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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 468.78 | ACUITE BB | Stable | Reaffirmed | - |
| Bank Loan Ratings | 37.22 | - | ACUITE A4+ | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 506.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed its long term rating ‘ACUITE BB’(read as ACUITE double B) and short term rating of ‘ACUITE A4+’ (read as ACUITE A four plus) on Rs.506.0 crore bank facilities of ‘Aero Club’. The outlook is ‘Stable’.
Rationale for Rating Action Acuite factors in experienced management, Improvement in Business, Moderate financial risk profile and adequate liquidity profile of the company. The revenue from operations of the company witnessed substantial improvement to Rs. ~1000 crore in FY2023 (Provisional) as against Rs. 745.72 crore in FY2022. Improvement in Revenue is on account of increase in price and Volume sale. The operating profit margin of the company moderated to 13.44 percent in FY2023 (Provisional) as against 15.91 percent in FY2022. Moderation is due one time inventory transfer to related party. PAT Margin improved & stood at 2.70 Percent in FY 2023(Prov.) as against 1.20 percent in FY 2022. Coupled to this coverage indicators witnessed minuscule improvement in FY 23(Prov.). Bank limit Utilization remain high. Acuité believes that the company will grow its scale of operations in the volume terms and improve profitability while maintaining a healthy capital structure |
| About the Company |
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Set up in 1992, Delhi-based Aero Club is a partnership firm (Avatar Singh 40%, Harkirat Singh, Aero Traders Pvt. Ltd.- and Aero Associates Pvt. Ltd.) and a flagship firm of six-decade old Aero Group. The firm manufactures footwear and sells under the ‘Woodland’ or ‘Wood’ brands – a popular premium shoe brand, on a pan-India basis. While the footwear remains the firm’s key product, it also deals in manufacturing and selling of apparels and accessories.
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| Analytical Approach |
| Acuité has considered the standalone view of business and financial risk profiles of Aero Club to arrive at the rating. |
Key Rating Drivers
| Strengths |
| Long track record of operations, experienced management, Strong brand image and integrated operations
Aero Club has a long track record of operations with the existence of Aero Group since early 1950s. Mr. Avatar Singh (partner and chairman of Aero Club) and Harkirat Singh (partner and managing director of Aero Club) have more than 2 decades of experience. Over the years, under the promoters’ leadership, Aero Club has witnessed an expansion in scale of operations into a full - fledged footwear/apparel manufacturing and retail firm with more than 390 exclusive retail stores. The firm has backward integration in place starting from processing of raw leather to manufacturing and marketing of shoes. ‘Woodland’ is one of most popular footwear brand in the premium footwear segment. In fact, the strong brand image of ‘Woodland’ could help reap the benefits of expected improvement in premiumisation trend in the footwear segment in the long-run. The promoters, over the years, have also diversified into apparels and accessories to provide a rich experience to customers and diversify the operations. Business risk profile Aero club’s operation witnessed substantial improvement which is apparent from growth in revenue from operations by ~34% in FY2023 (Prov.) to Rs~1000 crore as against Rs. 745.72 crore for FY2022.(improved by 86.65 percent over the last three years FY 21 to FY 23). The operating profit margin of the firm moderated by 248 bps in FY 23 (Prov.). Operating Profit Margin of firm stood at 13.44% in FY2023 (Prov.) as against 15.91% in FY2022 however the net profit margin of the company improved by 150 bps and stood at 2.70 percent in FY2023 (Prov.) as against 1.20 percent in FY 22. ROCE of the firm stood at 10.10 times in FY2023 (Prov.). Financial Risk Profile -Moderate Aero club has moderate financial risk profile marked by high net worth and moderate debt protection metrics and moderate gearing. Firm’s net worth stood at Rs. 573.67 Cr (Prov.) as on 31st March 2023 as against Rs.587.10 Cr as on 31st March 2022. Firm follows conservative leverage policy. Despite profit accretions gearing levels (debt-to-equity) witnessed negligible moderation and stood below unity at 0.99 times as on March 31, 2023 (Prov.) as against 0.97 times in FY 2022. Moderation in Gearing Ratio in FY 23 is on account of reconstitution of firm in Dec 22 and withdrawals by partners. Further, the interest coverage ratio witnessed negligible improvement by 11 bps and stood moderate at 1.64 times for FY2023 (Prov.) as against 1.53 times in FY2022. Likewise, Debt Service coverage ratio improved by 18 bps and stood moderate at 1.21 times for FY2023 (Prov.) as against 1.03 times in FY2022. Total outside liabilities to total net worth (TOL/TNW) stood at 1.35 times as on FY2023 (Prov.) vis-à-vis 1.27 times as on FY2022. Debt-EBITA improved and stood at 4.09 times as on 31st March 2023(Prov.) as against 4.62 times as on 31st March 2022. The Net Cash Accruals to Total debt stood at 0.09 times as on FY2023 (Prov.) and 0.06 times for FY2022. The financial risk profile of the company is expected to improve and remain comfortable in medium terms, as the company do not have any large capex plan in the medium term. |
| Weaknesses |
| Working capital operations- Intensive Firm has improved yet intensive working capital requirements as evident from gross current assets (GCA) of 413 days in FY2023 (Prov.) as compared to 544 days in FY2022. Debtor days moderated by 7 days and stood at 53 days in FY2023 (46 days in FY2022). Inventory days witnessed substantial improvement of 129 days in FY 23 and stood at 278 days in FY 23(Prov.) as against 407 days in FY 22. Fund based working capital limits are utilized at ~99 per cent during the last twelve months ended April 23 while Non fund based limits utilization is ~78 percent. Withdrawal of capital As Aero Club is a partnership firm, there have also been instances of withdrawal of capital. there has also been net withdrawal of Rs.~ 40crore. Any significant withdrawal could impact the financial risk profile of the company.
Moderation in Operating Margin Operating margin of the firm witnessed continous moderation in operating margin.Operating Profit Margin of firm stood at 13.44% in FY2023 (Prov.) as against 15.91% in FY2022. Further moderation in Operating profit margin will impact the financial risk profile of the firm. |
| ESG Factors Relevant for Rating |
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The footwear manufacturing sector contributes to GHG emission on account of utilization of raw material such as leather and other carbon chemicals. The same is further accentuated with carbon emission during the transportation of the finished product. Hence, the adherence to environmental regulations for effluent treatment plants and proper disposal mechanism remains crucial. The utilization of chemicals and leather also calls for safe working conditions along with procurement of good quality of raw materials. There is a requirement of wellestablished organizational structure with independent board and audit committee which would ensure that shareholders’ rights are properly addressed.
The firm procures leather and processes the same in its own tanneries. The firm’s production units are inspected on an annual basis. The firm avails the clearance certificate from relevant authorities. Hence, this mitigates the environmental risk to certain extent. In addition to this, the firm also ensures safe working environment by following work contract act applicable to leather industry. The safety of product is ensured by existing R&D department. It also carries out training programs for employees from time to time. The firm has separate departments for different area of business operations including internal audit committee. Nevertheless, the firm’s ability to ensure diversity and fair compensation would remain critical factors |
| Rating Sensitivities |
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Significant scaling-up of operations along with profitability margins. Substantial improvement in working capital management. Any deterioration in financial risk profile. |
| Material covenants |
| None |
| Liquidity Position |
| Adequate |
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Firm has adequate liquidity marked by net cash accruals to its maturing debt obligations, current ratio, cash and bank balance. Firm generated cash accruals of Rs. 51.31 crore for FY2023 (Prov.) as against repayment obligations of Rs. 27.41 crore for the same period. Current Ratio stood at 1.53 times as on 31 March 2023(Prov.). Fund based working capital limits are utilized at ~99 per cent during the last twelve months ended April 23 while Non fund based limits utilization is 78 percent.Cash and Bank Balances of company stood at Rs 2.64 crore. The liquidity of the company is expected to improve with company expected to generate cash accruals in the range of Rs. 55 to 75 Cr against Rs 17 crore debt repayment obligation will also support the liquidity of the company.
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| Outlook: Stable |
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Acuité believes that Aero Club will maintain a 'Stable' outlook and will continue to derive benefits over the medium term due to extensive experience of partners, moderate financial risk profile and healthy revenue visibility bolstered by favorable industry environment. The outlook may be revised to 'Positive' in case the company registers higher-than- expected growth in its revenue and profitability while improving its liquidity position. Conversely, the outlook may be revised to 'Negative' in case the company registers lower-than-expected growth in revenues and profitability or in case of deterioration in the company's financial risk profile or significant elongation in the working capital cycle.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Provisional) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 1000.34 | 745.72 |
| PAT | Rs. Cr. | 27.01 | 8.92 |
| PAT Margin | (%) | 2.70 | 1.20 |
| Total Debt/Tangible Net Worth | Times | 0.99 | 0.97 |
| PBDIT/Interest | Times | 1.64 | 1.53 |
| Status of non-cooperation with previous CRA (if applicable) |
| CRISIL vide its press release dated 29th August 2022, had downgraded the company to CRISIL B/stable/A4; Issuer Not Cooperating. |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Entities In Manufacturing Sector:- https://www.acuite.in/view-rating-criteria-59.htm • Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in
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