| Dawar Footwear Industries | ||||||
| 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+’ ratings on the bank facilities of Dawar Footwear Industries (DFI).
The ratings continue to reflect the extensive experience of the partners in the footwear industry, their longstanding relationships with clients and the above-average financial risk profile of the firm. These strengths are partially offset by geographical concentration in revenue, modest scale of operations and large working capital requirement. |
Key rating drivers and detailed description Strengths Extensive experience of the partners and longstanding relationships with clients The three-decade-long experience of the partners in the footwear industry has enabled them to maintain healthy relationships with suppliers and customers. The firm is able to retain its turnover, in a sluggish market too, because of strong clientele across Europe, the UK and the US. The partners’ extensive experience, longstanding relationships and understanding of market dynamics will continue to support the business.
Above-average financial risk profile Net worth and gearing are estimated to have been comfortable at Rs 30.04 crore and 1.29 times, respectively, as on March 31, 2022. Total outside liabilities to tangible net worth ratio increased to 2.12 times as on March 31, 2022, from 1.7 times a year earlier owing to capital withdrawals. Interest coverage ratio was healthy at 7.15 times in fiscal 2022. The financial risk profile will improve over the medium term driven by healthy accretion to reserve although capital withdrawal by the partners will be a key monitorable.
Weaknesses High geographic and customer concentration in revenue Europe contributes to 60-70% of the revenue; therefore, slowdown in its economy may constrain the revenue and profitability of the firm. Furthermore, the top three customers accounted for 52% of the revenue in fiscal 2022, which makes the firm susceptible to their growth plans. Although DFI is a preferred supplier on account of timely delivery and high-quality products, any vendor rationalization efforts by key clients may significantly impact the business. Also, the firm does not hedge its foreign exchange (forex) exposure.
Large working capital requirement Gross current assets are estimated at 206 days as on March 31, 2022, because of inventory and receivables of 86 days and 70 days, respectively. The working capital cycle is partly supported by payables of 107 days and bank lines.
Continuous capital withdrawal Due to capital withdrawal by the partners, net cash accrual was negative Rs 9.79 crore and negative Rs 3.96 crore in fiscals 2020 and 2021, respectively. Larger-than-expected capital withdrawal negatively impacting the capital structure and cash accrual will be a key monitorable. |
Liquidity: Adequate Cash accrual is expected at Rs 6-7 crore per annum over the medium term against nil debt obligation. Bank limit utilisation averaged 75% over the 12 months through July 2022. Current ratio was healthy at 1.12 times as on March 31, 2022. |
Outlook: Stable DFI will continue to benefit from its established relationships with key customers. |
Rating sensitivity factors Upward factors * Increase in revenue by 30% and stable operating margin leading to higher cash accrual * Better financial risk profile, with gearing less than 1 time
Downward factors * Decline in profitability or operating income leading to fall in cash accrual by 25% * Larger-than-expected capital withdrawal weakening the capital structure and cash accrual |
About the firm Set up in 1988 as a partnership firm by Mr Puran Dawar, DFI manufactures and exports leather footwear for men and women. Its facilities in Agra, Uttar Pradesh, have capacity of about 1.6 million pairs per annum, with average utilisation of around 80%. |
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 - 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) | Name of Lender | Rating |
| Export Packing Credit | 21 | State Bank of India | CRISIL BBB/Stable |
| Packing Credit in Foreign Currency | 29 | HDFC Bank Limited | CRISIL A3+ |
This Annexure has been updated on 21-Feb-23 in line with the lender-wise facility details as on 06-Feb-23 received from the rated entity.
Criteria Details
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