Rating Rationale
April 17, 2024 | Mumbai
Baazar Style Retail Limited
Rating upgraded to 'CRISIL A-/Stable'; Rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.127.03 Crore (Enhanced from Rs.105.03 Crore)
Long Term RatingCRISIL A-/Stable (Upgraded from 'CRISIL BBB+/Positive')
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 upgraded its rating on the long-term bank facilities of Baazar Style Retail Limited (BSRL) to ‘CRISIL A-/Stablefrom ‘CRISIL BBB+/Positive’.

 

The upgrade reflects significant growth in the business risk profile of the company, supported by increase in scale of operations. Turnover was Rs 751 crore in the first nine months of fiscal 2024 (against Rs 787 crore in fiscal 2023), indicating that BSRL is well poised to clock on-year revenue growth of around 20% and report a three-year compound annual growth rate (CAGR) of over 30% for fiscal 2024. The growth is attributed to higher average ticket size, increased market penetration in existing geographies through sustained same store sales growth of around 5-6% along with incremental revenue contribution from newly added stores; 32 new stores have been added in fiscal 2024. Continuous focus to establish itself as a brand through strengthening its market position by opening new stores will be crucial for sustaining the revenue growth momentum.

 

Better economies of scale through continued addition of new stores and healthy growth in scale of operations, breakeven achieved in new stores and reduction in procurement cost through greater reliance on private labels should keep the earnings before interest, taxes, depreciation and amortisation margin healthy over the medium term. The operating margin is likely to be remain at 7.0-7.5% going forward.

 

Together with calibrated expansions and minimal reliance on debt, BSRL has been able to sustain its strong financial risk profile characterised by a conservative capital structure and robust debt protection metrics. Financial and liquidity risk profile should remain comfortable, as cash accrual comfortably meets capital expenditure (capex) plans.

 

The rating continues to reflect BSRL’s healthy financial risk profile and improving market position and operating efficiency through geographical diversification. These strengths are partially offset by exposure to intense competition and large working capital requirement.

Key Rating Drivers & Detailed Description

Strengths:

Healthy financial risk profile

Financial risk profile should remain supported by healthy accretion to reserve. Networth was healthy at around Rs 263 crore as on December 31, 2023, as against Rs 229 crore a year earlier. Capital structure has improved over the years with reduced reliance on external debt, credit from suppliers and absence of any significant debt-funded capex. Thus, gearing is projected at below 1 time and total outside liabilities to tangible networth ratio at 1.10-1.20 times over the medium term. Steady profitability should result in sizeable accretion to reserve, thereby keeping the networth and capital structure comfortable.  Debt protection metrics should also remain comfortable, with interest coverage ratio expected over 6 times and net cash accrual to total debt ratio at 0.40-0.50 time going forward. Gradual decline in debt with better working capital management should further improve the debt protection metrics. 

 

Improving market position and operating efficiency through geographical diversification

The promoters have more than two decades of experience in the retailing industry, which enabled them to significantly expand market presence from 1 store in 2013 to 165 stores as of March 2024. Backed by the company’s well-established geographical presence, revenue rose to an estimated Rs 751 crore in the first nine months of fiscal 2024, reporting a 3-year revenue CAGR of over 30%. Healthy growth prospects in the retailing industry specially in Tier 2 and Tier 3 cities, being the company’s primary focus, aggressive expansion strategy (led by opening of over 60 stores in fiscals 2023 and 2024 cumulatively) and increased efficiency in new stores, resulted in healthy overall growth in the scale of operations and should support further growth in its business risk profile. BSRL generates over 80% of its revenue from its widespread presence in West Bengal, Odisha Assam and Bihar. As a measure to mitigate risks associated with geographical concentration, the company has expanded its geographical reach by entering other states such as Jharkhand, Uttar Pradesh, Tripura, Andhra Pradesh and Chattisgarh. This protects the business risk profile against any adverse political or economic scenario in a particular state. However, West Bengal and Odisha shall remain the major contributor to revenue over the medium term.

 

Healthy growth in scale of operations shall also support operating efficiency, resulting in steady profitability and return on capital employed ratio.

 

Weaknesses:

Exposure to increasing competition

The organised retailing industry is estimated to grow over the medium term after a low base during fiscals 2018-23, driven by new store rollouts, increase in penetration in Tier 2 and 3 cities and increasing disposable income. Healthy growth prospects, high profitability, and ease in procurement have attracted several organised and unorganised players into the domestic retail market. The consequent intense competition may continue to constrain scalability, pricing power and profitability. BSRL will also remain exposed to concentration risk given that the company generates more than ~80% revenue from the garments segment.

 

Large working capital requirement

Intense competition in the retailing industry necessitates maintaining large inventory to maintain sufficient inventory due to high stock keeping units at all its retail points and stock at its warehouse so as to sustain adequate footfall in each store. Moreover, with the company’s aggressive expansion strategy through opening up of large number of new stores each fiscal, newer stores require a larger inventory base, which gradually decreases as the store matures, leading to better inventory churning. Moreover, the apparel industry depends on the latest trends, which are everchanging. There arises a need to refresh products in line with shifting consumer preferences. Nevertheless, inventory management through fiscals 2023 and 2024 has improved considerably with focus on optimising production and stocking in line with sales patterns. Average Inventory per square feet has come down significantly owing to maturing of newer stores, leading to better inventory efficiency. The company's centralised warehousing facility in West Bengal also optimises the working capital cycle. Inventory for various departments is  procured centrally (based on product wise segregation), thus achieving maximum price advantage.

 

Consequently, gross current assets are expected at 150-160 days over the medium term, driven by inventory of 140-150 days. Going forward, improvement in working capital cycle, while sustaining healthy business risk profile, will remain a key monitorable.

Liquidity: Strong

Bank limit utilisation was around 78% over the 12 months through December 2023, leaving sufficient cushion for exigencies. Cash accrual is expected at Rs 50-60 crore per annum, against yearly repayment obligation of Rs 8-10 crore; thereby aiding financial flexibility. Current ratio is expected to be healthy at 1.40-1.50 times going forward. Healthy unencumbered liquidity in the form of cash and bank balances of around Rs 7 crore as of March 2024 and management’s intention of maintaining similar liquid investments over the medium term further support liquidity. The promoters have ability to extend unsecured loans if needed. Low gearing and comfortable networth also support liquidity.

Outlook: Stable

BSRL should continue to benefit from extensive experience of the promoters and its established market position.

Rating Sensitivity Factors

Upward Factors

  • Sustenance of growth momentum in revenue coupled with sustenance of healthy operating margin, leading to cash accrual of over Rs 65 crore per fiscal
  • Improvement in the working capital cycle, led by better inventory and creditor management

 

Downward Factors

  • Any significant and sustained decline in revenue and/or operating margin, resulting in cash accrual falling below Rs 25 crore per fiscal
  • Larger-than-expected capex or further stretch in the working capital cycle

About the Company

Incorporated in June 2013,BSRL sells readymade garments, footwear, toys, accessories, cosmetics, luggage, and other household items and home furnishings through its 162 departmental stores, across West Bengal, Odisha, Assam, Uttar Pradesh, Bihar, Jharkhand, Tripura Andhra Pradesh and Chattisgarh. The stores operate under the brand -- Style Baazar and Express Baazar. BSRL is promoted by Kolkata-based Mr Shreyans Surana (Managing Director), Mr Rohit Kedia, Mr Bhagwan Prasad, Mr Pradeep Kumar Agarwal and Mr Rajendra Kumar Gupta. Daily operations are managed by Mr. Shreyans Surana, with support from other directors and a team of experienced professionals.

Key Financial Indicators

As on/for the period ended March 31*

Unit

2023

2022

Operating income

Rs.Crore

789.29

552.74

Reported profit after tax (PAT)

Rs.Crore

13.06

0.56

PAT margin

%

1.65

0.10

Adjusted debt/adjusted networth

Times

0.50

0.59

Interest coverage

Times

3.89

2.46

*CRISIL Ratings’ adjusted numbers

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

level

Rating assigned

with

outlook

NA

Cash credit

NA

NA

NA

96

NA

CRISIL A-/Stable

NA

Proposed

fund based

bank limit

NA

NA

NA

10.97

NA

CRISIL A-/Stable

NA

Term loan

NA

NA

Apr-2026

9.03

NA

CRISIL A-/Stable

NA

Working

capital term

loan

NA

NA

Apr-2026

11.03

NA

CRISIL A-/Stable

 

Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 127.03 CRISIL A-/Stable   -- 19-06-23 CRISIL BBB+/Positive 29-04-22 CRISIL BBB+/Stable 15-02-21 CRISIL BBB+/Stable CRISIL BBB+/Negative
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 52 Axis Bank Limited CRISIL A-/Stable
Cash Credit 30 HDFC Bank Limited CRISIL A-/Stable
Cash Credit 14 State Bank of India CRISIL A-/Stable
Proposed Fund-Based Bank Limits 10 Not Applicable CRISIL A-/Stable
Proposed Fund-Based Bank Limits 0.97 Not Applicable CRISIL A-/Stable
Term Loan 9.03 Axis Bank Limited CRISIL A-/Stable
Working Capital Term Loan 6.93 Axis Bank Limited CRISIL A-/Stable
Working Capital Term Loan 4.1 State Bank of India CRISIL A-/Stable
Criteria Details
Links to related criteria
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Retailing Industry

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