Aquarelle India Pvt. Ltd.

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1 Ratings Aquarelle India Pvt. Ltd. Facilities Amount (Rs. crore) Ratings 1 Remarks Long-term Bank Facilities-Term Loan CARE A- (A Minus) Assigned Long-term Bank Facilities-Fund based CARE A- (A Minus) Assigned Total Facilities Rating Rationale The rating draws strength from Aquarelle India Private Ltd (AIPL) being part of a group with established international presence, experienced management team, good operational performance aided by established relationship with reputed clientele in the garment export market as well as strong financial risk profile characterized by robust growth in income and profits and comfortable debt coverage indicator. The rating is, however, constrained by product concentration, working capital-intensive nature of operation, competitive nature of the industry and risks related to on-going capex plan. Going forward, the ability to sustain the growth in sales and timely completion of the project within envisaged cost would remain the key rating sensitivities. Background AIPL incorporated in 2007, is a wholly-owned subsidiary of Aquarelle International Ltd, which is the part of textile division of Mauritian conglomerate CIEL Textile. AIPL is primarily engaged in the manufacture of casual shirts for exports and domestic market. AIPL has two facilities which are located in Bengaluru. The company presently has an installed capacity to make 3 million pieces per annum of casual shirts. Credit Risk Assessment Part of the group with established international presence AIPL is a wholly-owned subsidiary and promoted by Aquarelle International Ltd. The promoter Aquarelle International Ltd. is part of the CIEL group, one of the leading industrial groups in Mauritius with business activities in textile and agro industry. The group s textile activity is spread across three clusters, namely, the Aquarelle group, Floral Knitwear and Tropic Knits engaged in manufacturing of woven shirts, woolen sweaters and fine knits, respectively. Aquarelle International Ltd has its global presence in Mauritius, Madagascar, India and Bangladesh. Established relationship with renowned brands in the garment export market AIPL primarily focuses on the export of high-end casual shirts for men and derives about 65% of its revenue from the export market. The company s established export market and client base has helped it report strong growth in the income during FY The customers of AIPL include most reputed brands like Levis, Lee Wrangler, Espirit, Bensherman, Diesel, Calvin Klien, and Marks & Spencer. Good operational performance The total number of shirts produced by AIPL increased from 2,322,115 shirts in FY13 (refers to the period April 1 to March 31) to 3,178,047 shirts in FY15 driving strong sales growth. The increase in demand can be attributable to its established relationship with several reputed clients across the global market space. Also, the demand for high quality casual shirts has shown an upward trend because they have consistent consumption and have been fashion resistant. The company s performance is also supported by increasing demand from the export market during the last two years. Robust growth in income and profits and comfortable debt coverage indicators AIPL s financial risk profile is characterised by high income growth, stable profitability, comfortable capital structure and strong debt service coverage indicators. The net sales have increased at a CAGR of 27.58% from Rs.98.7 crore in FY12 to Rs crore in FY15. The company s PBILDT margin had ranged between 11% and 14% during the last 3 years. Relatively average 1 Complete definitions of the ratings assigned are available at and other CARE publications 1

2 margin may be attributable to AIPL sourcing its materials majorly from nominated suppliers with whom terms of payment and pricing flexibility is limited. The net profit increased by 35% in FY15, on y-o-y basis as compared with FY14. The capital structure indicated by the debt to equity ratio is strong and below unity. The overall gearing as on March 31, 2015, is comfortable at 0.62 and even after capital expenditure in FY16 and FY17 it is expected to remain comfortable at unity. Product concentration The key limitation AIPL faces is of product concentration by manufacturing only men s casual shirts. Scalability as a result is also limited, although company has seen robust growth in volume over the years with new customers being added. Also, with the expansion of additional facility, the company is planning to go for flexibility by manufacturing all range of shirts. Working capital-intensive nature of operation The company s operation is working capital intensive as evidenced in working capital cycle of 119 days in FY15 (100 days in FY14) primarily owing to high collection period and inventory holding days. With increasing scale of operation, the company s working capital requirement has increased, but the company s reliance on working capital borrowings has been moderate. The average of maximum working capital utilisation was moderate at 77% during the last 12 months ended March The company had cash and bank balance of Rs.13.7 crore as on March Competitive nature of the industry Readymade garment manufacturing is a highly fragmented industry with presence of large number of organised and unorganised player. The players have very limited pricing power resulting in thin operating margins. The company also faces competition from players in other countries like China, Bangladesh and Sri Lanka, some of whom enjoy favourable tariffs on their exports. Project risk AIPL is setting up a new facility in Malavalli District (90 kms from Bangalore) on a total land area of about 6 acres and capacity of 3.75 million pieces per year. The total estimated cost of the project is Rs.57 crore, of which Rs.2.5 crore has already been incurred as on May 31, The project is funded by a term loan of Rs.42 crore and the remaining by internal accruals. At maturity the facility is expected to have 1,000 machines and manpower of 2,100 workers. The project is scheduled to complete by October 2016 and start commercial production by April The company is exposed to risks related to timely completion of its expansion project without any significant delay or cost overrun. Prospects The company has had good operational performance over the last 3 years backed by favourable demand scenario. The company also maintains a comfortable capital structure. Though the company is undertaking debt-funded capex over the next 2 years, its financial risk profile is expected to remain intact supported by healthy cash accruals. However, company needs to diversify its customer base as well as product while scaling up which will be key to its prospects. Financial Performance (Rs. Cr) For the period ended / as at March 31, (12m, A) (12m, A) (12m, A) (12m, Prov.) Working Results Net Sales Income from Operations PBILDT Depreciation PBILT Interest PBT PAT (After deferred Tax) Gross Cash Accruals (GCA) Financial Position 2

3 Equity Share capital Net Worth Total Debt Key Ratios Profitability (%) PBILDT / Total Operating Income PAT / Total Income ROCE RONW Solvency (times) Long Term Debt Equity Ratio Overall Gearing Ratio Interest Coverage Term Debt/GCA (years) Total Debt/GCA (years) Liquidity (times) Current Ratio Quick Ratio Turnover (days) Avg. Collection. Period Average Inventory Average Creditors Working Capital Cycle Details of Rated Facilities 1.Long-term facilities 1. A. Term Loan Sr. No. Lender Rated Amount (Rs. Crore) Remarks 1. Canara Bank Sanctioned Total B. Fund-based limits Sr. No. Lender Rated Amount (Rs. Crore) Remarks 1 Canara Bank Sanctioned 2 HSBC Sanctioned TOTAL Total Long-term facilities: Rs crore Analyst Contact Name: Karthik Raj K Tel: karthik.raj@careratings.com (This follows our brief rationale for entity published on 13 July 2015) Disclaimer: CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or 3

4 omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. 4

5 CONTACT Head Office Mumbai Mr. D.R. Dogra Mr. Rajesh Mokashi Managing Director Dy. Managing Director Mobile: Mobile: Ms. Meenal Sikchi Mr. Ankur Sachdeva Vice President - Bank Loan & Instrument Rating Vice President - Bank Loan & Financial Services Mobile: Mobile: meenal.sikchi@carerating.com ankur.sachdeva@careratings.com CREDIT ANALYSIS & RESEARCH LIMITED Corporate Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai Tel: Fax: care@careratings.com Other Office: 503, Kaledonia, Sahar Road, Near Andheri Railway Station, Andheri (E), Mumbai Tel: Fax: AHMEDABAD Mr. Mehul Pandya 32, Titanium, Prahaladnagar Corporate Road, Satellite, Ahmedabad Cell: Tel: mehul.pandya@careratings.com BENGALURU Mr. Dinesh Sharma Unit No , 11th Floor, Prestige Meridian II, No. 30, M.G. Road, Bangalore Cell: Tel: , dinesh.sharma@careratings.com CHANDIGARH Mr. Sajan Goyal 2nd Floor, S.C.O , Sector 34-A, Chandigarh Cell: Tel: / 09 sajan.goyal@careratings.com CHENNAI Mr. V Pradeep Kumar Unit No. O-509/C, Spencer Plaza, 5th Floor, No. 769, Anna Salai, Chennai Cell: Tel: / pradeep.kumar@careratings.com HYDERABAD Mr. Saikat Roy 401, Ashoka Scintilla, , Himayat Nagar, Hyderabad Tel: saikat.roy@careratings.com JAIPUR Mr. Harsh Raj Sankhla 304, Pashupati Akshat Heights, Plot No. D-91, Madho Singh Road, Near Collectorate Circle, Bani Park, Jaipur Cell: Tel: / 14 harshraj.sankhla@careratings.com KOLKATA Ms. Priti Agarwal 3rd Floor, Prasad Chambers, (Shagun Mall Bldg.) 10A, Shakespeare Sarani, Kolkata Cell: Tel: priti.agarwal@careratings.com NEW DELHI Ms. Swati Agrawal 13th Floor, E-1 Block, Videocon Tower, Jhandewalan Extension, New Delhi Cell: Tel: swati.agrawal@careratings.com PUNE Mr. Rahul Patni 9th Floor, Pride Kumar Senate, Plot No. 970, Bhamburda, Senapati Bapat Road, Shivaji Nagar, Pune Cell: Tel: rahul.patni@careratings.com CIN - L67190MH1993PLC