Extensive Experience of Promoters and long operational track record
The promoter, Mr. Rajiv Bhatia has experience of more than two decades in leather product manufacturing and export business, which has helped the company establish a strong customer base over the years. Currently, the second generation, Mr. Viraj Bhatia and Mr. Vashisht Bhatia have also entered the business. The long-standing experience of the promoters and long operational track record has consequently helped them to establish high customer vintage, loyalty and a strong connect with its overseas customers and comfortable relationships with key suppliers. Its customer base includes international brands such as Marks and Spencer's, Radley and co., Adolfo Dominguez, Piquadro, etc with whom the company has an established relationship of over a decade, thus entails repeat orders.

Acuité believes that, DIPL would benefit from the promoter’s extensive experience and its establish relationship with key customers to ensure repeat orders..

Moderation in Operating performance albeit expected improvement in current fiscal
The company has achieved revenues of Rs.117.17 Cr. in FY2024 as compared to revenues of Rs.133.90 Cr. in FY2023. The decline in the overall revenue is because of the challenges posed by UK and EU economy including red sea crisis which impacted the supply chain management. Moreover, DIPL has achieved revenues of Rs.135.12 Cr. in 11MFY2025 and thus targeting to close the year at Rs.147 crore.

The profitability of the company remained volatile in last three years, owing to fluctuations in the leather prices, substantial increase in labour costs amid increment in minimum wage. The operating profit margin declined marginally to 9.86 per cent in FY2024 as against 10.39 per cent in FY2023 and 9.62 per cent in FY2022. The EBITDA margin for 9MFY25 stands at 10.74 per cent and is expected to remain in the similar range in near to medium term. However, the fluctuations are partially offset by company’s ability to pass on the price increase to its customers which largely mitigates the risk. The PAT margin stood at 4.43 percent in FY2024 as against 5.15 percent in FY2023 and 4.65 per cent in FY2022. Acuite believes that, DIPL’s operating performance would improve steadily on the back of repeat orders from key customers and revival of European markets to an extent.

Above average financial risk profile
The company’s financial risk profile is above average marked by moderate net worth, low gearing and comfortable debt protection metrics. The tangible net worth of the company improved to Rs.49.48 Cr. as on March 31, 2024 from Rs.44.30 Cr. as on March 31, 2023, on account of accretion to reserves. Total debt of the company stood at Rs.25.62 Cr. includes long term debt of Rs.7.17 Cr, Short term debt of Rs.18.33 Cr, and maturing portion of debt obligation of Rs.0.12 Cr. 

Gearing (debt-to-equity) of the company stood at 0.52 times as on March 31, 2024 as compared to 0.69 as on March 31, 2023. Total outside Liabilities/Tangible Net Worth (TOL/TNW) stood at 0.88 times as on March 31, 2024 as against 0.90 times as on March 31, 2023. The Debt /EBITDA of DIPL stood at 2.19 times as on March 31, 2024 as against 2.16 times as on March 31, 2023. The comfortable debt protection metrics of the company is marked by Interest Coverage Ratio (ICR) at 4.47 times in FY2024 as against 5.11 times in FY2023; and Debt Service Coverage Ratio (DSCR) at 1.86 times in FY2024 as against 2.35 times in FY2023. Net Cash Accruals/Total Debt (NCA/TD) stood moderate at 0.28 times as on March 31, 2024.

Acuité believes that financial risk profile of DIPL will improve in the medium term on the back of repayment of entire long term debt and absence of major debt funded capex.

­Working capital intensive operations
The operations of the company remained working capital intensive, marked by Gross Current Assets (GCA) of 231 days in 31st March 2024 as compared to 179 days on 31st March 2023. The stretch in the GCA days is mainly on account of elongated debtor period which stood at 119 days as on March 31, 2024 as against 94 days as on 31st March 2023. Further the working capital operations are expected to remain intensive in near to medium terms. The supply chain crisis, along with increased container turnaround time had a domino effect on the receivable cycle, increasing the average debtor days, as the company mainly receives payment against Documents against Acceptance (DA bills) and against payment (DP bills). The fund based limit remained moderately utilised at ~52.43 percent over the seven months ended November 30, 2024.  Acuite believes, the operations of the company would remain working capital intensive on the back of elongated debtor days.

Geographic concentration risk
The company is exposed to geographical concentration risks as the major portion i.e. over 90 per cent of the revenues coming from the European markets, thus the company remains susceptible to demand cyclicality in the end-user markets. However, the risk is mitigated to an extent as DIPL has an established relations of over a decade with its key customers in European markets.

Susceptibility to fluctuations in raw material prices and Forex risk
Fluctuations in raw material prices have led to increased production costs, significantly impacting the company's operating profit margins. Further, being an export-oriented entity, the company remains exposed to adverse changes in foreign currency, as it exports over 90 per cent of its sales to European countries with imports constituting ~ 5-10 per cent of purchases. While the forex risk is mitigated to an extent by natural hedging, the company is also using forward contracts to hedge the ~80 per cent of its exposure This insulates the company from adverse fluctuations in the forex rates to a great extent.