| Rupa & Company Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA-/Stable/CRISIL A1+' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ratings on the bank loan facilities and commercial paper of Rupa & Company Limited (Rupa; part of Rupa group) at ‘CRISIL AA-/Stable/CRISIL A1+’
The rating continues to reflect strong business risk profile of the group primarily on account of its established position in the domestic hosiery industry for more than three decades. The ratings also factor in robust financial risk profile and strong liquidity risk profile of the group. These rating strengths are partially offset by moderate working capital requirements of the group and exposure to intensifying competition in the innerwear industry.
The ratings also factor in recent announcement by Rupa pertaining to demerge of super premium segment (FCUK and Fruits of the Loom brands) from Oban Fashions Pvt Ltd (OFPL; 100% subsidiary of Rupa) into Rupa. Approvals from authorities for implementing this arrangement is under process. CRISIL believes such arrangement if implemented will not have any impact on Rupa’s credit profile. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of Rupa and its wholly owned subsidiaries, Euro Fashion Inners International Pvt Ltd (Euro), Imoogi Fashions Pvt Ltd (Imoogi), and Oban Fashions Pvt Ltd (Oban). That’s because all these companies, together referred to as the Rupa group, have significant operational and financial linkages.
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: * Strong business risk profile: The group has established its position in the domestic hosiery industry over the past three decades. The industry, particularly the economy segment, is intensely competitive. But the group benefits from its strong brand recall in the premium and economy segments. It has over 10 sub-brands and caters to all segments—economy, medium, premium, and super-premium. Furthermore, acquisition of license rights for certain products of French Connection Group PLC (FCUK brand) and Fruit of the Loom, INC. (Fruit of the Loom brand) is likely to support improvement in business profile over the medium term. Furthermore, a significant portion of the revenue is derived from Uttar Pradesh and Bihar thereby exposing the business profile to geographical concentration. As such, the company has plans to increase its presence in untapped market especially West and South India. Successful penetration of such untapped market while maintaining its profitability will be key rating driver.
* Robust financial risk profile: The networth is strong at around Rs 576 crores, backed by steady accretion to reserves, while the gearing is low at 0.31 time as on March 31, 2020, thus enhancing financial flexibility, especially to cope with sudden changes in business conditions. The gearing is expected to remain low over the medium term as well, in the absence of any large debt funded capital expenditure (capex) plans. Debt protection metrics too remained strong with interest coverage at 6.5 times and net cash accruals to total debt at 0.34 time for fiscal 2020.
Weakness: * Moderate working capital requirement: Intense competition in the hosiery industry necessitates offering substantial credit to distributors, and maintaining large inventory to minimize delays in delivery to customers. As such, the gross current asset (GCA) days have remained moderately high at around 294 days as on March 31, 2020 primarily driven by debtor days of around 93 days and inventory days of 198 days. The efficacy of working capital management will be key monitorable over the medium term.
* Exposure to intensifying competition in the innerwear industry: India's innerwear market is dominated by the unorganised sector, despite the robust market potential for branded innerwear, leading to intense competition. Competition could also increase with the advent of other established foreign brands through the franchisee route, strong domestic readymade garment manufacturers venturing into innerwear segments, and other large players spending heavily on brand-building and product-positioning. Intensifying competition could hence result in market challenges for players in the industry, including Rupa. |
Liquidity: Strong The liquidity profile of the company is comfortable. The bank limits (including both cash credit limit and commercial paper) of Rs 278 crores have been utilized at an average of around 38% over the last 12 months. Availability of cushion in bank limits provides financial flexibility to meet any short term exigencies. Furthermore, the company is expected to generate healthy cash accruals adequate to comfortably repay its debt obligation. The surplus funds would be utilized to meet incremental working capital requirements. The company has moderate capex plan of around Rs 20 crores towards setting up new unit in Bangladesh under its wholly owned subsidiary (Rupa Bangladesh Pvt Ltd) which is not likely to affect the liquidity profile of the company. |
Outlook: Stable CRISIL Ratings expects Rupa group’s business profile will remain healthy over the medium term due to its strong brand reputation and benefits to be derived from the license acquired for FCUK and Fruit of the Loom brand products. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company Rupa, incorporated in 1985, is promoted by the Kolkata-based Agarwala brothers. The company manufactures knitted innerwear, casual wear, and thermal wear for men, women, and children. The Agarwala family has been in this business since 1968 through proprietorship and partnership firms. After incorporation, Rupa took over the business of Binod Hosiery, a partnership firm of the Agarwala brothers.
Euro, incorporated in 2005 in Mumbai, owns the Euro brand, whereas Imoogi, incorporated in 2010 in Kolkata, owns the Imoogi brand. Oban, incorporated in 2015, has acquired the exclusive licence from FCUK to develop, manufacture, market, and sell innerwear, socks, leggings and sleepwear with brand name FCUK in India, effective April 2016. |
Key Financial Indicators
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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 – List of entities consolidated
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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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