Rating Rationale
August 16, 2024 | Mumbai
Indian Terrain Fashions Limited
Ratings downgraded to 'CRISIL BBB-/Stable/CRISIL A3'
 
Rating Action
Total Bank Loan Facilities RatedRs.105 Crore
Long Term RatingCRISIL BBB-/Stable (Downgraded from 'CRISIL BBB/Stable')
Short Term RatingCRISIL A3 (Downgraded from 'CRISIL A3+')
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 downgraded its ratings on the bank facilities of Indian Terrain Fashions Limited (ITFL) to ‘CRISIL BBB-/Stable/CRISIL A3’ from 'CRISIL BBB/Stable/CRISIL A3+'.

 

The rating downgrade reflects weakening of business and financial risk profile owing to slowdown in demand and closure of boys wear segment. In 2025 revenue and EBITDA (Earnings before interest tax depreciation) is expected to be substantially lower compared to previous fiscal. The company reported a revenue degrowth of over 25% in first quarter of current year as compared to same period of previous fiscal. EBITDA also declined drastically to negative 16.79 per cent as compared to 6.23% for same period of previous fiscal. This is mainly on account of lower fixed cost absorption due to closure of boys division, weaker demand and higher discounts offered. This is expected to result in weakening of financial risk profile with deterioration in debt protection metrics and lower net cash accruals. Company is currently undertaking measures to reduce overall fixed cost. The improvement in operating performance in the ensuing quarters and the resultant improvement in financial profile will remain a key rating monitorable.

 

The rating also reflects ITFL's strong market position supported by extensive industry experience of the promoters and a comfortable financial profile. These strengths are partially offset by working capital intensive operations and vulnerability to changes in fashion trends and competition.

Key Rating Drivers & Detailed Description

Strengths:

  • Strong market position supported by extensive industry experience of the promoters: ITFL retails readymade garments for men, driven by its flagship brand, ‘Indian Terrain’, through its own stores, franchisees, multi-brand retail outlets and large format retail counters such as Shoppers Stop Ltd (CRISIL A+/Stable/CRISIL A1+) and Lifestyle International Pvt Ltd (CRISIL AA+/Stable/CRISIL A1+). The company has a wide presence across India, mostly dominated in southern region, with total stores count of 234 as of June 2024. EBO revenue (Exclusive Brand Outlet) contributes the highest to the total revenue at over 50 percent of the total revenue. Further, the promoters have an experience of over three decades in apparel retail industry. This has given them an understanding of the dynamics of the market and enabled them to establish relationships with suppliers and customers.

 

  • Comfortable financial profile: ITFL’s capital structure have been at moderate healthy level due to limited reliance on external funds yielding gearing of 0.74 and total outside liabilities to adj tangible networth (TOL/ANW) of 1.57 for year ending on 31st March 2024. The interest coverage and net cash accrual to total debt (NCATD) ratio are at 1.59 times and 0.09 times for fiscal 2024. ITFL debt protection measures is expected to deteriorate in current fiscal on account of impact in operating performance. Improvement in debt protection metrics will remain a key monitorable.

 

Weaknesses:

  • Working capital intensive operations: Gross current assets were at 284 - 339 days over the three fiscals ended March 31, 2024. The extensive working capital requirement is reflected in gross current assets (GCA) of 326 days as on March 31, 2024. Its large working capital requirements arise from its high debtor due to its business with Large Format Stores (LFS) and e-commerce partners. Furthermore, due to its business need, it holds large work in process & inventory. Any sharp increase in working capital requirement that might impact on the liquidity of the company would remain key rating monitorable.

 

  • Vulnerability to changes in fashion trends and competition: ITFL’s business is driven by fashion trends and its target segment's aspirations are significantly influenced by peers, role models, and the media. The operations also remain exposed to competition from a number of other domestic and global brands. The business of selling branded apparels is driven by fashion trends, particularly in the urban regions and among consumers in the age group of 18-40 years. Thus, players such as ITFL need to constantly innovate and adapt to the changing preferences of the target segment. Currently, more than 95% of revenues of ITFL comes from the men’s category with major contribution from Shirts, Trousers, T-Shirts and Denimwear which is partially mitigated by the long-standing presence in the industry.

Liquidity: Adequate

Bank limit utilisation is high at around 96 percent for the past seven months ended July 2024. Cash accruals in the current fiscal will not be suffice for repayment obligation. However, the same will be met through existing liquidity and expected improvement in working capital cycle. The company maintains liquid assets in the form of mutual funds to the tune of Rs. 5.72 crore as on 31st July 2024 to support exigencies. Company is in the process of infusing equity investment of Rs.10 crore which will support the liquidity of the company.

Outlook: Stable

CRISIL Ratings believe ITFL will continue to benefit from its strong market position supported by the extensive experience of its promoter, and established relationships with clients.

Rating Sensitivity factors

Upward factors

  • Sustained growth in revenues and sustenance of operating margin at over 9-10% leading to higher cash accruals.
  • Improvement in interest coverage and sustenance of capital structure.

 

Downward factors

  • Substantial decline in revenue or profitability margin below 4-5% leading to lower net cash accrual on sustained basis
  • Stretch in working capital adversely impacting liquidity.

About the Company

Incorporated in September 2009, ITFL retails ready-made garments for men, such as shirts, trousers, T-shirts, jackets, and sweaters under the Indian Terrain brand. The domestic retail division of Celebrity Fashions Ltd (CFL, rated at CRISIL BB-/Stable/CRISIL A4+) was demerged into ITFL with effect from April 1, 2010. The company has more than 200 exclusive brand outlets with a mix of company operated and franchise operated outlets along with 1000+ multi brand outlets, 400+ doors of large format stores and 5+ E-commerce partners.

 

ITFL is listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). The company is promoted by Mr. Venkatesh Rajagopal (Chairman & Whole Time Director) along with family. Managing director, Mr. Charath Narsimhan, manages the day-to-day operations.

Key Financial Indicators

As on/for the period ended March 31

Unit 

2023

2022

Operating income

Rs.Crore

503.65

337.18

Reported profit after tax

Rs.Crore

10.50

-7.73

PAT margins

%

1.41

-0.65

Adjusted Debt/Adjusted Networth

Times

0.25

0.25

Interest coverage

Times

2.22

1.48

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` 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.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs.Cr) Complexity Levels Rating Assigned with Outlook
NA Cash Credit NA NA NA 25 NA CRISIL BBB-/Stable
NA Cash Credit NA NA NA 60 NA CRISIL BBB-/Stable
NA Foreign Exchange Forward NA NA NA 0.2 NA CRISIL A3
NA Letter of Credit NA NA NA 8 NA CRISIL A3
NA Proposed Cash Credit Limit NA NA NA 6.5 NA CRISIL BBB-/Stable
NA Term Loan NA NA Mar-2027 5.3 NA CRISIL BBB-/Stable
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities ST/LT 97.0 CRISIL BBB-/Stable/ CRISIL A3 31-01-24 CRISIL A3+ / CRISIL BBB/Stable 11-08-23 CRISIL BBB+/Stable / CRISIL A2   --   -- Withdrawn
      -- 29-01-24 CRISIL A3+ / CRISIL BBB/Stable   --   --   -- --
Non-Fund Based Facilities ST 8.0 CRISIL A3 31-01-24 CRISIL A3+ 11-08-23 CRISIL A2   --   -- Withdrawn
      -- 29-01-24 CRISIL A3+   --   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 25 YES Bank Limited CRISIL BBB-/Stable
Cash Credit 60 State Bank of India CRISIL BBB-/Stable
Foreign Exchange Forward 0.2 State Bank of India CRISIL A3
Letter of Credit 8 State Bank of India CRISIL A3
Proposed Cash Credit Limit 6.5 Not Applicable CRISIL BBB-/Stable
Term Loan 5.3 State Bank of India CRISIL BBB-/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Retailing Industry
CRISILs Criteria for rating short term debt

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