Press Release Nalli Chinnasami Chetty
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Press Release Nalli Chinnasami Chetty February 08, 2019 Ratings Facilities Amount (Rs. crore) Rating1 Rating Action Long term Bank 2.53 CARE BBB+; Stable Reaffirmed Facilities (enhanced from Rs.1.61 crore) (Triple B Plus; Outlook: Stable) Short-term Bank CARE A2 Reaffirmed 9.00 Facilities (A Two) 11.53 Total Facilities (Rs. Eleven crore and Fifty Three lakh only) Details of instruments/facilities in Annexure-1 Detailed Rationale & Key Rating Drivers The rating assigned to the bank facilities of Nalli Chinnasami Chetty (NCC) continue to derive strength from the experience of the promoters in retailing of silk sarees, long operational track record of the firm, strong brand image of ‘Nalli’, long- standing relationship of the firm with a large network of suppliers and NCC’s comfortable capital structure and operating cycle. The rating is, however, constrained by the moderate scale and geographically concentrated nature of operations of the firm with its entire revenues dependent on a single showroom and highly competitive nature of the textile retailing industry. The rating also factors in the constitution of the firm being a partnership entity. Going forward, the ability of the firm to attract more footfalls and increase its revenues amidst increasing competition, improve profitability and maintain the capital structure would be the key rating sensitivities. Detailed description of the key rating drivers Key Rating Strengths Vast experience of the promoters and long operational track record of the firm: The Nalli group has been operational for more than a century, wherein the Late Mr Nalli Chinnasami Chettiar, hailing from a weavers’ family in Kanchipuram (known as the silk hub of Tamil Nadu) started manufacturing the made-to-order ‘Muhurtha sarees’ through his looms in the early 1900s and later started selling silk sarees from T Nagar, Chennai in 1928. Mr Nalli Kuppuswami Chetti (grandson of the founder Mr Nalli Chinnasami Chettiar) has been managing the business and operations of NCC since 1954. Established market position of the group supported by strong brand image of ‘Nalli’: The Nalli group is one of the early entrants in retailing of silk clothing. Over the past nine decades, ‘Nalli’ brand has become synonymous with silk sarees and has a strong brand recognition and loyalty across India, especially in South India. Though NCC operates a single store located in Chennai, the group has established its presence across the country and even abroad, through its group entities that leverage and thread on the common brand name of ‘Nalli’. The ‘Nalli’ Brand is owned by the family members of Mr Nalli Kuppuswami Chetti. Established relationship with a large supplier base: NCC has a vendor base of over 3,000 suppliers/consolidators with an established relationship built over the past nine decades. Over the past generations, NCC has helped these suppliers develop expertise on handloom based weaving of silk sarees, which has led to a strong bonding between the suppliers and the firm, allowing it source clothing at competitive terms. Stable profitability and comfortable capital structure and operating cycle: NCC’s operating margin has been largely stable over the year which is reflected in the PBDIT margin of 4.30% in FY18 and 4.23% in FY17. The financial risk profile of NCC is comfortable with debt equity ratio at 0.16x and overall gearing at 0.73x as on March 31, 2018. Further on the back of its strong supplier network developed over the decades, the firm’s operating cycle continued to be negative in FY18. Key rating weaknesses Moderate scale of operations with revenue dependent on a single showroom: The firm’s size of operations continued to be moderate with total income at Rs.111.14 crore in FY18. Further, NCC’s entire revenue is dependent on its single showroom at T Nagar, Chennai. Competitive landscape in retail business and geographical concentration: NCC operates from a single store in Chennai and faces competition from a number of small and medium retail players as the outlet is located in a commercial hub 1Complete definition of the ratings assigned are available at www.careratings.com and other CARE publications 1 CARE Ratings Limited Press Release where there are large numbers of small un-branded retail stores apart from the organized players. Capital withdrawal risk associated with partnership nature of the firm: NCC has continued to remain a partnership firm since inception restricting its overall financial flexibility. Further, the partner is free to withdraw capital when required. Moderate Liquidity NCC maintains an inventory period of only 3 weeks as it receives stock from its suppliers in 1-2 days due to the long- standing relationship with its wide supplier base. In addition to normal sales made on stock basis, NCC also sells silk sarees on a made-to-order basis (constitutes nearly 20% share in silk saree) as per requirements of the High Net worth Individuals (HNIs). In relation to these customers, NCC extends some credit period which has resulted in average collection period of about 19 days in FY18. The firm pays its suppliers in around 3 months’ time and as a result, the working capital cycle remained negative in FY18 and the current ratio remained below unity. Average working capital utilization for the twelve month period ended December 2018 remained moderate at 85.84%. The firm had a cash balance of Rs.2.08 crore as on March 31, 2018. Analytical approach: Standalone Applicable Criteria Criteria on assigning Outlook to credit ratings CARE’s Policy on default recognition Financial ratios – Non Financial Sector Rating Methodology: Factoring Linkages in Ratings CARE’s methodology for Retail Companies About the Company NCC, a part of Nalli group, started by Mr Nalli Chinnasami Chettiar, is a Chennai based partnership firm engaged in retailing of silk sarees, clothing and piece-goods. The name “Nalli” has become synonymous with silk sarees and holds a strong brand image in South India. NCC has one large retail store located in T Nagar (major shopping hub in central Chennai), owned by the partners, with built-up area of 20,000 square feet. Currently, the firm is managed by Mr. Nalli Kuppuswami Chetti (grandson of the founder Mr. Nalli Chinnasami Chettiar) and his son Mr. N. K. Ramanathan, with a profit/ loss sharing of 75% and 25% respectively. Brief Financials (Rs. crore) FY17 (A) FY18 (A) Total operating income 103.68 111.14 PBILDT 4.38 4.78 PAT 1.75 1.65 Overall gearing (times) 0.61 0.73 Interest coverage (times) 2.62 2.21 A: Audited Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History for last three years: Please refer Annexure-2 Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications. Analyst Contact: Name: Mr P. Sandeep Tel: 044-2850 1000 Email: [email protected] About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of 2 CARE Ratings Limited Press Release its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices. Disclaimer CARE’s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. Annexure-1: Details of Instruments/Facilities Size of the Rating assigned Name of the Date of Coupon Maturity Issue along with Rating Instrument Issuance Rate Date (Rs. crore) Outlook Fund-based - LT-Term CARE BBB+; Stable - - January 2022 2.53 Loan Fund-based - ST-Bank CARE A2 - - - 9.00 Overdraft Annexure-2: Rating History of last three years Current Ratings Rating history Name of the Type Rating Date(s) & Date(s) & Date(s) & Date(s) & Sr. Amount Instrument/Bank Rating(s) Rating(s) Rating(s) Rating(s) No. Outstanding Facilities assigned in assigned in assigned in assigned in (Rs. crore) 2018-2019 2017-2018 2016-2017 2015-2016 CARE 1)CARE 1)CARE 1)CARE BBB+ Fund-based - LT-Term BBB+; BBB+; Stable BBB+; Stable 1.