Rating Rationale

19 Mar 2020
AKR Industries Private Limited

Brickwork Ratings reaffirms the ratings for the bank loan facilities of Rs.210.74 Crores of
AKR Industries Private Limited (Erstwhile AKR Textile) (‘AKR’ or ‘the Company’)

Particulars
Amount (Rs Crs) Ratings
Tenure Previous
Facility^ Previous Present (03 Apr 2019) Present
Fund Based
Term Loan 124.75 95.74
BWR BBB/ Stable BWR BBB/ Stable
Term Loan Long Term
- 15.00 Reaffirmed
(proposed)
Packing credit
90.00 90.00
(EPC/PCFC) BWR A3+
Short Term BWR A3+
Bill Discounting Reaffirmed
- 10.00
(LC Backed)
Rupees Two Hundred Ten Crores and Seventy Four
Total 214.75 210.74
lakhs only
Note: Please refer to BWR website ​www.brickworkratings.com/​ for definition of the ratings;​ ^ ​Annexure I provide
bank-wise details of facilities;

Rating Action/Outlook

The reaffirmation of ratings continues to reflect the experience of the management in the
readymade garment exports industry, integrated facilities with recently concluded backward
integration, established & long standing customer base and diversified product portfolio along
with locational advantages. However, the ratings remain constrained by thin profit margins,
moderate debt protection metrics, fragmented and competitive industry limiting the bargaining
power and susceptibility of AKR's margins to volatility in the raw materials and foreign
exchange rates. Also, BWR believes that the company is likely to face demand side headwinds in
the short term on account of the recent COVID-19 pandemic and is exposed to geographical
risks as the company is primarily an exporter with majority exports to the European countries.
BWR also notes the irregularity in submission of No default statement (NDS) as per extant
regulations, by the company.

The ​‘Stable​’ outlook indicates a low likelihood of rating change over the medium term. BWR
believes ​AKR Industries Pvt Ltd’s ​business risk profile will be maintained over the medium

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term. The outlook may be revised to Positive if a sustained increase in scale of operations, higher
than envisaged profitability, improved gearing and debt protection metrics result in an improved
financial risk profile. The outlook may be revised to Negative if lower than expected revenue or
profitability, any adverse impact of COVID19, stretch in the working capital cycle, sizeable and
unanticipated capex or weakening gearing adversely impact the financial risk profile.

Key Rating Drivers:

Credit Strengths:
● Experienced management - AKR is promoted by Mr K.Loganathan, who has vast
experience in garment exports. The management is supported by a qualified team of
experienced professionals. The extensive promoter experience results in a strong
relationship with European and American Clientele. The company was incorporated in
Feb 2019 and has taken over the operations of the erstwhile partnership firm AKR
Textile.

● Established and integrated manufacturing facilities: ​The Company’s facilities are

fully integrated with the in house production process of knitting, dyeing, embroidery,
printing and garmenting. The company’s manufacturing facilities are based in Tirupur
and Bangalore which has ensured availability of raw material and manpower. The
Company operates from 7 production units in Tirupur and 4 units in Bangalore, 1 unit
each in Chittoor and Perundurai. The firm has 13 units housed over 29.22 lacs square feet
with 5500 Machineries located in Tamilnadu, Karnataka & Andhra Pradesh. During the
current fiscal FY20, the company has completed the earlier envisaged backward
integration with successful merger of its proprietorship group firm (AKR Fab Industries)
engaged in knitting and acquisition of a dyeing unit (SIPCOT Processing Unit) from
Rohini Textile Industry Pvt ltd (RTIPL).

● Reputed Clientele and longstanding relationships with customers: ​The company has
established long term relationships with multinational apparel companies. The company
primarily exports its products to private label brands in the European and American
markets. The company’s clientele includes major companies like Tom Tailor (Germany),
Tommy Hilfiger (pan Europe), Calvin Klein (USA), H & M (Sweden), Bestseller/ Jack
and Jones (Denmark), Desigual (Spain) , Abasic (Spain) etc., OVS (Italy). The
longstanding relationships with some globally renowned clients with some associations
exceeding 15 years, translate into repeat business for the company, providing near to
medium term revenue visibility and stability.

Credit Weakness :

● Moderate financial risk profile : ​The total operating income registered a growth of
7.00% from Rs.430.66 crs in FY18 to Rs.460.82 crs in FY19. EBDITA was flat at

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 Rs.41.91 cr in FY19. However, PAT improved from Rs.8.31 crore in FY18 to Rs.12.50
crore in FY19. Tangible net worth was Rs.65.94 crores as on 31 Mar 2019
( Rs.80.79 Crs: PY) on account of conversion of the partnership firm to a private limited
company, with conversion of partners’ capital partly into equity and balance as unsecured
loans - unsecured loans were Rs.26.59 cr as on 31 Mar 2019. Gearing deteriorated from
1.80 times as on 31 Mar 2018 to 4.44 times as on 31 Mar 2019 on account of increasing
borrowing for the acquisition of RTIPL and merger of AKR Fab Industries. Adjusted
Gearing (after considering portion of unsecured loans as quasi equity) is 3.53 times as on
31 Mar 2019. Debt metrics continued to be moderate as reflected in ISCR of 2.14 times
and DSCR of 1.61 times as on 31 Mar 2019.

● Exposure to intense competition: ​The ready made garment manufacturing segment is

fragmented and intensely competitive. Despite the group's presence in the business for
over three decades and established relationships with customers and suppliers, it remains
exposed to competition from various players in India and other low-cost ready made
garment manufacturers from other countries. This places pressure on its business risk and
financial risk profiles.

● Concentration risk and foreign exchange risk: AKR’s exports constitute ~96% of its
revenues with majority exports to Europe and America. The Company has forward
contract limits and bill discounting facilities from the bankers to mitigate the associated
risks, to a certain extent. Further, during FY19, ~37% of the revenue was from Tommy
Hilfger exposing it to customer concentration risks. However, the said customer has a
long standing relationship with the promoters. Revenue and profitability are vulnerable to
foreign exchange fluctuations.

● Working capital intensive nature of operations : ​The Company’s operations are

working capital intensive operations as reflected by higher inventory and receivables
period owing to the nature of the business. Also, with the recent merger, the inventory
levels have increased as on 9M FY20.

● Impact of COVID-19: ​Covid-19 pandemic has resulted in an unparalleled global

disruption with drastic containment measures being implemented worldwide. BWR
believes that what was considered as an opportunity for Garment exporters with
COVID-19 epicentre in China is likely to have an adverse impact with the
restrictions/curtailment on consumer mobility across the globe especially Europe and
USA. Exports have witnessed a significant drop mainly due to COVID-19, which
impacted sentiment in the European market — the largest for Indian exporters. The drop
is mainly due to weak buying and many customers going bankrupt or witnessing lower
sales. ​Also, on account of the lockdowns, deferrals of conclaves/ business meets etc,
order inflow is likely to be subdued in the short term​. A long term adverse impact on
profitability and liquidity can not be ruled out if the pandemic prolongs on account of

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 delays in debtor realisations/ government dues etc. The ability of the company to manage
regular order inflow and its operations would be a key rating sensitivity.

Analytical approach
BWR has applied its rating methodology as detailed in the Rating Criteria below (hyperlinks
provided at the end of this rationale). The company does not have any subsidiary.

Rating sensitivities:

Going forward, the ability of the company to increase its revenue and profitability, effectively
manage any impact on business operations due to the recent COVID19 pandemic, ensure equity
infusion as envisaged and manage its working capital efficiently would be the key rating
sensitivities.

Positive

● Increase in scale of operations with significant growth in revenues and profitability on a

sustainable basis.
● Decline in Total Debt/ TNW to below 1.50 times on sustained basis.

Negative
● Deterioration in key credit metrics on account of decline in scale of operations/ order
book and sustained pressure on net margins.
● Specific credit metrics which may result in a rating downgrade include deterioration in
EBITDA to <5%, Total Debt/TNW exceeding 3 times and DSCR and ISCR declining to
below 1.50 times on a sustained basis.
● Continued non-submission of monthly NDS.

Liquidity - Stretched​: Net cash accruals at Rs. 23.95 cr for FY19 and Rs. 30.03 cr for FY20 are
sufficient to cover the CPLTD of Rs. 21.40 cr as on 31Mar2019 and Rs.20.16 cr as on 31 Mar
2020 respectively. Cash and cash equivalents at Rs.2.06 Crs as on 31 Mar 2019 are low. Cash
conversion cycle has increased from 48 days as on 31 Mar 2018 to 105 days as on 31 Mar 2019
on account of decline in sundry payables. Current ratio declined from 1.22 times as on 31 Mar
2018 to 1.14 times as on 31 Mar 2019. Average utilisation of limits are in the range of ~90%.
Keeping in view the yearly debt repayment of ~Rs 20 cr due in the coming years on account of
the recent acquisition, the marginal decline in current ratio and increase in the cash conversion
cycle, BWR believes that the company’s liquidity would continue to be stretched till the
envisaged additional infusion by the promoters.

About the Company

AKR Textile Industries Pvt Limited was established in 2003 as a proprietary concern in Tirupur,

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Tamil Nadu. Subsequently, during 2011, the concern was reconstituted as a partnership firm
AKR Textile. The partnership firm was converted into a private limited company in Feb 2019. It
is engaged in manufacturing and exports of knitted garments where in exports contribute ~96%
of the revenue. The firm manufactures a wide range of knitted fabrics such as men’s wear (50%),
ladies’ wear (45%), kid's wear (5%) etc. AKR has fully integrated manufacturing facilities with
the in house production process of knitting, dyeing, embroidery, printing and garmenting. It is an
ISO 9001: 2000 company with most of the factories also being certified as a green factory by
PVH (​Phillips-Van Heusen Corporation) ​Social compliance. Presently, the Company operates
from 7 production units in Tirupur and 4 units in Bangalore, 1 unit each in Chittoor and
Perundurai. During FY20, the company has completed the earlier envisaged backward
integration with successful merger of its proprietorship group firm (AKR Fab Industries)
engaged in knitting and acquisition of a dyeing unit (SIPCOT Processing Unit) from Rohini
Textile Industry.

Mr. K.Loganathan and Mrs.L.Radhika who were the partners in the erstwhile partnership firm
continue to hold the entire stake in the newly incorporated company. Mr. K. Loganathan is
Chairman and Managing Director, Mrs. L. Radhika is the director and Mr. V Balasubramaniam
and Mr. C. Anbarasu are the independent directors.

Key Financial Indicators:

31 Mar 2018 31 Mar 2019
Parameters
Audited Audited
Total Operating Income Rs. Crs 430.66 460.82
OPBDITA Rs. Crs 41.12 41.91
Net Profit Rs. Crs 8.31 12.50
Tangible Net Worth (TNW) Rs. Crs 80.79 65.94
Total Debt/TNW Times 1.80 4.44
Adj Total Debt/ TNW Times 1.80 3.53
Current Ratio Times 1.22 1.14
During 9MFY20 (provisional), the company has achieved a total operating income of ~Rs. 334
cr
Key covenants of the facility rated: ​The terms of sanction include standard covenants normally
stipulated for such facilities.

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 Status of non-cooperation with previous CRA (if applicable): Nil

Rating History for the last three years :

Facilities Current Rating (Mar 2020) Rating History

Tenure Amount
Rating 2019 2018 2017
(Rs Cr)

Fund Based 03 Apr 2019 - 27 Dec 2017^

Term Loan 95.74 BWR BBB/ BWR BBB/
Long Term BWR BBB/ Stable
Term Loan (proposed) 15.00 Stable Stable
Not
Packing credit
90.00 BWR A3+ rated BWR A3+
(EPC/PCFC) BWR A3+
Short Term
Bill Discounting (LC -
10.00 -
Backed)
Rupees Two Hundred Ten Crores and Seventy Four Lakhs
Total 210.74
only
The facilities were rated BWR BB+/ Stable/A4+ on 03 Dec 2012, BWR BBB-/ Stable/ A3 on 24 Feb 2014, BWR
BBB/ Stable/A3+ on 07 Sep 2015 and BWR BBB/ Stable/A3+ on 15 Nov 2016. Rating migrated to rating not
reviewed on 28 Mar 2019.#​ Amount rated: Rs.214.75 crs. @ Amount rated: Rs.133.76 crs. ^ Amount rated: Rs.
133.76 cr.

Complexity Levels of the Instruments

For more information, visit ​www.brickworkratings.com/download/ComplexityLevels.pdf

Hyperlink/Reference to applicable Criteria

● General Criteria ● Manufacturing Companies

● Approach to Financial Ratios ● Short Term Debt

Analytical Contacts Investor and Media Relations

Saakshi Kanwar
Manager- Ratings
Board: +91 80 4040 9940 Ext: 364
Liena Thakur
[email protected]
Assistant Vice President - Corporate Communications
+91 84339 94686
Rajee R
[email protected]
Senior Director – Ratings
Board: +91 80 4040 9940
[email protected]

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 ANNEXURE I
Details of Bank Facilities rated by BWR

Sl. No. Name of Type of Facilities Long Term Short Term Total
the Bank (Rs. Crs) (Rs. Crs) (Rs. Crs)
1 Packing Credit (EPC/ 60.00 60.00
PCFC)
2 Punjab Term loans 95.74 - 95.74
National
3 Foreign Bills - 10.00 10.00
bank
Discounting under
FLC (FOBNLC)
4 Packing Credit (EPC/ - 20.00 20.00
State Bank PCFC)
5 Of India Foreign Bill - 10.00 10.00
Discounting non LC
(FBDN)
6 Proposed Term Loans 15.00 - -
Total 110.74 100.00 210.74
Note: As per PNB sanction, the company has CC (sub limit of EPC) of Rs.10.00 cr, FOBNLC &
FOUBNLC (Sub Limit of EPC) of Rs.60.00 cr and FOBP & FOBUP (Sub limit of EPC) of
Rs.60.00 cr. As per SBI sanction, 100% interchangeability between EPC and FBDN. Also, the
company has Forward Contract limit of Rs.2.00 cr as a sublimit of EPC with SBI.

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About Brickwork Ratings : ​Brickwork Ratings (BWR), a SEBI registered Credit Rating Agency, accredited by
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presence with its offices in Ahmedabad, Chandigarh, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi along
with representatives in 150+ locations.

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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. BWR has taken considerable steps to avoid any
data distortion; however, it does not examine the precision or completeness of the information obtained. And hence,
the information in this report is presented “as is” without any express or implied warranty of any kind. BWR does
not make any representation in respect to the truth or accuracy of any such information. The rating assigned by
BWR should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and
BWR shall not be liable for any losses incurred by users from any use of this report or its contents. BWR has the
right to change, suspend or withdraw the ratings at any time for any reasons.

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