| TCNS Clothing Co. Limited | ||||||
| Long-term rating placed on 'Watch Developing'; Short-term rating 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 placed its ‘CRISIL AA-’ rating on the long-term bank facilities of TCNS Clothing Co. Limited (‘TCNS’) on ‘Rating Watch with Developing Implications', and reaffirmed its short-term rating at ‘CRISIL A1+’. The rating watch takes into account the impending merger of TCNS with its parent, Aditya Birla Fashion and Retail Limited (ABFRL, ‘CRISIL AA+/Rating Watch with Negative Implications/CRISIL A1+’), which is expected to be completed over the next 3-4 months, subject to regulatory and statutory approvals.
This rating on the long-term ratings of the debt facilities of ABFRL have been placed on watch with negative implications, following an announcement it made on April 19, 2024, that its Board of Directors have approved a scheme of arrangement between ABFRL and Aditya Birla Lifestyle Brands Limited (‘ABLBL’) and their respective shareholders and creditors. The scheme, inter alia, provides for demerger, transfer and vesting of the Madura Fashion and Lifestyle Business (‘MF&L’) from ABFRL to ABLBL. The rating of TCNS factors in the operational, managerial and ongoing financial support from the parent ABFRL, and its rating has linkages with that of ABFRL.
CRISIL Ratings will continue to engage with the management of TCNS and ABFRL and monitor developments in this regard, and will resolve the watch after consummation of the transaction and obtaining clarity on its impact on the credit profile of TCNS.
In March 2024, the outlook of TCNS was revised to ‘Stable’ from ‘Positive’ after factoring in the lower-than-expected operating profitability in the third quarter of fiscal 2024, when the company had reported negative Ebitda (earnings before interest, taxes, depreciation, and amortisation; including other income) of ~3% (post-Ind AS) against expected profits on account of festive demand. This was due to muted demand and alignment of dormancy norms with the parent, ABFRL. Reported Ebitda margin (including other income) was negative by ~18% in the nine month period till December 2023; margin is expected to be under pressure for 2-3 quarters more. It is likely to improve from the second half of fiscal 2025 after complete re-alignment with the policies of ABFRL. The operations of TCNS shall continue to benefit from parent support. Operational losses led to continued weak debt protection metrics; hence, sustained improvement in margin amid steady operating income would remain monitorable.
The ratings reflect the strategic importance of TCNS to ABFRL as product offering gets strengthened with entry into premium ethnic wear; strong operational and management support from the parent; and established market position of TCNS. These strengths are partially offset by working capital-intensive operations and low operating profitability. |
Analytical Approach CRISIL Ratings continues to apply its parent notch-up criteria to arrive at the ratings of TCNS. This is because the company became a subsidiary of ABFRL in September 2023 and is likely to be merged with it in the near term. |
Key Rating Drivers & Detailed Description Strengths:
Weaknesses:
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Liquidity: Strong TCNS has strong liquidity, emanating from its parent, ABFRL. Its own liquidity position is average; there are no term debt obligations to repay and the cash and equivalent are expected to be Rs 18-20 crore over the medium term. Fund-based limit of Rs 167 crore was utilised ~55% on average during the 12 months through September 2023. Cash and equivalent, unutilised bank limit, and parent support will be sufficient to meet incremental working capital requirement. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company TCNS was set up in December 1997 by Mr OS Pasricha and Mr AS Pasricha and is listed on the Bombay Stock Exchange and the National Stock Exchange. It manufactures and retails ethnic and fusion womenswear through exclusive stores, multi-brand outlets, and chains such as Lifestyle, Reliance Trends, Pantaloons, and Shoppers Stop. TCNS has 571 exclusive brand outlets in around 100 cities at March 31, 2024.
About the parent ABFRL is the apparel retail venture of the Aditya Birla group, which merged the Madura division (formerly, a division of Aditya Birla Nuvo Limited) with the erstwhile Pantaloons Fashion Retail Limited (‘PFRL’) on January 9, 2016, with appointed date of April 1, 2015; PFRL was renamed ABFRL subsequent to the merger. The Madura division holds leading brands while the departmental stores are under Pantaloons. ABFRL acquired Forever 21 in India in 2016 to ramp up its fast fashion segment. As of March 2023, the company operated on a retail area of 10.8 million square feet with 3,546 brand outlets and 431 Pantaloons stores. |
Key Financial Indicators
#as on September 30, 2023 *Break-up not available in the absence of complete schedules |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
This Annexure has been updated on 06-Mar-2024 in line with the lender-wise facility details as on 31-Dec-2023 received from the rated entity |
| 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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This Annexure has been updated on 06-Mar-2024 in line with the lender-wise facility details as on 31-Dec-2023 received from the rated entity
Criteria Details
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