| Singer India Limited | ||||||
| Rating outlook revised to 'Negative'; Ratings Reaffirmed | ||||||
| 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 revised its outlook on the long-term bank facilities of Singer India Limited (SIL) to ‘Negative’ from ‘Stable’ while reaffirming the rating at 'CRISIL BBB'. The rating on the short-term facilities has been reaffirmed at 'CRISIL A3+'.
The revision in outlook is on account of the continuous decline in the margins owing to negative margins in the home appliances segment of the company. Since the sewing segment has limited value addition, margins have remained range bound for the segment. As a result, overall margins for the company have got impacted in fiscal 2023 and were at 0.47%, as compared to average operating margins of 3-4% over the last 3 years. In Q1FY24 also company has reported margins of -0.97% (Q1FY23: 0.93%). The company is now focusing on profitability improvement across all products and services, expanding Industrial Sewing Machine by introducing wider range of machines and adding electronic / embroidery machines in Household Zigzag Machines category which are higher margin generating products, in home appliances segment exiting the categories & sales channels contributing thin margins. Improvement in the operating margins will remain key monitorable over the medium term.
The ratings continue to reflect the company’s well-established brand with strong presence in the sewing machine industry in India as well as in home appliances business, product and geographical diversification across India and an asset-light business model. The ratings also factor in prudent working capital management and a comfortable financial risk profile. These strengths are partially offset by exposure to intense competition in the consumer durables sector in India leading to weakened operating margins and cash outflow in the form of dividends. |
Key Rating Drivers & Detailed Description Strengths: Well-established brand and strong market presence: SIL has a trademark agreement with the owners of the ‘Singer’ and ‘Merritt’ brands, namely The Singer Company Ltd S.a.r.l. and Singer Sourcing LLC, both affiliates of SVP Worldwide. SIL has been involved in the sewing machine business since 1977 and has a strong distribution and after-sales service network for the sewing machine and appliance businesses. This is expected to continue to strengthen the company’s market presence. SIL derives its majority revenue of ~68-70% from sewing machines and balance 28-30% from home appliance segment and out of swing machine ~11-12% revenue comes from industrial sewing machine segment which the company is now planning to increase the share by introducing more efficient machines to complete the basic sets of machines required to start a new unit by a Garment house which will provide one stop solution for such customers.
Product and geographical diversification with an asset-light business model: SIL entered the home appliances sector a few years ago to diversify from sewing machines. The proportion of revenue from the appliances business is ~28-30%. The company is present across India, with most of the sewing machine sales being made in the south. The company follows an asset-light model through outsourced contract manufacturing with back-to-back warranty with the vendors for major defects.
Prudent working capital management and a healthy financial risk profile: Gross current assets are at 164 days as on March 31, 2023, against 124 days a year earlier. Increase in GCA days is due to the increase in cash and bank balance to Rs. 82 crores as on March 31, 2023 due to additional funds raised of Rs. 56.8 cr. The asset-light model has helped keep the capital structure healthy. SIL has raised additional funds to the tune of Rs 56.82 crore from investors, the fund raising will enable the company to strengthen its brand and distribution channels, fulfil its additional working capital requirements for the expansion of its businesses and enable investments in product design upgradation and system technology upgradation among others. Any expansion would be funded through this fund only and no debt funded capex is expected over the medium term. In the absence of any debt, total outside liabilities to tangible networth ratio was 0.61 times as on March 31, 2023.
Weakness: Exposure to intense competition in the consumer durables sector in India leading to weakened operating margins: Entry of several large players in the consumer durable segment over the past few years has led to significant price competition, which has adversely affected the operating profitability of most players. Herein, the profitability of 3-4% in the past 3 years ended has deteriorated to 0.48% in fiscal 2023 and -0.97% in Q1 of fiscal 23 owing to players' inability to pass on increases in cost to customers and high inflationary pressure impacting both the sewing and appliances segment. Profitability will remain a challenge for most players in the industry on account of intense competition and consolidation witnessed across large consumer players in the domestic market.
High dividend payouts: SIL had made dividend payout of Rs. 5.37crores in FY23, the sizable dividend payouts given its limited profitability can reduce the availability of cash generated through operations for its business requirements. Net cash accrual was at Rs. 4.9 crore in fiscal 2023. Although cash accruals along with working capital limits were sufficient for meeting business requirements. In FY 23 SIL has not recommended any dividend with a view to the expended operations and future expansion plan of the company, but in future a higher-than-expected dividend outflow may impact the liquidity. |
Liquidity: Adequate Bank limit utilisation is low at around 9.7 percent for the past twelve months ended May-23. Cash accruals are expected to be over Rs 3-7 crores which are sufficient against nil term debt obligation over the medium term. Current ratio was healthy at 2.5 times on March 31, 2023. Low gearing and moderate networth support financial flexibility and provide a financial cushion in case of any adverse conditions or downturns in the business. |
Outlook: Negative CRISIL Ratings believes that the SIL business risk profile will remain under pressure in absence of improvement in operating margin. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Company Incorporated in 1977, SIL is 31% owned by RHBV as at March 31, 2023. Recently, RHBV sold SIL 22.34% equity in the open market in August 2022 as a part of their plans to restructure the equity share capital of SIL. It’s business profile will not change which includes assembling and trading of sewing machines and home appliances in India under the Singer and Merritt brands. The manufacturing facility is in Jammu. The company follows an asset-light model through outsourced contract manufacturing and has back-to-back warranty with vendors for major defects. |
Key Financial Indicators*
*CRISIL Ratings adjusted figures |
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. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||
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Criteria Details
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