Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil BBB+/Stable/Crisil A2’ ratings on the bank facilities of Himatsingka Seide Ltd (HSL; part of the Himatsingka group). Crisil Ratings has also withdrawn its rating on the bank facilities of Rs 644.02 crore at the request of the company and on receipt of no dues certificate from the lender. The rating action is in line with the Crisil Ratings policy on withdrawal of ratings.

 

The ratings continue to reflect the healthy market position of the Himatsingka group in the drapery, upholstery, terry and bedding segments. The ratings also factor in the group’s strong operating efficiency arising from vertically integrated businesses (manufacturing and distribution) in the home textiles segment. These strengths are partially offset by stretch in working capital, modest financial risk profile and exposure to various risks posed by volatility in cotton prices and foreign exchange (forex) rates, susceptibility to slowdown in the end-user market and competition in the home textiles segment.

 

Operating income for fiscal 2025 is projected to be in similar range to the fiscal 2024 revenue, supported by resilient downstream demand. In the first half of fiscal 2025, operating income stood at Rs 1,429 crore with operating margin of 19.9%. The operating margin for the  fiscal 2025 is also expected  to be in the similar range as fiscal 2024, on account of continuous order flow from big box retailers and competitive domestic raw material prices.

 

The revenue is likely to grow 6-8% in fiscal 2026 propped by rising demand from new customers and increased presence in domestic markets, while the operating margin will stabilise at 18-20% over the medium term aided by stable raw material prices.

 

HSL’s working capital cycle was stretched in the previous two fiscals as reflected in receivables increasing from 51 days in fiscal 2022, to 99 days in fiscal 2023, and to  128 days as in fiscal 2024. Payables increased as well from 156 days as on March 31, 2022, to 191 days as on March 31, 2023, and to 246 days as on March 31, 2024.

 

The company raised Rs 400 crore via a qualified institutional placement (QIP) in October 2024, which would aid its financial risk profile and liquidity. Of the QIP proceeds, Rs 300 crore is proposed to be utilised for debt reduction, out of which approx. Rs 246.69 crore has been repaid as on January 15, 2025. The tangible networth is expected to increase to Rs 1,450-1,500 crore as on March 31, 2025, from Rs 985 crore a year earlier, while total debt is expected to decline to Rs 2,300-2,400 crore from Rs 2,798 crore. The capital structure is expected to remain leveraged but adjusted gearing and total outside liabilities to tangible networth ratio are estimated to improve to 1.6 times and 2.5 times, respectively, as on March 31, 2025, from 2.8 times and 4.3 times, respectively, as on March 31, 2024.

 

Liquidity should suffice to cover the yearly debt repayment obligations of Rs 60 crore and Rs 450 crore for fiscals 2026 and fiscal 2027 respectively backed by adequate annual net cash accrual and existing cash buffer.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of HSL and its subsidiaries (owned directly or indirectly), Himatsingka Wovens Pvt Ltd, Himatsingka Holdings North America, Inc, and Himatsingka America, Inc. This is because all the companies, collectively referred to as the Himatsingka group, are under a common management and have strong operational and financial linkages, with past instances of support.

 

The acquisition cost of the Tommy Hilfiger Home, Copper Fit and other brands acquired in May 2018 has also been capitalised and will be amortised over five years from fiscal 2019.

 

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

Strengths:

• Healthy market position in the home textile segment: The Himatsingka group is among the top five home textile players in India. It has high-end manufacturing facilities for bedsheets (61 million meters per annum or mmpa), terry towels (25,000 tonne per annum), spinning (211,584 spindles) and drapery and upholstery fabric manufacturing (2 mmpa). Foray into the terry towels segment, improved customer diversity and capacity utilisation of terry towels improving to 67% in fiscal 2024 from 57% in fiscal 2023, have enhanced the overall business risk profile.

 

The group has licences for brands such as Tommy Hilfiger Home and caters to the private labels of major retailers. Furthermore, the company has added clients in terry towel and bedding verticals, which should help in moderating client concentration over the long term.

 

HSL has tied up with Applied DNA Sciences (ADNAS), a leading authentication and supply chain security company, to ensure tagging of all kinds of cotton, including PIMA cotton that is grown in the US. This will ensure that the purity of the product can be verified at each point along the supply chain. The group has registered three brands - PimaCott, HomeGrown and Organiccott - on this platform. Such initiatives will help attract customers and augur well for the business over the medium term.

 

The company has also launched 3 owned brands in India namely - Himeya, Liv and Atmosphere and planned to increase its market share. This should aid in the growth on the operating income.

 

• Strong operating efficiency: Manufacturing capability is complemented by vertical integration into distribution and retail. The distribution business provides significant market reach in the America, an efficient warehousing infrastructure, a global sourcing base and access to large customers such as CostCo, TJ Maxx and Walmart in the home textiles space. The profitability was impacted by the Covid-19 pandemic in the first half of fiscal 2021 and by inflation in the second half of fiscal 2022. Strong headwinds in the textile industry, with differential in international and domestic pricing of cotton, coupled with supply chain challenges, impacted captive demand and led to the lowest operating margin of 12.8% in the second half of fiscal 2023. However, with stability in domestic cotton prices and restocking by big box retailers in key overseas markets, HSL recorded an operating margin (Ebitda) of 19.96% in the first half of fiscal 2025.

 

Weaknesses:

• Modest financial risk profile: The group's balance sheet is leveraged owing to sizeable capital expenditure (capex) of Rs 1,950 crore undertaken over fiscals 2016-2020 (to expand sheeting capacity and install a high-count spinning unit and a terry towel unit), acquisition of brands and higher working capital requirement. This resulted in lower accretion to networth in the past three years.

 

Furthermore, operations are working capital intensive, with higher reliance on short-term debt, owing to ramp up in utilisation in newly installed capacities, sizeable inventory and large credit offered to customers.

 

As a result, the interest coverage and the ratio of gross debt to Ebitda are expected above 2.0 times and below 4.5 times, respectively, over the medium term, vis-à-vis around 2.0 times and 4.3 times, respectively, in fiscal 2024. The debt to Ebitda ratio is projected below 4.5 times in fiscal 2026. Any significant addition of debt, straining the debt protection metrics will remain monitorable.

 

• Susceptibility to economic downturns: The US accounts for over 80% of the group's turnover, and hence, the performance of the Himatsingka group will be susceptible to any major slowdown or increase in competition in this market. Also, as the top five customers account for the bulk of textile revenue, the group's fortunes are susceptible to the sourcing policies of these clients. HSL is enhancing its presence in Europe and India and expects to increase its revenue from the regions. Nevertheless, while prospects for home textile exports are healthy, competition is on the rise, with higher trade incentives offered by competing countries.

 

• Exposure to volatility in cotton prices and forex rates: Operating margin remains susceptible to fluctuations in prices of key raw material, cotton (which forms 50% of the cost of yarn). Cotton prices are volatile as they are sensitive to international demand and supply factors, rainfall and pest attacks. This impacts profitability, despite benefits derived from large procurement and adequate risk management systems. Furthermore, HSL is a net exporter and derives nearly 90% of its revenue from exports. While it hedges its forex exposure, volatility in the forex rates could impact profitability adversely. Therefore, movements in forex rates and cotton prices will be monitorable.

Liquidity: Adequate

Cash surplus stood at Rs 104 crore as on September 30, 2024. In the absence of any major debt-funded capex and given the adequate cash accruals along with existing cash buffer, the company will cover debt repayment obligations of Rs 60 crore and Rs 355 crore for fiscal 26 and fiscal 27 respectively. Furthermore, the company has access to fund-based limit of Rs 1,069 crore with 12-month average utilisation of ~90% ended September 30, 2024.

Outlook: Stable

Crisil Ratings believes better operating performance should help HSL maintain profitability and reduce its long-term debt. Stable raw material prices and an increase in demand should aid in increasing operating income. Better utilisation of the terry towel and bed linen capacities, higher operating margin, and benefits of backward integration from the spinning unit will enhance the overall business risk profile of the Himatsingka group. Gradual deleveraging, in the absence in any major capex, will also aid the overall financial risk profile of the company.

Rating sensitivity factors

Upward factors

• Stronger business performance, resulting in higher cash accrual and enhanced return on capital employed
• Sustained improvement in gross debt to Ebitda ratio below 3.50 times

Downward factors

• Weak business performance and operating margin below 14% on a sustained basis, impacting cash generation
• Lower-than-anticipated improvement in debt metrics, owing to substantial debt, with large capex or stretch in working capital cycle; for instance, net debt to Ebitda remaining above 4.5 times on a sustained basis

About the Group

The Himatsingka group is a vertically integrated textile major with a global footprint. The group focuses on design, development, manufacture and distribution of home textile products. It operates one of the largest capacities in the world for bed and bath products, drape and upholstery fabrics, and fine count cotton yarn. Spread across North America, Europe and Asia, it owns or has licenses for the largest brand portfolios in the home textile space. With over 8,000 people, the group continues to build capacities and enhance reach in the global textile space.

 

The group reported operating profit Rs 285 crore and operating income of Rs 1,429 crore in the first half of fiscal 2025, as against operating profit of Rs 295 crore on operating income of Rs 1,421 crore in the first half of fiscal 2024.

Any other information: Not Applicable