| Khadim India Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed rationale CRISIL Ratings has revised its outlook on the long-term bank facilities of Khadim India Ltd (KIL) to ‘Positive’ from ‘Stable’ while reaffirming the 'CRISIL BBB-' rating. Also, CRISIL Ratings has reaffirmed its ‘CRISIL A3’ rating on the short-term bank facilities.
The revision in outlook reflects expected increase in profitability in fiscal 2022 while maintaining its scale of operations despite the Covid-19 pandemic. The improvement in profitability is primarily owed to measures undertaken by the company to contain costs. Liquidity of the company has also improved with a new bank (Bank of India) sanctioning and disbursing a portion of the untied gap of fund-based working capital limit.
Business was constrained during the first quarter of fiscal 2022 owing to sporadic lockdowns imposed to contain the second wave of the pandemic. However, as the pandemic is now under control, revenue and profitability will recover to pre-Covid levels supported by the company’s established market position and strong brand.
The ratings continue to reflect the company’s established market position, efficient working capital management and moderate financial risk profile. These strengths are partially offset by exposure to intense competition, volatility in raw material prices and geographic concentration in revenue.
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Key rating drivers and detailed description Strengths:
The promoter’s experience of more than 10 years in the footwear industry, strong understanding of market dynamics and healthy relationships with customers and suppliers will continue to support the business. Further, healthy revenue helps partially offset industry-specific risks.
The financial risk profile will remain supported by adequate profitability and low debt over the medium term. Gearing and total outside liabilities to adjusted networth ratio were 1.22 time and 2.04 times, respectively, as on March 31, 2021. Debt protection metrics are expected to revive sharply, after the dip reflected in interest coverage and net cash accrual to total debt ratios of 0.71 and 0.06 time, respectively, in fiscal 2021.
Weaknesses:
The company faces competition from various established brands such as Relaxo, Liberty, Bata and Paragon in the mass market, and unorganised players in the low-cost segment. Intense competition constrains scalability, pricing power and profitability of KIL.
Gross current assets were 164-194 days over the three fiscals through 2021, and 194 days as on March 31, 2021. Receivables and inventory were 71 and 83 days, respectively, as on March 31, 2021. The company has to provide extensive credit in line with the industry standards, and also because customers are small and medium-sized players.
The raw material, polyurethane, is a derivative of polyester and its price depends on demand-supply conditions of crude oil and exchange rate of the US dollar. As cost of procuring raw material accounts for bulk of the production cost, even a slight variation in price may drastically impact profitability. The inability to pass on adverse price increases to customers further constrains the profit margin. Entities that do not import raw material are also affected by unfavourable changes in foreign exchange rates because local suppliers fix input prices only after considering the rates in the international market.
As the company derives about 65% of revenue from east India, the business is vulnerable to slowdown in the economy of the region. |
Liquidity: Adequate Bank limit utilisation was moderate at 75% on average over the 10 months through November 2021. Cash accrual, expected over Rs 25 crore per annum, will sufficiently cover yearly term debt obligation of around Rs 5 crore over the medium term. In addition, the surplus will cushion the liquidity.
Current ratio was healthy at 2.25 times as on March 31, 2021. Low gearing and moderate networth support financial flexibility, which will cushion adverse conditions or downturns in the business. |
Outlook: Positive CRISIL Ratings believes KIL will continue to benefit from the extensive experience of the promoter and his established relationships with clients. Improvement in the revenue of the company while maintaining profitability will be a key rating driver. |
Rating sensitivity factors Upward factors:
Downward factors:
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About the company KIL was incorporated in 1981 by Mr Siddhartha Roy Burman as S N Footwear Industries Pvt Ltd. The entity was reconstituted as a public limited company in 2005. The company manufactures footwear for men, women and children; products are sold under the brand, Khadim. It has two manufacturing facilities in West Bengal. |
Key financial indicators
*CRISIL Ratings-adjusted numbers |
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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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 instruments
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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