave cotton yarn; the unit was set up in two phases. Mr Champalal Agrawal and Mr Sandeep Agrawal are the promoters. |
Key Financial Indicators
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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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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 08-Feb-2023 in line with the lender-wise facility details as on 26-Apr-2022 received from the rated entity
Criteria Details
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