Brickwork Ratings reviews the rating to the bank loan facilities of Rs Cr of Aarvee Denim and Exports Ltd.

Transcription

1 Rating Rationale Aarvee Denim and Exports Ltd. 8 March 2018 Brickwork Ratings reviews the rating to the bank loan facilities of Rs Cr of Aarvee Denim and Exports Ltd. Particulars Facility* Previous Limits Present Limits Term Loans Fund Based Working Capital Letter of Credit Tenure Long term Short Term Previous Rating (Nov 2016) (Pronounced as BWR A minus) Outlook - Stable BWR A2+ (Pronounced as A Two plus) Rating based on current review (Pronounced as BWR A minus) Outlook - Stable BWR A2+ (Pronounced as A Two plus) *Rs Crs (Three hundred Fifty Crore and Ninety Eight Lakhs Only) Total * Please refer to BWR website for definition of the ratings BWR has principally relied upon the Audited financial results of Aarvee Denim and Exports Ltd. (ADEL) upto FY 17, unaudited financial results for 9MFY18, publicly available information and information/clarification provided by the Company management. The rating continues to factor experienced team of promoters with established track record in denim industry coupled with integrated manufacturing facility and marketing & distribution network. Further, the ongoing capex program is expected to increase the realizations per meter in wider width fabric. The company is also in the process of improving quality of finished products which will also help in getting better prices. However, the rating is constrained by volatility in operating income and profitability due to the competitive industry scenario which is adding capacities, coupled with inherent risks associated with the textile industry including fluctuation in cotton prices and foreign exchange rates. Analytical Approach Key Risk Drivers for rating: Experienced and Qualified Management with established track record: ADEL is co-promoted by two promoter groups-arora group and Virendra Bhogilal (V.B) Group. Arora group has the experience in the business of marketing of Denim Fabrics over last three decades and VB group has a long standing experience in the textile segment spread over last 60 years. They are supported by well qualified and professional management team. 1 8 March 2018

2 Capacity Expansion: With a view to capitalize upon the significant growth opportunity in high quality premium denim fabric market, the company has planned to install latest technology based Wider Width Air Jet Looms by replacing 166 old Narrow Width Air Jet Looms, to be imported from Tsudakoma, Japan at an outlay of around Rs crores and the company proposes to fund this by way of foreign currency loan (ECBs) of US $6.75 million equivalent INR crores and the balance is proposed to be funded from internal cash accruals. This is expected to increase average realization from Rs.130 Rs.140 per meter ( narrow width fabrics) to Rs per meter in wider width fabric. The company is planning to complete the installation by August As such, operating performance of FY19 will reflect the benefits of this capex. Integrated Operations: ADEL is present across the textiles value chain right from yarn up to the weaving facilities of manufacturing a wide range of Denim and Non-Denim Fabrics, and processing. The company has integrated manufacturing facilities by way of 3 manufacturing plants located in and around Ahmedabad, comprising of one dedicated spinning plant, one weaving, processing and finishing plant and one fully integrated composite plant comprising of spinning, weaving and finishing facilities. Apart from the core manufacturing plants, the company has also installed windmills of aggregate capacity of 20.5 MW. Volatility in raw material prices: The margins of the company remain exposed to fluctuations in raw material prices which are a dependent on global commodity price movements. Variation in input costs cannot always be passed on immediately, but with a lag. Competitive nature of business: ADEL faces intense competitive pressures from both established and lower-end operators. Due to various incentives available for textile industry in the State of Gujarat, many companies are adding capacities or setting up new units. This could result in pressure on pricing/margins. Rating Outlook: Stable BWR believes the ADEL s business risk profile will be maintained over the medium term. The Stable outlook indicates a low likelihood of rating change over the medium term. The rating outlook may be revised to 'Negative' if the revenues go down and profit margins show lower than expected figures. About Aarvee Denim and Exports Ltd. (ADEL): Aarvee Denims and Exports Ltd (ADEL) is a leading player in the textile industry based in Ahmedabad. Established in 1988, it is promoted by Arora and VB Shah Group which has more than three decades of experience in textile industry. The company is listed on BSE. The company is a large producer of denim fabric in India with installed capacity of 85 million meters per annum (MMPA). It has modern and integrated manufacturing facilities across the textile value chain from 2 8 March 2018

3 spinning, weaving and processing. AarVee Denim is a listed company with 65.8% of the shares being held by the promoters. Financials: FY16 FY17 Particulars Audited Audited Total Operating Income OPBDIT PAT Total Debt Tangible Net Worth Total Debt / TNW Current Ratio Rating History for the last three years: (including withdrawn/suspended ratings) Sl. No. Instrument/ Facility 1. Fund Based Working Capital Limits 2. Term Loan Current Rating (Year 2018) Type (Long Term/Short Term) Long Term Long Term Amount Rating 2017 Reaffirmed - - Rating History Nov 30, 2016 BWR A- Aug 18, 2015 BWR A- 3. Letter of Credit Short Term BWR A2+ Reaffirmed - BWR A2+ BWR A2+ Total (Three hundred Fifty Crore and Ninety Eight Lakhs Only) Status of non-cooperation with previous CRA (if applicable): Reason and comments N/A Any other information: N/A 3 8 March 2018

4 Hyperlink/Reference to Applicable Criteria General Criteria Approach to Financial Ratios Manufacturing Sector For any other criteria obtain hyperlinks from website Analytical Contacts MSR Manjunatha Head Ratings Administration Media Relationship Contact Phone: For print and digital media The Rating Rationale is sent to you for the sole purpose of dissemination through your print, digital or electronic media. While it may be used by you acknowledging credit to BWR, please do not change the wordings in the rationale to avoid conveying a meaning different from what was intended by BWR. BWR alone has the sole right of sharing (both direct and indirect) its rationales for consideration or otherwise through any print or electronic or digital media. Note on complexity levels of the rated instrument: BWR complexity levels are meant for educating investors. The BWR complexity levels are available at Investors queries can be sent to info@brickworkratings.com. About Brickwork Ratings Brickwork Ratings (BWR), a SEBI registered Credit Rating Agency, has also been accredited by RBI and empaneled by NSIC, offers Bank Loan, NCD, Commercial Paper, MSME ratings and grading services. NABARD has empaneled Brickwork for MFI and NGO grading. BWR is accredited by IREDA& the Ministry of New and Renewable Energy (MNRE), Government of India. Brickwork Ratings has Canara Bank, a Nationalized Bank, as its promoter and strategic partner. BWR has its corporate office in Bengaluru and a country-wide presence with its offices in Ahmedabad, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata, Mumbai and New Delhi along with representatives in 150+ locations. BWR has rated debt instruments/bonds/bank loans, securitized paper of over 9,30,000 Cr. In addition, BWR has rated about 5000 MSMEs. Also, Fixed Deposits and Commercial Papers etc. worth over 19,700 Cr have been rated. Brickwork has a major presence in rating of nearly 100 cities. DISCLAIMER Brickwork Ratings (BWR) has assigned the rating based on the information obtained from the issuer and other reliable sources, which are deemed to be accurate. BWR has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented as is without any express or implied warranty of any kind. BWR does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by BWR should be treated as an opinion rather than a recommendation to buy, sell or hold the 4 8 March 2018

5 rated instrument and BWR shall not be liable for any losses incurred by users from any use of this report or its contents. BWR has the right to change, suspend or withdraw the ratings at any time for any reasons. 5 8 March 2018