Rating Rationale
March 25, 2020 | Mumbai
Singer India Limited
 
Rating Action
Total Bank Loan Facilities Rated Rs.45 Crore
Long Term Rating CRISIL BBB/Stable
Short Term Rating CRISIL A3+
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL ratings on the bank facilities of Singer India Limited (SIL) continue to reflect an established brand with a strong presence in the Indian sewing machine industry as well as in the rapidly growing home appliances business segment, product and geographical diversification across India, and an asset-light business model resulting in a comfortable return on capital employed (RoCE) despite low profitability. The ratings also factor in a moderate working capital cycle and a comfortable financial risk profile. These strengths are partially offset by exposure to intense competition in the consumer durables sector in India, and cash outflow in the form of dividends thus impacting liquidity.

CRISIL on March 23, 2020 had assigned its 'CRISIL BBB/Stable/CRISIL A3+' ratings to the bank facilities of SIL.

Analytical Approach

CRISIL has not considered any support from the holding entity, Retail Holdings NV (RHNV), as RHNV intends to sell its shareholding in SIL over the medium term, resulting in possible reorganisation of the group.

Key Rating Drivers & Detailed Description
Strengths:
* Established brand name and strong market presence: SIL is ultimately and majorly owned by RHNV, which has equity interest in Singer Asia Ltd, a distributor of sewing machines and other consumer durable products through its public subsidiary in India that has rights to use the Singer brand. SIL has been involved in the sewing machine business from 1977 and has a strong distribution as well as after-sales service network for both sewing machines and appliances businesses, which is expected to strengthen the market presence.

* Product and geographical diversification with an asset-light business model: The company entered into the home appliances segment a few years ago to diversify from only sewing machines. The proportion of revenue from the appliances business has been gradually increasing on account of rapid growth. During the nine months through December 2019, the sewing machine business contributed 63% of total revenue as against 70% in fiscal 2019 and 73% in fiscal 2018. The company is present across India with most of the sewing machinery sales being made in the south. Due to an asset-light model of business, the RoCE has been comfortable despite a low profitability margins; the RoCE was more than 20% while the margin was just 3.1-3.4% over the three fiscals through 2019.

* Moderate working capital requirement and a healthy financial risk profile: Gross current assets (GCAs) were 112 days as on March 31, 2019, as against 100 days a year earlier. The asset-light model has helped to keep the capital structure healthy as reflected in the overall gearing at 0.39 time and total outside liabilities to tangible networth (TOLTNW) ratio at 1.85 times as on March 31, 2019. As the focus is now on the home appliances segment, working capital requirement is expected to increase to cater to need for stocking finished goods.

Weaknesses:
* Exposure to intense competition in the consumer durables sector in India: With the entry of several large players over the past few years, there has been significant price competition, which has adversely affected the operating profitability of most players. Raw material price fluctuations further accentuate the pressure on profitability because of the players' inability to pass on cost increases to customers. 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.

* History of sizable cash outflows in the form of dividends: Limited profitability and sizable dividend payouts have historically dampened net cash accrual. Net cash accrual was Rs 2.93 crore in fiscal 2019 despite operating income of Rs 482.98 crore. Dividend of Rs 7.45 crore (69% of paid-up share capital) was paid in fiscal 2019 as against Rs 4.53 crore (42.13%) in fiscal 2018. Higher-than-expected dividend outflows, impacting liquidity, would remain a key monitorable over the medium term.
Liquidity Adequate

Average bank limit utilisation was moderate at around 58% during the 12 months through December 2019. Cash accrual is expected at around Rs 5 crore, which should be sufficient to meet term debt obligation of Rs 5-6 lakh, per fiscal and letter of credit repayment obligations, over the medium term. The current ratio was healthy at 1.4 times as on March 31, 2019.

Outlook: Stable

CRISIL believes SIL will continue to benefit from its strong brand, and established distribution as well as after-sales service network.

Rating Sensitivity factors
Upward factors:
* Increase in revenue and in the operating margin to 8-10%, leading to higher cash accrual.
* Improvement in the working capital cycle, with GCAs reducing to 90 days.

Downward factors:
* A sustained decline in the operating profitability margin by over 200 basis points
* More-than-expected dividend payout.
* Any significant change in the global strategy of the parent that could impact the business risk profile of SIL.
About the Company

Incorporated in 1977, SIL is ultimately and majorly owned by RHNV, Curacao. RHNV has equity interest in Singer Asia Ltd, a distributor of sewing machines and other consumer durable products through its public subsidiary in India.

SIL assembles and trades in sewing machines and home appliances under the Singer and Merritt brands in India. The manufacturing facility is in Jammu. The company follows an asset-light model through outsourced contract manufacturing with back-to-back warranty with the vendors for major defects, resulting in a healthy RoCE.

Key Financial Indicators
As on / for the period ended March 31 Units 2019 2018
Operating income Rs crore 482.98 421.89
Reported profit after tax (PAT) Rs crore 9.26 8.96
PAT margin % 1.94 2.14
Adjusted debt/adjusted networth Times 0.39 0.25
Interest coverage Times 9.84 12.66

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)
ISIN Name of Instrument Date of Allotment Coupon
Rate (%)		 Maturity Date Issue Size (Rs.Cr) Rating Assigned with Outlook
NA Cash Credit NA NA NA 15.50 CRISIL BBB/Stable
NA Letter of credit & Bank Guarantee NA NA NA 24.50 CRISIL A3+
NA Working Capital Demand Loan NA NA NA 5.00 CRISIL BBB/Stable
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  20.50  CRISIL BBB/Stable  23-03-20  CRISIL BBB/Stable    --    --    --  -- 
Non Fund-based Bank Facilities  LT/ST  24.50  CRISIL A3+  23-03-20  CRISIL A3+    --    --    --  -- 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 15.5 CRISIL BBB/Stable Cash Credit 4 CRISIL BBB/Stable
Letter of credit & Bank Guarantee 24.5 CRISIL A3+ Letter of Credit 35 CRISIL A3+
Working Capital Demand Loan 5 CRISIL BBB/Stable Packing Credit (pre-shipment credit) 3 CRISIL BBB/Stable
-- 0 -- Proposed Long Term Bank Loan Facility 3 CRISIL BBB/Stable
Total 45 -- Total 45 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for rating short term debt

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