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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 47.21 | ACUITE BBB- | Negative | Reaffirmed | Stable to Negative | - |
| Bank Loan Ratings | 7.00 | - | ACUITE A3 | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 54.21 | - | - |
| Rating Rationale |
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ACUITE has reaffirmed the long-term rating of ‘ACUITE BBB-’ (read as ACUITE Triple B minus) and the short- term rating of 'ACUITE A3' (read as ACUITE A three) on the Rs. 54.21 Cr bank facilities of ASG Leather Private Limited (ALPL). The outlook has been revised from 'Stable' to 'Negative'.
Rationale for rating and outlook revision The revision in outlook is primarily on account of stretched liquidity position of the company marked by full utilisation of its working capital limits owing to working capital intensive nature of operations. Furthermore, the profitability of the company has witnessed continuous deterioration in last three years as reflected by decline in operating profit margin to 10.50 precent in FY2023 from 12.09 percent in FY2022 and 13.38 percent in FY2021 respectively. The financial risk profile of the company continues to remain moderate with low networth, high gearing and moderate debt protection matrices. The rating also factors in the risk associated with the company related to foreign exchange fluctuations. However, the rating draws comfort from well-established operations with experienced management and steady scale of operations of the company. |
| About the Company |
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Incorporated in 2002, ASG Leather Private Limited (ALPL) is promoted by Mr. Aloke Kumar Sengupta. The company is engaged in the manufacturing of leather goods such as handbags, wallets, folders, organisers, pouches, and other small leather goods like passport/card holders, personalized accessories, gift items and so on. ALPL has three leather goods manufacturing units and two tanneries in Kolkata. The company derives more than 80 per cent of its revenues from export sales. Domestically the products are sold under the brand name, Kompanero, through 20 retail outlets.
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| Analytical Approach |
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Acuité has considered the standalone business and financial risk profiles of ALPL to arrive at this rating.
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Key Rating Drivers
| Strengths |
| Diversified business operations aided by established brand name
The company has a long standing operations for over two decades and serves both the domestic as well as international market. The company has a wellestablished brand name Kompanero under which it offers the products in the domestic market. ALPL has a diversified revenue stream and has a global presence in more than ten to twelve nations and has established market presence in major European countries like Germany, Spain, France, and Australia. Further, the total exports of ALPL stands above 80 per cent out of which 15 per cent are done under the own brand name. Furthermore, the wellestablished operations have helped the company to develop healthy relationship with its customers and suppliers. Acuité believes the healthy clientele relationships, established market position and the diversification in revenue base will continue to benefit the company going forward. Modest scale of operations The company has achieved revenues of Rs.128.20 Cr in FY2023 (Provisional) as compared to revenues of Rs.125.98 Cr in FY2022 and Rs.89.78 Cr in FY2021. The improvement in the operating income is supported by the favourable demand scenario and the addition of new product designs by the company in order to suit the customer preferences. Further, the company has focussed on spreading the brand and their own website digitally which led to accretion of customers. However, the profitability of the company witnessed deterioration in last three years reflected by declining operating profit margin to 10.50 per cent in FY2023 (Provisional) as compared to 12.09 per cent in FY2022 and 13.38 percent in FY2021. Simultaneously, the PAT margin stood at 1.62 per cent in FY2023 (Provisional) as against 2.73 per cent in FY2022. The decline in the margins are on account of disparity in the foreign exchange currency values as the imported raw material costs increased in comparison to the selling price of the exported products. Acuité believes that the company’s hold in the international market as well as in the domestic market backed by the initiatives undertaken to increase the brand awareness will continue to benefit the operations of the company. However, improvement in profitability margins will continue to remain a key rating sensitivity going forward. |
| Weaknesses |
| Working capital intensive nature of operations
The operations of the company are working capital intensive in nature as marked by high Gross Current Assets (GCA) of 161 days as on March 31, 2023 (Provisional) as against 159 days as on March 31, 2022. The high GCA days are on account of high inventory period which stood at 101 days as on March 31, 2023 (Provisional) as compared to 102 days as on 31st March 2022. The high inventory period is on account of the lengthy manufacturing process of the leather from hides. However, the debtor period stood comfortable at 19 days as on 31st March, 2023 (Provisional) as against 8 days in the previous year. Furthermore, the average utilisation of its working capital limits remain highly utilised and remain at 94 percent in last six months ended May 2023 and sometimes remained fully utilised as well. Acuité believes that the operations of the company will continue to remain working capital intensive in nature owing to the high inventory requirement due to the nature of the business and management of the same by the company will remain a key rating monitorable over the medium term. Moderate financial risk profile The financial risk profile of the company remained moderate marked by low networth, high gearing and moderate debt protection metrics. The tangible networth stood at Rs.27.67 Cr as on 31st March, 2023 (Provisional) as compared to Rs.23.22 Cr in the previous year. The gearing improved but stood high at 1.84 times in FY2023 (Provisional) as compared to 2.04 times in the previous year. The Total Outside Liabilities/Tangible Net Worth (TOL/TNW) stood high at 3.00 times as on March 31, 2023 (Provisional) as against 3.73 times as on March 31, 2022. Furthermore, the debt coverage indicators stood moderate marked by Interest coverage ratio (ICR) at 2.78 times for FY2023 (Provisional) and Debt service coverage ratio (DSCR) at 2.87 times in FY2022. Net cash accruals to total debt (NCA/TD) stood low at 0.17 times in FY2023 (Provisional). Acuité believes that going forward the financial risk profile of the company will remain moderate in absence of major debt funded capex plans. |
| Rating Sensitivities |
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| Material covenants |
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None
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| Liquidity Position: Stretched |
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The liquidity position of the company is stretched marked by almost full utilisation of the fund based bank limits led by working capital intensive nature of operations. The fund based utilisation stood on the higher side at 94 per cent over the last six months ended May, 2023. Further, the intensive working capital cycle of the company is marked by Gross Current Assets (GCA) of 161 days as on March 31, 2023 (Provisional) as against 159 days as on March 31, 2022. The current ratio stood low at 0.96 times as on March 31, 2023 (Provisional) as compared to 0.87 times as on March 31, 2022. The cash and bank balances of the company stood at Rs.1.12 Cr as on March 31, 2023 (Provisional). However, the net cash accruals stood at Rs.8.62 Cr as on March 31, 2023 (Provisional) as against the long term debt repayment of Rs.3.00 Cr over the same period.
Acuité believes that going forward the liquidity profile of the company will remain stretched over the medium term on account of high utilisation of its working capital limits led by high inventory period. |
| Outlook: Negative |
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Acuité has revised the outlook to ‘Negative’ on account of stretched liquidity profile of the company marked by the high utilisation of the fund based bank limits led by working capital intensive nature of operations. The rating may be ‘downgraded’ in case of further significant stress in the liquidity profile or in case of further deterioration in the financial risk profile. The outlook may be revised to ‘Stable’, if the company showcases improvement in the working capital operations without further significant liquidity stress on the cash flow requirements of its existing operations along with healthy revenue growth.
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| Particulars | Unit | FY 23 (Provisional) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 128.20 | 125.98 |
| PAT | Rs. Cr. | 2.08 | 3.44 |
| PAT Margin | (%) | 1.62 | 2.73 |
| Total Debt/Tangible Net Worth | Times | 1.84 | 2.04 |
| PBDIT/Interest | Times | 2.78 | 4.50 |
| Status of non-cooperation with previous CRA (if applicable) |
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CRISIL, vide its press release dated June 03, 2022 had denoted the rating of ASG Leather Private Limited as CRISIL B /Stable; ISSUER NOT COOPERATING’
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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 |
| 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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