Detailed Rationale CRISIL Ratings has downgraded its ratings on the bank faiclities of Bhandari Hosiery Exports Ltd (BHEL) to ‘CRISIL BBB-/Stable/CRISIL A3’ from ‘CRISIL BBB/Negative/CRISIL A3+’.
The rating action factors the weakened liquidity profile marked by elongated working capital cycle and consistently high bank limit utilization levels. Gross current asset (GCA) days have secularly increased in last 4 years to 235 days in fiscal 2021 from 161 days in fiscal 2018. This has led to average bank limit utilization of 96.87% for last 13 months ending August 2021.
The government covid relief packages including moratorium and emergency working capital loan facilities has helped the company managed its working capital requirements over past few months. However, the significant increase in maturing debt obligation for fiscal 2023 because of GECL lines have weakened the net cash accrual v/s repayment obligation (NCA/RO) ratio to 1.20-1.30 times. Ability of company to rationalize its working capital requirement and bring cushion in liquidity will be key rating monitorable over medium term.
The ratings also take cognizance of proposed merger of BHEL with Tikani Exports Limited (rated CRISIL BB-/Watch under positive implications; group entity) as communicated to stock exchanges. Though the two companies might benefit from operational and financial synergies, however, since merger of BHEL is with relatively weaker entity, the impact on credit risk profile of the company post-merger will be a key monitorable.
The ratings continue reflect an established market position, backed by the promoters' extensive experience in the textile industry, and above-average financial risk profile. These strengths are partially offset by susceptibility to volatile cotton prices and moderately working capital intensive operations. |
Analytical Approach Unsecured loans from the promoters, estimated at Rs 9.09 crore as on March 31, 2021, have been treated as neither debt nor equity. This is because these loans are expected to be retained in the business over the medium term. |
Key Rating Drivers & Detailed Description Strengths:
The company benefits from the more than two-decade-long experience of the promoters and a comfortable market position in the cotton yarn and grey and denim fabric segments should continue to support the business. Revenue for Fiscal 2021 was Rs. 226 crore as against Rs. 277 crore during Fiscal 2020. During the first quarter of Fiscal 2022, the company has achieved revenue of Rs. 43 crore (as against Rs. 17 crore in first quarter of Fiscal 2020 and Rs. 47 crore in first quarter of Fiscal 2019).
With networth improving to Rs. 75.42 crore as on March 31, 2021, the gearing level is estimated to be comfortable at 1.40 times as on March 31, 2021 as against 1.37 time as on March 31, 2021. The same moderated due to higher debt level owing to covid related loans and increase in sanctioned cash credit limits. Debt protection metrics however declined as reflected by interest coverage ratio of 1.7 times and Net Cash Accrauls to Adjust Debt at 0.07 in fiscal 2021 (as against 2.10 and 0.10 in Fiscal 2020 respectively).
Weakness:
The cost of the key raw material, cotton, accounts for 80-85% of net sales. Any fluctuation in its price because of the vagaries of the monsoon could impact profitability. The operating margin has been at 6-8% in the five fiscals through 2021. The net operating margins however stood moderated to an estimated 1% for Fiscal 2021 as against an average of around 2% in previous fiscals.
The operations are working capital intensive as reflected from Gross Current Assets Days in the range of 160-220 days in past four years through Fiscal 2021. The same is driven by inventory days of 90-120 days and debtors of 60-90 days. The GCA days were at a high of 235 days as on March 31, 2021. Going forward, any further stretch in working capital requirements leading to deterioration in financial risk profile will remain a key monitorable. |
Liquidity: Adequate Bank limit utilisation is high around 97 percent for the past 12 months ended Aug 2021 despite a recent enhancement in the sanctioned limits. CRISIL believes that bank limit utilization is expected to remain high on account large working capital requirement. Cash accrual are expected to be over Rs 10-12 crore in Fiscal 2022 and Fiscal 2023 which are just sufficient against term debt obligation of Rs 7-10 crore over the medium term. Current ratio is moderate estimated at 1.63 as on March 31, 2021. |
Outlook: Stable CRISIL Ratings believes Bhandari Hosiery will continue to benefit from the extensive experience of the promoters. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Company Established in 1994, Bhandari Hosiery manufactures high-fashion knitted garments at its unit in Ludhiana, Punjab. Operations are managed by Mr Naresh Bhandari and Mr Nitin Bhandari. The company is part of the Bhandari group, which was established in 1942 to trade in knitted cotton garments. |
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 - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 22-Oct-2021 in line with the lender-wise facility details as on 22-Oct-2021 received from the rated entity.
Criteria Details
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