Rating Rationale
August 05, 2020 | Mumbai
Ginni International Limited
Ratings downgraded to 'CRISIL BB+/Stable/CRISIL A4+'
 
Rating Action
Total Bank Loan Facilities Rated Rs.222 Crore
Long Term Rating CRISIL BB+/Stable (Downgraded from 'CRISIL BBB/Negative')
Short Term Rating CRISIL A4+ (Downgraded from 'CRISIL A3+')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has downgraded its ratings on the bank facilities of Ginni International Limited (GIL) to 'CRISIL BB+/Stable/CRISIL A4+' from 'CRISIL BBB/Negative/CRISIL A3+'.
 
The downgrade reflects the weakening of business profile and financial risk profile especially liquidity marked by lower-than-expected profitability in fiscal 2020. Business is expected to weaken further with a sharp fall in revenue and profitability in fiscal 2021 on account of the outbreak of Covid 19 and the resultant nation-wide lockdown. This also raises pressure on liquidity as net cash accrual is expected to be lower than repayment obligations. Though near-term liquidity needs will be aided by the moratorium availed, available cushion in bank limits and infusion of unsecured loans of Rs 8 crore by the promoters. Timely infusion of unsecured loans to manage any debt servicing related exigencies will remain a key monitorable for the credit over the medium term.
 
The ratings continue to reflect GIL's established market position, healthy networth, and a reputed and diversified domestic distribution network. These strengths are partially offset by working capital-intensive operations and susceptibility to volatility in raw material prices.

Analytical Approach

Unsecured loans from the promoters of Rs 13.25 crore as on March 31, 2020 have been treated as neither debt nor equity as the same is expected to remain in the business over the medium term.

Key Rating Drivers & Detailed Description
Strengths:
* Established market position supported by the extensive experience of the promoters:
The promoters' experience of over three decades and their demonstrated industry knowledge have helped in establishing a strong market position in the cotton yarn, grey fabric, and denim fabric industry, making the company one of the prominent players in denim manufacturing, which contributes more than 60% of turnover. A strong track record and healthy relationships with customers and suppliers across India have led to repeat orders and regular supply of raw material. Benefits from the promoters' experience should continue to support the business.
 
* Established and diversified domestic distribution network
GIL has an established distribution network spread across India and other countries. Close to 90% of sales are booked in the domestic market. A network of wholesalers work as distributors across India for the denim as well as the yarn segments
 
* Healthy networth and comfortable capital structure
Continuous accretion to reserves resulted in healthy networth of Rs 177 crore as on March 31, 2020. The total outside liabilities to tangible networth (TOL/TNW) ratio was estimated at 1.40 times as on March 31, 2020. Capital structure is expected to remain comfortable over the medium term.
 
Weaknesses:
* Working capital-intensive operations:
Operations are likely to remain working capital intensive over the medium term. Gross current assets were 202 days as on March 31, 2019 (estimated at 187 days as on March 31, 2020), driven by debtors of 107 days and inventory of 93 days (89 and 104 days, respectively). Inventory is usually in the form of work-in-progress due to the long gestation period given the integrated nature of operations. Debtors have increased from 53 days in fiscal 2016 to 89 days in fiscal 2019 and are expected to stretch further to 150-160 days in the current fiscal owing to the measures taken to contain Covid-19.
 
* Susceptibility to volatility in raw material prices:
Cotton is the key raw material used for manufacturing denim fabric. Raw material cost typically accounts for 60-70% of net sales. Hence, cotton/cotton yarn prices influence the operating margin of fabric producers. As cotton is a seasonal commodity and is dependent on the vagaries of the monsoon, timing the procurement is critical for industry players. Thus, the margin is expected to remain susceptible to cotton prices over the medium term.
Liquidity Stretched

Average bank limit utilisation was high at 87.6% in the eight months through April 2020. The ratio of net cash accrual to repayment obligation was less than 1 time in fiscal 2020 on account of lower-than-expected profitability and high maturing debt. Pressure on liquidity is expected to intensify in fiscal 2021 on account of insufficient cash accrual against repayment obligation. Moreover, the promoters have brought in an additional Rs 3.47 crore in fiscal 2020 and have extended a further Rs 8 crore as unsecured loans in current fiscal. Timely infusion of unsecured loans to manage any debt servicing related exigencies will remain a key monitorable. 

Outlook: Stable

CRISIL believes that the credit profile of GIL will remain stable on account of the promoters' experience and their funding support.

Rating Sensitivity factors
Upward factors
* Higher-than-expected cash accrual leading to NCA/ RO of more than 1.5 times
* Strengthening of the market position with sustained revenue growth over fiscal 2020 level along with improvement in operating margin to 9.0% or more
* Lower reliance on working capital debt due to efficient working capital management, driven by improved realisation from debtors and quick churning of inventory
 
Downward factors
* Stretch in working capital cycle with GCAs more than 325 days, leading to higher bank limit utilisation creating further pressure on liquidity
* Lower-than-expected revenue or profitability widening the gap between net cash accrual and repayment obligations
* Any delay in extending unsecured loans to cater to timely debt servicing
* Significant debt-funded capital expenditure, weakening the financial risk profile
About the Company

GIL, a closely held public limited company set up in 1984, commenced operations in 1996. It is promoted by the members of the Jaipuria family, which have interests in the educational and renewable energy sectors. GIL manufactures denim fabric and has completely integrated facilities from spinning to finished fabric at Neemrana, Rajasthan. It was delisted from the Jaipur Stock Exchange and the Delhi Stock Exchange in May 2015. Currently, the company is managed by Mr Sharad Jaipuria and his family members.

Key Financial Indicators
As on / for the period ended March 31   2019 2018
Operating income Rs crore 503.4 500.8
Reported profit after tax Rs crore 8.67 5.34
PAT margin % 1.7 1.1
Adjusted debt/Adjusted networth Times 1.20 1.29
Interest coverage Times 2.11 1.90

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL 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. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
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 114.0 NA CRISIL BB+/Stable
NA Letter of credit & Bank Guarantee NA NA NA 12.75 NA CRISIL A4+
NA Proposed Long Term Bank Loan Facility NA NA NA 40.77 NA CRISIL BB+/Stable
NA Foreign Bill Negotiation NA NA NA 11.05 NA CRISIL A4+
NA Long Term Loan NA NA Mar-24 28.43 NA CRISIL BB+/Stable
NA Proposed Working Capital Facility NA NA NA 15.00 NA CRISIL BB+/Stable
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  198.20  CRISIL BB+/Stable      13-11-19  CRISIL BBB/Negative  06-02-18  CRISIL BBB/Stable/ CRISIL A3+  31-03-17  CRISIL BBB+/Negative  CRISIL BBB+/Stable 
            15-05-19  CRISIL BBB/Negative  31-01-18  CRISIL BBB/Stable/ CRISIL A3+       
Non Fund-based Bank Facilities  LT/ST  23.80  CRISIL A4+      13-11-19  CRISIL A3+  06-02-18  CRISIL A3+  31-03-17  CRISIL A2  CRISIL A2 
            15-05-19  CRISIL A3+  31-01-18  CRISIL A3+       
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 114 CRISIL BB+/Stable Cash Credit 100 CRISIL BBB/Negative
Foreign Bill Negotiation 11.05 CRISIL A4+ Foreign Bill Negotiation 14 CRISIL A3+
Letter of credit & Bank Guarantee 12.75 CRISIL A4+ Letter of credit & Bank Guarantee 7.75 CRISIL A3+
Long Term Loan 28.43 CRISIL BB+/Stable Long Term Loan 45.96 CRISIL BBB/Negative
Proposed Long Term Bank Loan Facility 40.77 CRISIL BB+/Stable Proposed Long Term Bank Loan Facility 54.29 CRISIL BBB/Negative
Proposed Working Capital Facility 15 CRISIL BB+/Stable -- 0 --
Total 222 -- Total 222 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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