| Khadim India Limited | ||||||
| 'CRISIL BBB-/Stable/CRISIL A3' assigned to Bank Debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL BBB-/Stable/CRISIL A3’ ratings to the bank facilities of Khadim India Ltd (KIL).
The ratings reflect the established market position of KIL along with its comfortable working capital management and moderate financial risk profile. These strengths are partially offset by exposure to risks related to intense competition, volatility in raw material prices and geographical concentration.
The ratings also factors in the stagnation of top line in the last 2 fiscals and dip in profitability.
Business is likely to remain constrained during fiscal 2021 owing to the economic slowdown that resulted from the nationwide lockdown imposed to curb the spread of Covid-19. However, once the pandemic is under control, KIL should resume its pre-pandemic levels of scale and profitability, supported by its established market presence and brand recognition. |
Key Rating Drivers & Detailed Description Strengths: Established market position The promoter's experience of over a decade, his strong understanding of market dynamics, established brand and healthy relations with customers and suppliers and will continue to support the business. Further, moderate scale of operations helps partially combat the industry-specific risks.
Moderate financial risk profile Financial risk profile should remain supported by adequate profitability and low debt. Gearing and total outside liabilities to adjusted networth ratio were 1.23 times and 1.95 times, respectively, as on March 31, 2020. Debt protection metrics were comfortable, with interest coverage and net cash accrual to total debt ratios of 1.44 times and 0.03 time, respectively, for fiscal 2020.
Weakness: Exposure to intense competition The footwear segment comprises various established brands such as Relaxo, Liberty, Bata and Paragons catering to the mass market segment. Furthermore, the low-cost footwear segment is dominated by numerous unorganised players. The domestic industry includes several small- and medium-scale enterprises owing to low entry barriers. Thus, intense competition may continue to constrain scalability, pricing power and profitability.
Large working capital requirement Gross current assets (GCAs) were 147-171 days over the three fiscals ended March 31, 2020. GCAs were 171 days as on March 31, 2020, driven by debtors of 56 days and inventory of 82 days. The company has to extend long credit period in line with the industry standards and also because the customers are small and medium size player who require credit. Furthermore, it holds large work in process & inventory to meet business requirement.
Susceptibility to fluctuation in raw material prices The raw material, polyurethane, is a derivative of polyester and its cost is based on demand-supply conditions of crude oil and exchange rate of the US dollar. Since cost of procuring the raw material accounts for a bulk of total production cost, even a slight variation in rates may drastically impact profitability. Inability to pass on any adverse price hike further constrains the profit margin. Even entities that do not import the raw material are affected by unfavourable volatility in forex rates because the local suppliers fix the input price only after taking into account its value in the international market.
Vulnerability to geographical concentration risk in revenue profile As KIL derives about 65% of its total revenue from East India, the business remains vulnerable to any slowdown in the economies of the region. |
Liquidity: Adequate Bank limit utilisation was moderate and averaged around 89% during the 12 months through January 2021. Cash accruals in fiscal 2021, is likely to be insufficient to meet the term debt obligations. However, short-term loans and unutilised bank lines must bridge the gap. Current ratio was robust at 2.26 times on March 31, 2020. |
Outlook Stable KIL will continue to benefit from the extensive experience of its promoter and his established relationship with clients. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Incorporated in 1981 by Mr Siddhartha Roy Burman as S.N. Footwear Industries Private Limited, a private limited Company under the Companies Act, 1956, the entity got reconstituted into a public-limited company in 2005. KIL manufactures footwear for men, women and children; the products are sold under the brand, Khadim. It has two manufacturing facilities in West Bengal. |
Key Financial Indicators
*Adjusted numbers |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
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 various bank facilities | ||||||||||||||||||||||||||||||
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