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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 6.00 | ACUITE B+ | Stable | Reaffirmed | - |
| Bank Loan Ratings | 7.50 | - | ACUITE A4 | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 13.50 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE B+’ (read as ACUITE B plus) and reaffirmed the short-term rating of ‘ACUITE A4’ (read as ACUITE A four) on the Rs. 13.50 crore bank facilities of Registan Exports (RE). The outlook is ‘Stable’.
The rating reaffirmation takes into account the steady business risk profile of the company marked by increasing revenue trend and better geographic exposure. The rating also factors the experienced management in the fabric manufacturing industry and the company’s established track record in the fabric export business, the average financial risk profile characterized by low albeit improving net worth. However, these strengths are offset by the declining profitability margins, working capital intensive management and intense competition in the industry. |
| About the Company |
| Established in 1990, Registan Exports (RE) is a Jaipur (Rajasthan) based partnership firm, engaged in the business of manufacture and exports of women and kids apparels. The firm is currently exporting to several countries mainly USA, UK, Europe, Middle East, Africa and Australia. Currently, the firm is headed by Mr. Akash Gupta, Mrs Anita Gupta and Harshal Gupta. |
| Analytical Approach |
| Acuité has considered the standalone business and financial risk profiles of RE to arrive at the rating. |
Key Rating Drivers
| Strengths |
| Experienced management and established relationship with customers
Established in 1990, the firm has been operational for more than three decades. The key promoters, Mr Akash Gupta and Mrs Anita Gupta have more than 3 decades of experience in the textile business and is ably assisted by the second-generation director Mr. Harshal Gupta. The long-standing experience of the promoters and long track record of operations has helped them to establish comfortable relationships with key suppliers and reputed customers across the continents. There has been continuous capital infusion since last 3 years ending FY22 to support the working capital requirements of the firm by the promoters. Acuité derives comfort from the long experience of the management and believes this will benefit the firm going forward, resulting in steady growth in the scale of operations. Moderate scale of operations The business risk profile is marked by moderate scale of operations. Revenues in FY2022 improved to over Rs. 20.81 Cr. compared to Rs. 8.28 Cr. in FY2021. However, the profitability margins declined due to increase in raw material prices. Volatility in cotton prices, and limited ability to pass on any sharp increase in the raw material price to customers because of the intense competition in the industry, expose RE to price risk. Therefore, EBIDTA margin declined to 7.01 per cent in FY22 from 9.85 per cent in FY22. PAT margin also remained thin at only 0.19 per cent. However, the RoCE remained modest at 8.11 per cent in FY22 as compared to 4.31% in FY21. Moreover, the company had registered revenues of Rs. 15 Cr. till August 2022. The capacity utilization also improved in FY22. Further, the company has increased the capacity by 250000 units in FY23. RE has an unexecuted order book position of around Rs. 17.44 Cr as on 31st August, 2022 which is expected to be executed in H2FY23, providing moderate revenue visibility over the medium term. |
| Weaknesses |
| Average financial risk profile
The firm’s average financial risk profile is marked by low albeit improving net worth, modest gearing and moderate debt protection metrics. The tangible net worth of the firm increased to at Rs. 4.13 Cr as on 31st March, 2022 from Rs.3.30 Cr as on 31st March, 2021.Gearing of the firm improved to 2.16 times as on 31st March, 2022 as compared to 2.49 times as on 31st March, 2021. The company has incurred regular capex for increasing the machineries. The Total outside Liabilities/Tangible Net Worth (TOL/TNW) stood high at 3.71 times as on 31st March, 2022 as against 3.00 times as on 31st March, 2021. The moderate debt protection metrics of the firm is marked by Interest Coverage Ratio (ICR) at 1.58 times as on March 31, 2022 and Debt Service Coverage Ratio at 1.37 times as on March 31, 2022. Net Cash Accruals/Total Debt (NCA/TD) stood at 0.06 times as on 31st March, 2022. Acuité believes that financial risk profile is expected to be moderate over the medium term with no major debt funded capex plans. Working capital intensive nature of operations The working capital-intensive nature of operations of the firm is marked by high Gross Current Assets (GCA) of 263 days as on March 31, 2022, even though improved as against 397 days as on March 31, 2021. The inventory period improved to 138 days as on March 31, 2022 as compared to 306 days as on 31st March 2021 on account of improved efficiency of inventory management. However, the debtor days stood high at 119 days as on 31st March, 2022 against 99 days in the previous year. Going forward, Acuité believes that the working capital management of the firm will remain at similar levels as evident from moderate collection mechanism and high inventory levels over the medium term. Intense competition on account of fragmented industry structure. RE faces stiff competition from established organised and unorganised players in the industry during the last few years. During the last few years, competition in the textile industry has increased with several new players entering the fray, thereby exerting pressure on its revenues and margins. Further, its profitability also remains vulnerable to the government incentives in the form of interest subsidies, and duty drawback scheme, which currently provide sizeable support to its profitability. Any adverse change in the incentive structure may negatively impact its profitability. |
| Rating Sensitivities |
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| Material covenants |
| None, |
| Liquidity position: Adequate |
| The firm’s liquidity position is adequate marked by comfortable current ratio at 1.51 times as on March 31, 2022 as compared to 1.81 times as on 31st March, 2021. The net cash accruals stood at Rs.0.53 Cr in FY2022 as against long term debt repayment of Rs.0.15 Cr. The fund-based limit remained moderately utilised at 75.33 per cent over six months ended August, 2022. The cash and bank balances of the firm stood at Rs.0.04 Cr in FY2022 as compared to Rs. 0.03 Cr in FY2021. The working capital-intensive nature of operations of the firm is marked by Gross Current Assets (GCA) of 263 days as on March 31, 2022 as against 397 days as on March 31, 2021. Acuité believes that going forward the firm will maintain adequate liquidity position due to steady accruals |
| Outlook: Stable |
| Acuité believes that the outlook on RE will remain 'Stable' over the medium term on account of the experience of the promoters and adequate liquidity position. The outlook may be revised to 'Positive' in case of significant growth in revenue while achieving sustained improvement in operating margins, capital structure and working capital management.. Conversely, the outlook may be revised to 'Negative’ in case of further decline in the firm’s revenues or profit margins, or in case of deterioration in the firm’s financial risk profile or further elongation in its working capital cycle. |
| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 20.81 | 8.28 |
| PAT | Rs. Cr. | 0.04 | 0.03 |
| PAT Margin | (%) | 0.19 | 0.42 |
| Total Debt/Tangible Net Worth | Times | 2.16 | 2.49 |
| PBDIT/Interest | Times | 1.58 | 1.94 |
| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any other information |
| None |
| Applicable Criteria |
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• Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm • Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
| https://www.acuite.in/view-rating-criteria-55.htm |
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