Rating Rationale JRD Denims Limited 07 Nov 2018 Brickwork Ratings assigns BWR BBB-/A3 for the Bank Loan Facilities of ​ Rs. 112.00 Crores of JRD Denims Limited (‘JRDDL’ or ‘the Company’) Particulars Facility* Amount (Rs. Crs) Tenure Rating1 ​ Fund based Cash Credit 20.00 BWR BBB- Long Term (Pronounced as BWR Triple B Minus) Term Loans 85.00^ (Outlook: Stable) Non Fund Based Bank Guarantee BWR A3 7.00 Short Term (Pronounced as BWR A Three) Total 112.00 (Rupees One Hundred Twelve Crores Only) 1 For​ definitions of the rating symbol please visit our website www.brickworkratings.com ​ *Annexure I show details of bank loan facilities;^ includes undisbursed portion of Rs. 25.00 crs Rationale/Description of Key Rating Drivers/Rating sensitivities: Brickwork Ratings (BWR) has essentially relied upon the audited financial results of the Company upto FY18, provisional financials of H1FY19, projected financials, publicly available information and information/clarifications provided by the management. The ratings draw strength from the experience of the promoters in the textile industry through group entities, timely commissioning of Phase I of the project, DSRA structure for the term loans, locational advantages and healthy order book position. The ratings are constrained by the project execution risk and delay in completion of Phase II, limited experience of the promoters in the denim sector, susceptibility of margins to fluctuation in prices of raw materials, seasonality associated with the availability of raw materials, intensely competitive textile industry and working capital intensive operations. Going forward, the Company’s ability to stabilise and achieve optimal operations in Phase I, achieve completion of Phase II as anticipated without any significant time and cost overruns, ensure timely funding, strengthen its credit profile and manage its working capital efficiently will be the key rating sensitivities. 1 07 Nov 2018 Rating Outlook: Stable BWR believes JRD Denims Limited’s business risk profile will be maintained over the medium term. The ​ ​ ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. The rating outlook may be revised to 'Positive' in case the revenues and profit show sustained improvement. The rating outlook may be revised to 'Negative' if the revenues go down and profit margins show lower than expected figures. Key Rating Drivers Strengths : ● Experienced management : The company is established as a joint venture by three Surat based ​ groups namely i.e. Vimlon Group (Ranka Family), Dalmia Group (Dalmia Family) and Vitrag Group (Jain Family). All the three groups are engaged in textile business since four decades through textile processing, knitting, dyeing weaving, trading and marketing of textile products. ● Proximity to cotton growing areas : Gujarat is one of the major producers of raw cotton and ​ there are a large number of textile players in the region. The plant is located at Ankleshwar, and has locational advantages like good connectivity to all parts of the country and availability of skilled and unskilled labour. ● Commissioning of Phase I of the project : The Company has successfully commissioned Phase ​ I of the project in December 2017 and started operations from January 2018, almost 3 months prior to the estimated date. The Company reported a revenue of around Rs. 25 crs for FY18 (3 months operations) and it has achieved revenue of ~Rs. 75.00 crs for 6MFY19, which is line with the projected revenue for FY19. Weaknesses: ● Initial stages of operations and delay in Phase II: The Company has started its ​ operations(Phase I) in Jan 2018. Thus, the company faces initial challenges especially in stabilisation and ramp up of operations. Phase II is expected to be delayed by 6-7 months as the company wishes to stabilise Phase I operations. The Company is exposed to risk of delay in project implementation which may lead to escalation of costs. ● Moderate Capital infusion and high gearing: The promoters infused capital of ​ ​ Rs 41.69 crs(Equity of Rs. 32.00 crs and USL of Rs. 9.62 crs) as on 31 August 2018 , which is in line with the required capital for the project implementation. Total debt:Equity was 6.03 times as on 31 March 2018 ( 2.34 times as on 31 March 2018, if a part of USL from promoters were to be treated as quasi equity). ● Intense competition and fragmented Industry : The textile industry is highly fragmented, with ​ a large number of organized and unorganized players and intense competition due to low entry barriers (on account of low capital and technology intensity and low differentiation in end product) which limits the pricing flexibility. 2 07 Nov 2018 ● Seasonality associated with the availability of raw materials : As the raw materials are ​ agro-based, their prices are volatile in nature. This may lead to fluctuation in revenue and profitability. Exposure to this risk is likely to continue over the medium term. Analytical Approach BWR has applied its rating methodology as detailed in the Rating Criteria below (hyperlinks provided at the end of this rationale). About the Company & Project details JRD Denims Limited (JRDDL) was incorporated in 2016 at Ankleshwar, Gujarat. The Company is engaged in manufacturing of Denim Fabrics. The project is being set up in two phases with total capacity of 88,886 meters per day, at Ankleshwar, Gujarat, at a total cost of Rs. 150.71 crs. It is an integrated denim manufacturing project, wherein the company undertakes in-house Indigo dyeing of yarn through sheet dyeing technology (Slasher Technology), weaving and finishing the denim fabric either in foam finish or wet finish. Phase I commenced commercial operations in Jan 2018 and Phase II is expected to start from April 2019. The directors are Mr. Alpesh Ranka, Mr. Mayur Ranka, Mr. Abhishek Dalmia, Mrs. Sneh Dalmia, Mr. Hitesh M. Jain and Mr. Mahavir Jain. Financial Performance JRDDL reported total operating income of Rs.25.14 Crs and net loss of Rs. 1.39 Crs in FY18 (3 Months). Tangible Net worth was Rs.15.29 crs as on March 31 2018. Gearing is high with D/E ratio of 6.03 times as on 31 March 2018. ISCR and DSCR were 2.87 times and 2.56 times respectively and Current ratio was 1.02 times as on March 31 2018. On a provisional basis, the Company has reported revenue of around Rs. 75 crs for H1FY19. Key financial indicators are given in Annexure II Status of non-cooperation with previous CRA :- Nil ​ Any other information -NA ​ 3 07 Nov 2018 Rating history for the last three years S.No Facility Current Rating (Nov 2018) Rating History Type Amount Rating 2017 2016 2015 (Rs. Crs) 1 Cash Credit 20.00 BWR BBB- Long term (Outlook: Stable) - - - 2 Term Loans 85.00 3 Bank Guarantee Short Term 7.00 BWR A3 - - - Total 112.00 (Rupees One Hundred and Twelve Crores Only) Hyperlink/Reference to applicable Criteria ● General Criteria ● Approach to Financial Ratios ● Short Term Debt ● Manufacturing Companies Analytical Contacts Media Rajee R [email protected] General Manager -Ratings Relationship Contact [email protected] [email protected] Phone: 1-860-425-2742 4 07 Nov 2018 Annexure I JRD Denims Limited Details of Bank Facilities Bank of COSMOS Co-operative Amount Facility Baroda Bank Ltd (Rs. Crs) Fund Based ​ Term loans 59.50 25.50 85.00^ Cash Credit 14.00 6.00 20.00 Non Fund Based Bank Guarantee 7.00 - 7.00 Total 80.50 31.50 112.00 ^ includes undisbursed portion of Rs. 25.00 crs Annexure II JRD Denims Limited Key Financial Indicators 31 March 31 March 2018 Units 2017 Audited Audited (3 Months) Total Operating Income Rs. Crs - 25.14 EBITDA Rs. Crs 0.007 7.09 PAT Rs. Crs (0.003) (1.39) Tangible Net worth Rs. Crs 6.78 15.29 Total Debt/ TNW Times 0.63 6.03 Current Ratio Times 0.09 1.02 5 07 Nov 2018 For print and digital media The Rating Rationale is sent to you for the sole purpose of dissemination through your print, digital or electronic media. While it may be used by you acknowledging credit to BWR, please do not change the wordings in the rationale to avoid conveying a meaning different from what was intended by BWR. BWR alone has the sole right of sharing (both direct and indirect) its rationales for consideration or otherwise through any print or electronic or digital media. Note on complexity levels of the rated instrument: BWR complexity levels are meant for educating investors. The BWR complexity levels are available ​ ​ at www.brickworkratings.com/download/ComplexityLevels.pdf Investors queries can be sent to [email protected]. ​ ​ ​ ​ ​ ​ ​ About Brickwork Ratings Brickwork Ratings (BWR), a SEBI registered Credit Rating Agency, accredited by RBI and empaneled by NSIC, offers Bank Loan, NCD, Commercial Paper, MSME ratings and grading services. NABARD has empaneled Brickwork for MFI and NGO grading. BWR is accredited by IREDA & the Ministry of New and Renewable Energy (MNRE), Government of India. Brickwork Ratings has Canara Bank, a leading public sector bank, as its promoter and strategic partner. BWR has its corporate office in Bengaluru and a country-wide presence with its offices in Ahmedabad, Chandigarh, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi along with representatives in 150+ locations. BWR has rated debt instruments/bonds/bank loans, securitized paper of over ₹ 13,22,500 Cr. In addition, BWR has rated over 7000 MSMEs. Also, Fixed Deposits and Commercial Papers etc. worth over ₹62,000 Cr have been rated. BWR has rated over 30 PSUs/Public Sector banks, as well as many major private players. BWR has a major presence in ULB rating of nearly 102 cities DISCLAIMER Brickwork Ratings (BWR) has assigned the rating based on the information obtained from the issuer and other reliable sources, which are deemed to be accurate.