Rating Rationale
July 29, 2024 | Mumbai
Rupa & Company Limited
Ratings reaffirmed at 'CRISIL AA-/Stable/CRISIL A1+'
 
Rating Action
Total Bank Loan Facilities RatedRs.365 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 loan facilities and commercial paper programme of Rupa & Company Ltd (Rupa; part of the Rupa group).

 

The ratings continue to reflect a strong market presence and extensive experience of the promoter in the hosiery industry, along with healthy financial risk profile. These rating 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 Pvt Ltd, Rupa Fashions Pvt Ltd 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 market presence and extensive industry experience of the promoters: The group has established its position in the intensely competitive domestic hosiery industry. The promoters have extensive industry experience of more than five decades. Rupa 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.

 

  • Healthy financial risk profile: The capital structure continues to remain healthy, as indicated by networth of Rs 956.8 crore and gearing less than 0.3 time in fiscal 2024. In the absence of any major debt-funded capital expenditure (capex) and moderate accretion to reserves, the capital structure is expected to remain robust over the medium term. Debt protection metrics continue to remain comfortable, as reflected by interest coverage and net cash accrual to total debt (NCATD) ratios of 5.7 times and 0.3 time, respectively, as on March 31, 2024.

 

Weaknesses:

  • Large working capital requirement: Intense competition in the hosiery industry necessitates offering substantial credit to distributors and maintaining a large inventory to minimise delays in delivery. However, inventory management has improved considerably with the focus on optimising production in line with sales patterns. Inventory remained high at around 149 days as on March 31, 2024. Going forward, prudent working capital management while sustaining moderate business risk profile will remain key rating sensitivity factors.

 

  • Exposure to intensifying competition in the innerwear industry and profitability exposed to volatile raw material prices: 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.

 

In fiscal 2024, operating margin improved to 9.6% from around 8% in the previous fiscal. Operating margin in fiscal 2023 had fallen from all-time high of 19.7% and 18.3% in fiscals 2021 and 2022, respectively. This was primarily due to reducing yarn prices in fiscal 2023 after seeing two consecutive surge years wherein hosiery players, such as Rupa who benefitted from high year-end finished goods inventory were highly impacted by the inventory loss. Reduced sales volume and reduction in year-end prices, owing to intense competition in the highly fragmented innerwear and hosiery industry, were other factors impacting profitability in fiscal 2023. Operating margin has started to recover to pre-Covid levels in fiscal 2024 with cooling of yarn prices and increase in sales volume. However, sustained improvement in profitability will remain a key rating sensitivity factor over the medium term.

Liquidity: Strong

Bank limit utilisation was moderate at less than 60% on average for the 12 months through May 2024. Cash accrual is expected to be over Rs 85 crore which will be sufficient against term debt obligation of less than Rs 7 crore over the medium term. The current ratio was healthy at 2.1 times as on March 31, 2024. Unencumbered liquid funds of more than Rs 200 crore as on June 30, 2024, provides additional cushion to liquidity and is a key monitorable over the medium term.

Outlook: Stable

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

Rating Sensitivity factors

Upward factors:

  • Strong revenue growth with improved operating margin of more than 15%
  • Improvement in the working capital cycle and no major debt-funded capex

 

Downward factors:

  • Decline in revenue or operating margin remaining below 8% leading to continued dip in accrual to below Rs 50 crore
  • Further stretch in the working capital cycle or large debt-funded capex adversely impacting the capital structure

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, is a subsidiary of Rupa and is currently engaged in trading of yarn. In Rupa Bangladesh Private Limited and Rupa Fashions Private Limited operations have not yet started.

Key Financial Indicators

As on/for the period ended March 31

Unit

2024

2023

Operating income

Rs.Crore

1,216.5

1,142.8

Reported profit after tax (PAT)

Rs.Crore

69.8

53.5

PAT margin

%

5.7

4.7

Adjusted debt/adjusted networth

Times

0.23

0.27

Interest coverage

Times

5.67

3.94

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 the instrument Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs.Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Cash Credit NA NA NA 345 NA CRISIL AA-/Stable
NA Non-Fund Based Limit NA NA NA 5 NA CRISIL A1+
NA Proposed Long Term Bank Loan Facility NA NA NA 2.4 NA CRISIL AA-/Stable
NA Term Loan NA NA Mar-2027 12.6 NA CRISIL AA-/Stable
NA Commercial Paper NA NA 7-365 days 180 Simple CRISIL A1+

Annexure - List of Entities Consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Euro Fashion Inners International Private Limited

Full

Common management and same business

Imoogi Fashions Private Limited

Full

Common management and same business

Oban Fashions Private Limited

Full

Common management and same business

Rupa & Company Limited

Full

Common management and same business

Rupa Bangladesh 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 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 360.0 CRISIL AA-/Stable   -- 28-08-23 CRISIL AA-/Stable 22-08-22 CRISIL AA-/Stable 29-09-21 CRISIL AA-/Stable CRISIL AA-/Stable
      --   -- 22-08-23 CRISIL AA-/Stable   -- 06-04-21 CRISIL AA-/Stable --
      --   --   --   -- 06-01-21 CRISIL AA-/Stable --
Non-Fund Based Facilities ST 5.0 CRISIL A1+   -- 28-08-23 CRISIL A1+ 22-08-22 CRISIL A1+ 29-09-21 CRISIL A1+ CRISIL A1+
      --   -- 22-08-23 CRISIL A1+   -- 06-04-21 CRISIL A1+ --
      --   --   --   -- 06-01-21 CRISIL A1+ --
Commercial Paper ST 180.0 CRISIL A1+   -- 28-08-23 CRISIL A1+ 22-08-22 CRISIL A1+ 29-09-21 CRISIL A1+ CRISIL A1+
      --   -- 22-08-23 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
Cash Credit 30 Standard Chartered Bank Limited CRISIL AA-/Stable
Cash Credit 10 Kotak Mahindra Bank Limited CRISIL AA-/Stable
Cash Credit 35 Citi Bank CRISIL AA-/Stable
Cash Credit 80 HDFC Bank Limited CRISIL AA-/Stable
Cash Credit 35 HSBC Bank Plc CRISIL AA-/Stable
Cash Credit 95 IndusInd Bank Limited CRISIL AA-/Stable
Cash Credit 25 State Bank of India CRISIL AA-/Stable
Cash Credit 10 YES Bank Limited CRISIL AA-/Stable
Cash Credit 25 ICICI Bank Limited CRISIL AA-/Stable
Non-Fund Based Limit 5 State Bank of India CRISIL A1+
Proposed Long Term Bank Loan Facility 2.4 Not Applicable CRISIL AA-/Stable
Term Loan 6.1 Kotak Mahindra Bank Limited CRISIL AA-/Stable
Term Loan 6.5 HDFC Bank Limited CRISIL AA-/Stable
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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