| Lehar Footwears Limited | ||||||
| 'CRISIL BBB-/Stable/CRISIL A3' assigned to Bank Debt | ||||||
| Rating Action | ||||||
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| 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 assigned its ‘CRISIL BBB-/Stable/CRISIL A3’ ratings to the bank facilities of Lehar Footwears Ltd (LFL).
The ratings reflect the extensive experience of the promoters and moderate financial risk profile. These strengths are partially offset by working capital-intensive operations and susceptibility of operating margin to volatility in raw materials prices. |
Analytical Approach Unsecured loans of Rs 1.3 crore as on March 31, 2023, have been treated as debt as the management intends to repay these loans. |
Key Rating Drivers & Detailed Description Strengths: Extensive experience of promoters: The extensive experience of promoters for more than 5 decades in footwear industry and their strong understanding of market dynamics, along with healthy relations with customers and suppliers has helped the company achieve an operating income CAGR of ~27% for last 3 years through FY23, with expected operating income in range of Rs 200-210 crores in FY23. The extensive experience and market standing of the company has further helped the company into penetrating market share in Northeastern states and get repeat orders from State Governments. With ~Rs 130 crores of orders in hand which are expected to be completed in Q1 of FY24, the company is expected to achieve operating income in range of Rs 270-300 crores in FY24.
Moderate financial risk profile: The financial risk profile of the company has been comfortable as marked by expected gearing in range of 0.8-0.9 times as on March 31, 2023 demonstrates significant headroom to take any additional debt for business purposes. With no plans to take any additional debt and continuous accretion to reserves the capital structure of company continues to remain comfortable over medium term. With sustenance of operating margins in range of 6-8%, the expected interest cover and expected NCAAD have been comfortable in range of 3-4 times and 0.16-0.2 times respectively in FY23, Further with expected improvement in operating margins and no additional debt proposed to be taken, debt protection metric continues to remain comfortable over medium term.
Weaknesses: Large working capital requirements: The operations of the company are working capital intensive as noted in GCA days ranging between 180-230 days historically from last 3 years through FY23. GCA days are expected to be in range of 200-230 days as on March 31, 2023 driven by debtor days of 103 days and inventory days of 120 days, which demonstrates higher reliance on working capital limits as witnessed in high bank limit utilisation of ~86% for last 12 months through April 2023 . With no change in business model, GCA days are expected to be in range of 210-220 days over medium term. Efficient management of working capital cycle and lower reliance on bank lines would therefore remain a key monitorable.
Susceptibility of operating margin to volatility in raw materials prices: The operating margins of the company are susceptible to volatility in prices of rubber and Polyvinyl Chloride [PVC] . The operating margins moderated to 7.8% in FY22 and further moderated to 7.4% in FY23 on account of high prices of rubber. The operating margins are expected to improve with stability in prices of rubber. Sustained increase in operating margins leading to higher cashflows would therefore remain a key monitorable. |
Liquidity: Adequate The liquidity profile of the company has been adequate as marked by modest expected cash and bank balance in range of Rs 4-5 crores with expected current ratio in range of 1.3-1.4 times as on March 31, 2023. Bank limit utilisations have been ~86% for last 12 months through April 2023. Net cash accruals are expected to be in range of Rs 8-16 crores which would be sufficient to meet up with annual repayment obligations ranging between Rs 1-5 crores over medium term. |
Outlook: Stable The company will continue to benefit from the extensive experience of its promoters and established relationships with clients. |
Rating sensitivity Factors Upward factors:
Downward factors:
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About the Company Incorporated in 1994 and promoted by Mr Ramesh Chand Agarwal (chairman), Mr. Naresh Kumar Agarwal (executive director) and Mr Rajkumar Agarwal (managing director). Mr Pramod Agarwal is currently holding chair as executive director of company. LFL (formerly, Lawreshwar Polymers Pvt Ltd) manufactures a variety of footwear such as light-weight fancy slippers, Polyvinyl Chloride PVC footwear, synthetic leather chappals, hawai chappals and canvas shoes. It markets products under the Lehar brand. Facilities are in Jaipur, Rajasthan. The company is listed on the Bombay Stock Exchange. |
Key financial indicators
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Any other information: Not applicable. |
Note on complexity levels of the rated instrument: |
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. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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* - Issuer did not cooperate; based on best-available information
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||
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This Annexure has been updated on 07-Jun-20223 in line with the lender-wise facility details as on 07-Jun-20223 received from the rated entity.
Criteria Details
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