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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 10.20 | ACUITE BB+ | Stable | Assigned | - |
| Bank Loan Ratings | 19.30 | ACUITE BB+ | Stable | Reaffirmed | - |
| Bank Loan Ratings | 4.00 | - | ACUITE A4+ | Assigned |
| Bank Loan Ratings | 3.50 | - | ACUITE A4+ | Reaffirmed |
| Total Outstanding | 37.00 | - | - |
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Rating Rationale |
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Acuité has reaffirmed and assigned the long-term rating of ACUITE BB+ (read as ACUITE double B plus) and the short term rating of ‘ACUITE A4+ (read as ACUITE A four plus) to the Rs.37.00 crore of bank facilities of Moustache Industries Private Limited (MIPL). The outlook is ‘Stable’.
Rationale for rating
The rating reaffirmation takes into account of extensive experience of the management in fashion and apparel industry along with strong growth in operating income. The operating income grew to Rs.40.35 Cr in FY2023 from Rs.21.65 Cr in FY2022 and Rs.10.92 Cr in FY2021. However, the operating margins declined to 7.17% in FY2023 against12.26% in FY2022 due to inability of the company in effectively passing on the burden of increased costs to the end customers.
Further, the rating reaffirmation also reflects the established brand presence along with strong distribution network of the company in the domestic market. However, rating is constrained on account of MIPL’s high working capital requirements, below -average financial risk profile and stretched liquidity position. |
| About the Company |
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Established in 1984 as Moustache International Private Limited based at Kolkata, the company was acquired by Mr. Suraj Kumar Poddar, Mrs. Sushma Poddar and Mr. Rohit Kumar Poddar (Son-in-law of Mr. Ashok Kumar Todi, promoter of Lux Industries Limited, rated at Acuité AA/Stable/A1+) in a slump sale transaction in September 2019 by floating a new entity named Moustache Industries Private Limited. The company is engaged in manufacturing denims, t-shirt, shirts, tops, and winter wear which they mainly cater to the end users of eastern part of the country. The company is procuring fabrics from reputed suppliers like Arvind, Vijay Laskhmi, Jindal Fabrics Private Limited and others. The in-house process of the company consists of cutting, designing, ironing, stitching while the outsourcing activities will include bleaching, dying, washing etc. The finished product of the company is selling in the brand name of ‘Moustache’ and ‘M Brand’ for men and women respectively. The company has introduced two new brands ‘Court Shop’ and ‘Soul’.
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| Unsupported Rating |
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Not Applicable
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| Analytical Approach |
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Acuité has considered the standalone business and financial risk profile of Moustache Industries Private Limited (MIPL) to arrive at the rating.
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| Key Rating Drivers |
| Strengths |
| Experienced management
The directors of the company Mr. Suraj Kumar Poddar, an advocate by profession since 1977. He was also associated with KR Lynch & Co. Pvt Ltd. a reputed company dealing with medical product and setting up of medical unit. He was also the legal consultant and advisor for different companies. The other director Mr. Rohit Poddar, was associated in different real estate projects. He has more than 15 years of experience in development, construction, infrastructure and marketing of residential and commercial projects. They are supported by Mr. Ashok Kumar Todi who is better known for the ‘LUX’(rated ACUITE AA |stable, ACUITE A1+) brand and belongs to the Todi family of Kolkata is in the hosiery manufacturing business since last 6 decades. The healthy business experience of the promoters will help the company to establish its market domestically as well as internationally. Further, the extended marketing support by the Lux Industries Limited towards MIPL will aid for increased brand presence. Improving scale of operation albeit sharp decline in operating margins The revenue of MIPL stood at Rs.40.35 Cr in FY2023, Rs.21.65 Cr in FY2022 as against Rs.10.92 Cr in FY2021. The company reported CAGR of 92.62 percent for the last two years. The improvement in the turnover is due to MIPL's expansion mainly in eastern India and entering into the new markets. Further, the company has reported revenue of Rs.44.67 for 9MFY2024 and expects to achieve revenue of Rs.70-75 Cr in FY2024. However, the operating margin of MIPL declined YoY and stood at 7.17 percent in FY2023, 12.26 percent in FY2022 as against 23.47 percent in FY2021. |
| Weaknesses |
| Below –average financial risk profile.
The financial risk profile of the company is highly leveraged marked by low net worth, high gearing and low debt protection metrics. The net worth of the company stood average at Rs.8.84 crore in FY 2023 as compared to Rs.8.62 crore in FY2022. The gearing of the company stood high at 3.93 times as on March 31, 2023 when compared to 3.31times as on March 31, 2022. The high gearing is primarily on account of dependence on bank borrowings to fund the working capital and long term borrowings. The total debt of Rs.34.79 consists of long term debt of Rs.4.41 Cr, USL from directors and promoters of Rs.12.14 Cr, short term debt of Rs.16.36 Cr and current maturities for long term debt of Rs.1.87 Cr as on 31 March 2023. Short term loan consists of Export packing credit and Standby line of credit. The Debt/EBITDA of the company stood high at 12.03 times as on 31 March 2023 as against 10.77 times as on 31 March 2022. The TOL/TNW stood at 6.05 times as on 31 March 2023 as against 4.62 times as on 31 March 2022. The debt protection metrics stood low with Interest coverage ratio (ICR) of the company stood moderate at 1.32 times in FY2023 as against 1.24 times in FY2022. The debt service coverage ratio (DSCR) of the company also stood low at 0.64 times in FY2023 as compared to 0.95 times in the previous year. The directors are infusing USL to meet the debt repayment obligations. The net cash accruals to total debt (NCA/TD) stood low at 0.02 times in FY2023. Acuité believes that the ability of the company to improve its financial risk profile will remain key monitorable over the medium term. Working capital intensive operations The working capital management of the company is intensive in nature, marked by high Gross Current Assets (GCA) of 549 days in 31st March 2023 as compared to 791 days on 31st March 2022 with increased efficiencies in inventories and debtor management. The stretch in the GCA days is on account of stretch in the inventory and debtor period; inventory days which stood at 210 days as on March 31, 2023, even though it has improved as compared to 408 days as on 31st March 2022. High inventory is due to requirement to maintain the finished stocks in outlets. With improved turnover, Acuite expects the inventory days’ will subsequently improve. Debtor days improved over the three years yet stood at 261 days as on March 31, 2023, as against 296 days as on 31st March 2022. The creditors days stood at 151 days as on 31st March 2023 as against 207 days as on 31st March 2022. Further, the bank limit utilisation of the company stood high at ~95.3 percent during the last twelve months ended in December 2023. Acuité believes that the ability of the company to manage its working capital operations efficiently will remain a key rating sensitivity. |
| Rating Sensitivities |
| Improvement of working capital management Sustenance of the financial risk profile |
| Liquidity Position: Stretched |
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The liquidity of the company is stretched marked by low net cash accruals of Rs.0.57 Cr as against Rs.2.16 Cr of long term debt repayment obligation in FY2023. The directors/ promoters are continuously infusing USL into the company to aid in the repayment of debt obligations in the near term. Going forward, the MIPL is expected to generate NCA’s in the range of Rs.2.99 – 4.93 Cr in FY2024 –FY2025 as against CPLTD of Rs.1.87 – 2.02 Cr for the same years. The current ratio of the company is moderate and stood at 1.64 times in FY2023. The bank limit utilisation of the company is high and stood at ~95.3 percent during the last twelve months ended in December 2023. The working capital intensive nature of the company is marked by high Gross Current Asset (GCA) days of 549 days in FY2023.
Acuité believes that the liquidity of the company is likely to improve over the medium term on account of increase in cash accruals against long debt repayments over the medium term. |
| Outlook: Stable |
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Acuité believes MIPL will continue to benefit over the medium term backed by its experienced management, established track record of operations and improving operating performance. The outlook may be revised to ‘Positive’ in case the company maintains the growth momentum while improving its the operating profitability, working capital operations and the financial risk profile. Conversely, the outlook may be revised to ‘Negative’ in case of significant deterioration in profitability and operating revenue leading to deterioration in its financial risk profile and liquidity.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 40.35 | 21.65 |
| PAT | Rs. Cr. | 0.22 | 0.11 |
| PAT Margin | (%) | 0.55 | 0.51 |
| Total Debt/Tangible Net Worth | Times | 3.93 | 3.31 |
| PBDIT/Interest | Times | 1.32 | 1.24 |
| Status of non-cooperation with previous CRA (if applicable) |
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Not Applicable
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| 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 • 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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