Safari Industries (India) said that CRISIL had revised its rating outlook on the long-term bank facilities of the company to 'Stable' from 'Positive' while reaffirming the rating at 'CRISIL A-'.
The credit ratings agency reaffirmed the rating on the short term facility at 'CRISIL A2+'.
CRISIL said that the outlook revision follows measures taken by various central and state governments towards containment of Covid-19, which includes temporary closure of non-critical establishments and inter-state transportation, along with advisory against travel and visiting areas of mass gatherings. These measures are likely to impact the business profile of the company over the near term, and thereby revenue and operating margin are expected to be subdued and lower than CRISIL's earlier expectations.
While, the measures are currently applicable till 14 April 2020, revocation of the measures will be contingent upon directive from the central government and extent of spread of Covid-19. A sustained period of closures can result in significant deterioration in the credit profile of the company.
On the other hand, a faster reversal to normalcy may contain the extent of deterioration likely in the credit quality of the company. That said, the ability of the business to revert back to operational stability with improvement in operating margin and any relief measures given by the government will be a key monitorable, and CRISIL will continue monitoring these events.
The ratings continue to reflect an established market position in the Indian luggage industry and a strong financial risk profile. These strengths are partially offset by working capital-intensive operations and exposure to volatility in foreign exchange (forex) rates and input prices.
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CRISIL believes that Safari's business risk profile is expected to be benefited by a strong distribution network and robust positioning in the mid- to lower-segment of the market.
The factors that could lead to a positive impact on the company's ratings are sustained growth in revenue and market share and improvement in margin to above 11%, leading to better cash accrual and improved working capital cycle with gross current assets (GCAs) improving to 170-180 days, leading to lower reliance on bank lines and strengthening of the financial risk profile.
The factors that could lead to a negative impact on the company's ratings are more-than-expected decline in revenue, over the medium term, and operating margin declining to below 8%, weakening net cash accrual and stretch in working capital cycle or large debt-funded capex or acquisition weakening the financial risk profile.
Shares of Safari Industries (India) were currently down 2.44% at Rs 391.50.
Safari Industries (India) manufactures and sells luggage under the brand, 'Safari'. The manufacturing unit is in Halol, Gujarat.
The company's standalone net profit rose 84.5% to Rs 9.15 crore on a 13.7% increase in net sales to Rs 165.24 crore in Q3 December 2019 over Q3 December 2018.
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