| Future Lifestyle Fashions Limited | ||||||
| BLR facilities removed from 'Watch Developing'; Ratings Reaffirmed | ||||||
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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 removed its ratings on the bank loan facilities of Future Lifestyle Fashions Limited (FLFL) from ‘Rating Watch with Developing Implications’ while reaffirming the ratings at 'CRISIL C/CRISIL A4'. CRISIL Ratings has also reaffirmed its ‘CRISIL D’ rating on the non-convertible debentures (NCDs).
The resolution of the watch factors in successful implementation of one-time restructuring plan by the company and approval on revised repayment schedule for NCDs by the majority of investors, resulting in limited debt servicing in fiscal 2022.
The ratings remain constrained by limited track record of debt servicing since implementation of the restructuring plan as the company has only serviced one debt obligation in the month of December 2021. The rating is also constrained by the tight liquidity position of the company and high principal repayment obligations of ~Rs 580 crore in fiscal 2023 which is to be met from fund infusion, brand monetisation and business cash flow, which remain key monitorables.
Furthermore, the Future group companies had earlier announced a scheme of reorganisation in which the key companies, including FLFL, would merge into Future Enterprises Ltd (FEL). Post-merger, the group's retail and wholesale businesses would be sold on a slump-sale basis to Reliance Retail and Fashion Lifestyle Ltd (subsidiary of Reliance Retail Ventures Ltd ['CRISIL AAA/Stable/CRISIL A1+']), which is a subsidiary of Reliance Industries Ltd ('CRISIL AAA/Stable/CRISIL A1+'). CRISIL Ratings has also noted the ongoing legal developments around the deal and continues to monitor these. Till the deal is completed, the debt obligation shall be met from the company’s own cash flow. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of FLFL and all its subsidiaries, given their common business. Also, the company’s networth has been adjusted for revaluation reserve.
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 Weaknesses: Stretched liquidity with substantially high debt obligations going forward Financial leverage had risen before the Covid-19 pandemic on account of capital expenditure (capex) and new store inventories. Severe impact on cash flow on account of the pandemic had weakened the debt protection metrics in fiscal 2021.
With business operations being significantly impacted by the lockdown, the company had applied for one-time restructuring plan with its lenders under the guidelines issued by the Reserve Bank of India (RBI). The restructuring plan has been implemented on April 30, 2021. The company has outstanding NCDs of Rs 350 crore and annual interest obligation of about Rs 30 crore due on November 9 every year. Due to subdued cash accrual, the company had defaulted on the NCD obligation earlier. CRISIL Ratings understands that the NCDs were restructured based on approval from majority of investors. Principal payment had been deferred by two years and interest payment will start from November 2022 onwards. Interest deferred for November 2020 and 2021 shall be paid in quarterly tranches from March 2022 to March 2024.
Post the implementation, the company has commenced debt servicing from December 2021 with ~Rs 10 crore of principal servicing. The company will have ~Rs 80 crore of debt servicing obligations (including the interest payments) in the fourth quarter of fiscal 2022, timely servicing of the same will remain a key monitorable. FLFL has significant principal servicing of Rs ~580 crore in fiscal 2023, apart from interest servicing of ~ Rs. 200 crore, which it plans to meet through fund infusion, brand monetisation and business cash flow, which remain key monitorables. Working capital management is supported by daily cash sales as the company has limited cash balance and working capital lines remain almost fully utilised.
Modest operating efficiency High operating leverage impacted the operating profitability last fiscal and in the first quarter of fiscal 2022. However, since the second quarter of fiscal 2022, sales have picked up gradually thereby lowering losses. Also, cost-optimisation initiatives, including reduction of fixed overheads and store optimisations, should aid profitability. However, the ability to rebuild supply chains and sustain operations despite a weak financial position remains a key monitorable.
Strengths: Established position in the departmental stores segment and diversified revenue profile The company is one of the largest players in the domestic departmental store format, with a pan-India distribution network across two formats, Central and Brand Factory.
Revenue is diversified, aided by its presence in the premium apparel segment and the off-price retail format through Brand Factory stores. Wider assortment and balanced product mix across categories helped retail stores achieve healthy same-store sales growth in the past. Growth was hit by weak macroeconomic conditions, slowdown in the apparel segment and pandemic-led lockdowns in the last two-three fiscals. However, revenue should gradually recover over the medium term. |
Liquidity: Poor Due to the pandemic, cash flow to service debt was severely impacted in the last fiscal and the first quarter of fiscal 2022. Working capital lines are almost fully utilised. The company has debt repayment of Rs 80 crore (including the interest payments) over January to March 2022 which it plans to meet from cashflows. Also FLFL has high principal debt obligation of Rs 580 crore, apart from interest servicing in the next fiscal, which it plans to meet through brand monetisation, equity infusion and business cash flow, which remain key monitorables. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Company Incorporated in 2012, FLFL is the apparel retail venture of the Future group. It was established by combining apparel retail formats and fashion brands that were demerged from Pantaloon Retail India Ltd and Future Ventures India Ltd, respectively.
The company has a portfolio of brands that cover a range of fashion categories, including apparel and footwear. It has Central and Brand Factory stores, along with exclusive Brand Factory outlets, covering over 75 lakh square foot. Central operates primarily in the premium apparel, footwear, watches and fashion accessories segment, while Brand Factory operates mainly in the off-price apparel retailing (discount-based) segment. |
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)
*Interchangeable with working capital demand loan and commercial paper ^Interchangeable with letter of undertaking and bank guarantee **Yet to be issued |
Annexure - List of Entities Consolidated
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| Annexure - Details of Bank Lenders & Facilities | |||||||||||||||||||||||||||||||||||||||||||||||||||
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*Interchangeable with working capital demand loan and commercial paper
^Interchangeable with letter of undertaking and bank guarantee
Criteria Details
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