Rating Rationale
August 22, 2022 | Mumbai
Rupa & Company Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.308 Crore
Long Term RatingCRISIL AA-/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
 
Rs.180 Crore Commercial PaperCRISIL A1+ (Reaffirmed)
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 reaffirmed its ‘CRISIL AA-/Stable/CRISIL A1+’ ratings on the bank facilities and commercial paper of Rupa & Company Limited (Rupa; part of the Rupa group).

 

The ratings continue to reflect the strong business risk profile of the Rupa group on account of its established position in the domestic hosiery industry over the past five decades. The company had generated healthy turnover of around Rs.1474 crore in FY 2022 and Rs.1313 crore in FY 2021 with EBITDA (earnings before interest, taxes, depreciation, and amortisation) margin of 18 and 20% respectively. Though, the turnover was stagnant at Rs.213 crore in Q1 FY 2023 and EBITDA dipped margin dipped to 8.6% from 19% because of increased advertisement cost and diseconomies of scale with lower absorption of staff cost, sales are expected to ramp up driven by strong brand recall and pick up in second-half of fiscal 2023 which constitutes 60-65% of total sales. This is expected to lead to an improvement in EBITDA margin as compared to Q1 2023 with better absorption of fixed costs due to economies of scale benefit. However, EBITDA for FY 2023 is expected to moderate from the peak seen in FY 2021 and FY 2022.

 

The ratings also reflect robust financial risk profile because of healthy networth, strong gearing, and comfortable debt protection metrics and liquidity. These strengths are partially offset by large working capital requirement and exposure to intensifying competition in the innerwear industry.

Analytical Approach

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), Rupa Bangaldesh Private Limited and Rupa Fashions Private Limited, and Oban Fashions Pvt Ltd (Oban). This is because all these entities, 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 intensely competitive domestic hosiery industry. It benefits from strong brand recall in the premium and economy segments and has over 18 sub-brands that cater to the economy, medium, premium and super-premium segments. Acquisition of licence rights for certain products of French Connection Group PLC (FCUK brand) and Fruit of the Loom is expected to further support business risk profile.

 

  • Robust financial risk profile: Networth was large at Rs 887 crore because of steady accretion to reserves while gearing was healthy at 0.4 time, as on March 31, 2022. This enhances financial flexibility to cope with sudden changes in business conditions. Gearing is expected to remain steady over the medium term in the absence of any large capital expenditure (capex) plans. Debt protection metrics remained robust, with interest coverage and net cash accrual to total debt ratios of 14.9 times and 0.5 time, respectively, for fiscal 2022.

 

Weaknesses:

  • Large working capital requirement: Intense competition in the hosiery industry necessitates offering substantial credit to distributors and maintaining large inventory to minimise delays in delivery. Inventory management has, however, improved considerably with focus on optimising production in line with sales patterns.

 

  • Exposure to intensifying competition in the innerwear industry: The innerwear market in India 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, large domestic readymade garment manufacturers venturing into innerwear segments, and other players spending heavily on brand-building and product-positioning.

Liquidity: Strong

Bank limit (including cash credit limit and commercial paper) of Rs 278 crore has been utilised at 57% on average over the 12 months through February 2022. Cushion in limit provides financial flexibility to meet any short-term exigency. Furthermore, the group is expected to generate healthy cash accrual that should adequately meet debt obligation. Moderate capex of around Rs 20 crore towards routine maintenance capex is not likely to affect the liquidity of the group.

Outlook: Stable

The strong market position of the group and its established distribution network will continue to support business risk profile over the medium term.

Rating Sensitivity Factors

Upward factors:

  • Growth in scale to more than 15% and sustenance of Ebitda margin over 16%
  • Improvement in working capital cycle

 

Downward factors:

  • Dip in accrual below Rs 125 crore due to fall in profitability
  • Further stretch in working capital cycle

About the Group

Incorporated in 1985, Rupa is promoted by 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 while Imoogi (set up in 2010 in Kolkata) owns the Femmora brand. Oban, incorporated in 2015, acquired the exclusive licence from FCUK to develop, manufacture and sell innerwear, socks, leggings and sleepwear under the FCUK brand in India, effective April 2016.

 

On January 5, 2022, all assets and liabilities pertaining to the super premium segment (FCUK and Fruits of the Loom) of OFPL has got transferred to Rupa along with all licences, approvals, contracts, deeds, statutory obligations and employees. OFPL will remain a subsidiary of Rupa and is currently engaged in trading of Yarn.

Key Financial Indicators

Particulars

Unit

2022

2021

Revenue

Rs crore

1474

1313

Profit After Tax (PAT)

Rs crore

192

175

PAT Margin

%

13.0

13.3

Adjusted debt/adjusted networth

Times

0.40

0.20

Interest coverage

Times

14.4

26.0

*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 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 crore)

Complexity

level

Rating assigned

with outlook

NA

Cash Credit

NA

NA

NA

278

NA

CRISIL AA-/Stable

NA

Proposed Term Loan

NA

NA

NA

4.9

NA

CRISIL AA-/Stable

NA

Term loan

NA

NA

Aug-26

6.5

NA

CRISIL AA-/Stable

NA

Term loan

NA

NA

May-23

5.0

NA

CRISIL AA-/Stable

NA

Term loan

NA

NA

May-26

2.5

NA

CRISIL AA-/Stable

NA

Term loan

NA

NA

Jul-25

6.1

NA

CRISIL AA-/Stable

NA

Bank Guarantee

NA

NA

NA

4.0

NA

CRISIL A1+

NA

Letter of Credit

NA

NA

NA

1.0

NA

CRISIL A1+

NA

Commercial Paper

NA

NA

7-365 days

180.0

Simple

CRISIL A1+

Annexure - List of Entities Consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Oban Fashions Private Limited

Full

Common management and same business

Rupa & Company Limited

Full

Common management and same business

Euro Fashion Inners International Private Limited

Full

Common management and same business

Imoogi Fashions Private Limited

Full

Common management and same business

Rupa Bangaldesh Private Limited

Full

Common management and same business

Rupa Fashions Private Limited

Full

Common management and same business
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 303.0 CRISIL AA-/Stable   -- 29-09-21 CRISIL AA-/Stable 31-07-20 CRISIL AA-/Stable 22-07-19 CRISIL AA-/Stable CRISIL AA-/Stable
      --   -- 06-04-21 CRISIL AA-/Stable   --   -- --
      --   -- 06-01-21 CRISIL AA-/Stable   --   -- --
Non-Fund Based Facilities ST 5.0 CRISIL A1+   -- 29-09-21 CRISIL A1+ 31-07-20 CRISIL A1+ 22-07-19 CRISIL A1+ CRISIL A1+
      --   -- 06-04-21 CRISIL A1+   --   -- --
      --   -- 06-01-21 CRISIL A1+   --   -- --
Commercial Paper ST 180.0 CRISIL A1+   -- 29-09-21 CRISIL A1+ 31-07-20 CRISIL A1+ 22-07-19 CRISIL A1+ CRISIL A1+
      --   -- 06-04-21 CRISIL A1+   --   -- --
      --   -- 06-01-21 CRISIL A1+   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Term Loan 6.5 HDFC Bank Limited CRISIL AA-/Stable
Term Loan 6.1 Kotak Mahindra Bank Limited CRISIL AA-/Stable
Cash Credit 40 Citibank N. A. CRISIL AA-/Stable
Cash Credit 15 DCB Bank Limited CRISIL AA-/Stable
Cash Credit 35 HSBC Bank Plc CRISIL AA-/Stable
Cash Credit 25 State Bank of India CRISIL AA-/Stable
Bank Guarantee 4 State Bank of India CRISIL A1+
Cash Credit 80 IndusInd Bank Limited CRISIL AA-/Stable
Cash Credit 38 HDFC Bank Limited CRISIL AA-/Stable
Cash Credit 10 Kotak Mahindra Bank Limited CRISIL AA-/Stable
Letter of Credit 1 State Bank of India CRISIL A1+
Cash Credit 35 Standard Chartered Bank Limited CRISIL AA-/Stable
Proposed Term Loan 4.9 Not Applicable CRISIL AA-/Stable
Term Loan 5 Kotak Mahindra Bank Limited CRISIL AA-/Stable
Term Loan 2.5 Kotak Mahindra Bank Limited CRISIL AA-/Stable

This Annexure has been updated on 23-Mar-23 in line with the lender-wise facility details as on 10-Mar-23 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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