June 29, 2017 Kalyan Silks Trichur Private Limited

Summary of rated instruments

Instruments* Rated amount Rating action (Rs. crore) Long term: Term loans 11.00 [ICRA]BBB+ (stable) / (revised from 38.8) re-affirmed Long term: Cash Credit 60.00 [ICRA]BBB+ (stable) / (revised from 95.0) re-affirmed Short term: Non-fund based 3.00 [ICRA]A2 / re-affirmed facilities Long / short term: Unallocated 24.0 [ICRA]BBB+ (stable) / (earlier nil) [ICRA]A2 re-affirmed *Instrument details are provided in Annexure-1

Rating action ICRA has re-affirmed the long-term rating of [ICRA]BBB+ (pronounced ICRA triple B plus)1 outstanding on the Rs. 11.0-crore2 (revised from Rs. 38.87 crore) term loans and Rs. 60.0-crore (revised from Rs. 95.0 crore) fund-based cash credit facilities of Kalyan Silks Trichur Private Limited (KSTPL). ICRA has also re-affirmed the short-term rating of [ICRA]A2 (pronounced as ICRA A two) outstanding on the Rs. 3.00-crore non-fund-based facilities and [ICRA]BBB+(stable) /[ICRA]A2 for Rs. 24.00 crore unallocated limit of the company. The outlook on the long-term rating is stable.

Rationale The ratings consider the KSTPL’s strong operational profile marked by the established market and brand position in , its integrated nature of operations with retail and wholesale presence, and a diversified product portfolio. The ratings also derive comfort from the vast experience of the promoter in the textile retail industry and KSTLP’s financial profile characterised by stable earnings, and comfortable debt- protection metrics. The ratings, however, remain constrained by intense competitive pressures with limited entry barriers, and low current ratio due to high working capital requirements. With focus on eliminating the dead stock across stores and with minimal debt repayment obligations, the ratio is expected to improve going forward. The company has plans towards a debt-funded capital expenditure towards addition of new stores and hypermarket. Its potential impact on the debt indicators remains to be seen.

Key rating drivers Credit strengths  Vast experience of the promoter in the textile retail business  Operational efficiencies enabled by integrated operational set-up and effective sourcing arrangement  Established market and brand presence in Kerala  Well-diversified product profile

1 For complete rating scale and definitions, please refer to ICRA's website www.icra.in or other ICRA Rating Publications 2 100 lakh = 1 crore = 10 million

Credit weaknesses  Industry characterised by high competition from unorganised and organised players, as there are limited entry barriers  Financial profile characterised by thin margins and low current ratio

Description of key rating drivers: The ratings consider KSTPL’s increasing scale and strong operational efficiencies, supported by an integrated set-up with presence in both wholesale and retailing of garments and effective sourcing arrangements. Aided by rich experience of the promoter, Mr. T.S. Pattabiraman, wide product portfolio, increasing product acceptance and diversified geographical reach, the Group enjoys strong brand equity in Kerala (which accounts for over 90% of revenues).

As per the provisional financials, KSTPL’s revenues de-grew by 1.5% during FY2017, due to the adverse effect of currency demonetisation for a brief period. Inherent to the distribution nature of the business, KSTPL’s profit margins remain thin at 6.3%, and the company remains exposed to the pricing pressures with intense competition from both organised and unorganised players. Given the working capital intensive nature of the business, the current ratio is low at 1.0 times as of March 2017. However, with its focus on identifying and eliminating non-moving inventory across stores, KSTPL’s liquidity position is expected to improve going forward. The debt indicators remain comfortable with gearing of 0.3x and total debt to operating profit at 0.7x as of March 2017. That said, as the company has large debt-funded capital expenditure plans towards the addition of new stores and hypermarkets, the impact of the same needs to be seen.

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below.

Links to applicable criteria: Corporate Credit Rating Methodology

About the company: KSTPL, promoted by Mr. T.S. Pattabiraman, is a leading textile retail player in Kerala. The company is a part of the , which has been existent in the Kerala market for over 100 years. KSTPL commenced its operations as a wholesale distributor of textile products and subsequently ventured into retailing with its first showroom in . Over the years, the company has expanded into other markets in Kerala and other South states. KSTPL currently operates with retail showrooms spread across eight markets in Kerala, one in Bangalore and one each in Salem and Erode (Tamil Nadu).

Status of non-cooperation with previous CRA: Not applicable

Any other information: Not applicable

Rating history for last three years: Table: 1 Chronology of Rating History for the past Current Rating three years S. Instrument Amount No. Type rated June 2017 March 2016 August 2015 June 2014 (Rs. crore) Term Loan Long 11.0 [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB 1 Term (Stable) (Stable) (Stable) (Stable) Cash Credit Long 60.0 [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB 2 Term (Stable) (Stable) (Stable) (Stable) Bank Short 3.0 [ICRA]A2 [ICRA]A2 [ICRA]A2 [ICRA]A3+ 3 Guarantee Term Unallocated Long 24.0 [ICRA]BBB+ - - - 4 Term (stable) / [ICRA]A2

Complexity level of the rated instrument: ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the website www.icra.in

Annexure-1 Instrument Details

Instrument Date of Coupon Maturity Amount Rated Current rating and issuance rate Date (Rs. crore) Outlook Cash Credit - - - 60.0 [ICRA]BBB+ (Stable) Term Loan Dec 2016 11.45% Jul 2021 11.0 [ICRA]BBB+ (Stable) Bank Guarantee - - - 3.0 [ICRA]A2 Unallocated - - - 24.0 [ICRA]BBB+(stable)/ [ICRA]A2 Source: KSTPL

Contact Details Analyst Contacts

Subrata Ray V.S.Ranganathan +91 22 2433 1086 +91 9787897158 [email protected] [email protected]

Srikumar K +91 44 4596 4318 [email protected]

Name and Contact Details of Relationship Contacts:

Jayanta Chatterjee +91 80 4332 6401 [email protected]

About ICRA Limited: ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating Agency. Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit Rating Agency Moody’s Investors Service is ICRA’s largest shareholder. For more information, visit www.icra.in

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