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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 13.00 | ACUITE AA- | Stable | Reaffirmed | - |
| Total Outstanding Quantum (Rs. Cr) | 13.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE AA-’ (read as ACUITE double A minus) on the Rs.13.00 Cr bank facilities of ARTIMAS FASHIONS PRIVATE LIMITED (AFPL). The outlook remains 'Stable'.
Rationale for the rating The rating reaffirmation on AFPL takes into account of the strong support from its parent company, Lux Industries Limited and a long term agreement with a celebrity brand endorsed by Virat Kohli. Further, the rating also draws comfort from the vast experience of the group management in the hosiery segment along with potential to scale up the business. These strengths are however, partly offset by the intense competition in the hosiery industry, characterised by a significant presence of the unorganised sector. |
| About the Company |
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Incorporated in 2010, Kolkata based Artimas Fashions Private Limited is a subsidiary of Lux Industries Limited (rated at ACUITE AA+/Stable/A1+). The company is engaged in the production of hosiery innerwear through an in-house manufacturing facility with a total capacity of 7000 pcs per day/ 2.5 lac pcs per month and sells under the brand “One8” owned by Virat Kohli. The company is promoted by Mr. Nischal Puri and the current directors of Lux Industries Limited, i.e., Mr. Ashok Kumar Todi and Mr. Pradip Kumar Todi. The company has entered into a brand license agreement with Virat Kohli, CSE Consulting LLP, who owns, controls the Brand “One8” and Lux Industries Limited, the holding company of AFPL. The company is paying a royalty to Virat Kohli and CSE Consulting LLP for using the brand ‘One8.’ The royalty payment has been guaranteed by Lux Industries Limited
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| Analytical Approach |
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While arriving at the rating of AFPL, Acuité has taken into account a strong level of support from the parent company, Lux Industries Limited (LIL) with which AFPL enjoys significant operational and financial linkages. Moreover, LIL has provided a corporate guarantee and the promoters, Mr. Ashok Kumar Todi and Mr. Pradip Kumar Todi have also given their personal guarantee to the bank facilities of AFPL. Since AFPL is a subsidiary of LIL, they are also expected to receive management support from the latter. Hence, the rating has been notched up based on the ongoing support from Lux Industries Limited. Further, Acuité has also factored in the strategic importance of AFPL for LIL as the group aims to enhance its presence in the premium hosiery segment in India.
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Key Rating Drivers
| Strengths |
| Experienced management
AFPL is promoted by Mr. Nischal Puri and the current directors of LIL, i.e., Mr. Ashok Kumar Todi and Mr. Pradip Kumar Todi. The promoter directors have an extensive experience spanning over three decades in the hosiery manufacturing business supported by a team of capable professionals. Initially, the company started the production of hosiery innerwear on job work basis through Lux Industries Limited and sold under the brand ‘One8’. In October 2019, the company established a complete in-house manufacturing facility and by 2022, it expanded its distributorship network to the tune of 170 distributors across India. Acuité believes the management’s rich experience and expertise will bolster the business, going forward.
Strong parental support from the Lux Industries Limited AFPL, being part of the Lux group, is likely to benefit from the strong brand equity and support of its holding company. Lux Industries Limited holds 50.97 percent stake in AFPL as on March, 2021 and remaining is held by Ms. Divya Puri and Mr. Nischal Puri in equal proportion. LIL has a long track record of over six decades in the manufacturing of hosiery products and has a wide geographical presence with outreach across the country. LIL has recorded consolidated revenues and profits of Rs.2260.57 Cr and Rs.341.39 Cr. in FY2022, respectively. In addition, AFPL receives financial support extended by Lux Industries Limited in the form of corporate guarantee and personal guarantees of the directors towards their bank facilities and royalty payment for using the brand “One8”. Acuité believes the strong parentage along with the established brand franchise of Lux Group will help AFPL to quickly ramp up its operations and further establish itself in the premium innerwear segment in India. Long term agreement with celebrity brand – ‘One8’ AFPL has entered into an eight year agreement with Virat Kohli and CSE Consulting LLP for using the brand “One8” which is valid till Nov’2025. Further, Virat Kohli is also personally involved in the promotion of the brand during the term of the contract. Acuité believes AFPL will benefit from the agreement and would enhance its presence in the premium hosiery segment due to the strong brand appeal of Virat Kohli to the young consumers. AFPL has also received the entire distribution support of Lux Industries Limited comprising of over 1000 dealers and 170 distributors spread across India, which has helped AFPL in expanding its distributor base significantly in FY22. Further, the products are sold through both large format stores and e-commerce platforms. Acuité believes that the company will continue to benefit from the strong brand appeal of Virat Kohli.
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| Weaknesses |
| Below average financial risk profile
The company’s below average financial risk profile is marked by reducing networth and a backup of corporate guarantee given by LIL and personal guarantee given by the common directors, Mr. Ashok Kumar Todi and Mr. Pradip Kumar Todi to the bank facilities of AFPL as well as for the royalty payment to Mr. Virat Kohli, which gives strong comfort. Also, Lux Industries Limited has 50.97 per cent stake in AFPL. The financial risk profile of LIL has improved further in FY22 marked by improved networth, comfortable gearing which stood below unity and robust debt protection indicators. For AFPL, the tangible networth of the company stood negative, due to losses. Acuité believes that going forward the financial risk profile of the company will improve backed by gradually improving accruals, continued support from Lux Industries Limited and the payment guarantee provided by it.
Nascent stage of operations amidst competitive hosiery industry The company started its commercial operations in FY2021. There was a delay of one year in the One8 brand launch due to the pending approvals for the packaging and finalizing of the design from Virat Kohli, which led to delays in commencement of production activities. However, the company was able to ramp-up its operations and achieved a turnover of Rs.25.97 Cr in FY22 against Rs.16.18 Cr in FY21. Further, AFPL has achieved a revenue of Rs.15.02 Cr till September, 2022 (prov.). Acuité believes the scale of operations of AFPL is likely to remain modest in the near term. Further, the hosiery industry is largely fragmented and is characterised by the presence of multiple players in the unorganised segment. On the other hand, in the organised segment, the company faces competition from players with strong brands such as Page Industries Ltd., Dollar Industries Limited (rated at ACUITE AA/Stable/A1+)and Rupa & Company Limited. However, the company’s strong parental support and endorsement by Virat Kohli partly mitigates the risk arising from intense competition. |
| ESG Factors Relevant for Rating |
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Not Applicable
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| Rating Sensitivities |
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? Improvement in the scale of operations while achieving operating profitability ? Normalisation in working capital cycle ? Dilution of the stake of Lux Industries Limited |
| Material covenants |
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None
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| Liquidity Position: Adequate |
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The company’s liquidity position is adequate as Lux Industries Limited has given a corporate guarantee to the bank facilities as well as for the royalty to be paid to Virat Kohli. The net cash accruals stood negative in FY22 as against long term debt repayment of Rs.0.41 Cr over the same period, which will be repaid through unsecured loans from promoters. The cash and bank balances of the company increased to Rs.0.07 Cr as on March 31, 2022 as compared to Rs.0.41 Cr as on March 31, 2021. The current ratio stood moderate at 1.28 times as on March 31, 2022 as compared to 1.19 times as on March 31, 2021. The fund based limit remained utilised at 84 per cent over thirteen months ended October, 2022. The company’s operations are working capital intensive as reflected by high Gross Current Asset (GCA) days of 515 days as on March 31, 2022 as compared to 530 days as on March 31, 2021. Acuité believes that going forward the liquidity position of the company will improve due to steady accruals supported by guarantees provided by LIL for the bank facilities of AFPL.
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| Outlook: Stable |
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Acuité believes that the outlook on AFPL will remain 'stable' over the medium term benefitting from its experienced management, strong parentage and brand recall. The outlook may be revised to 'Positive' in case the company witnesses a material improvement in its scale of operations and significant improvement in its working capital cycle. Conversely, the outlook may be revised to 'Negative' in case of any dilution in the stake of Lux Industries Limited, or elongation in its working capital management leading to deterioration of its liquidity position.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 25.97 | 16.18 |
| PAT | Rs. Cr. | (3.29) | (4.09) |
| PAT Margin | (%) | (12.68) | (25.27) |
| Total Debt/Tangible Net Worth | Times | (2.35) | (2.57) |
| PBDIT/Interest | Times | (0.21) | (0.85) |
| Status of non-cooperation with previous CRA (if applicable) |
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None
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| Any other information |
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None
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| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.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 • Group And Parent Support: https://www.acuite.in/view-rating-criteria-47.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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