This announcement corrects the version issued earlier on 8 April 2009. Pakiza Retail Ltd has a total cash credit limit of INR1000m and an outstanding term loan of INR11.4m as on 19 March 2009. A corrected version follows.
Fitch Ratings has today assigned India's Pakiza Retail Ltd (Pakiza) a National Long-term rating of 'BB(ind)'. The Outlook is Stable. Fitch has also assigned a rating of 'BB(ind)' to Pakiza's Pakiza's long-term loan of INR11.4m and its fund based cash credit limits of INR1000m.
The ratings take into account Pakiza's strong position in Indore's organised value retailing business, locational advantage of its three stores and its operating track record of over 30 years. The ratings also reflect the sustained level of sales and margins over the past few years, as well as improvements in store level efficiencies. The ratings factor in Pakiza's moderate business strategy in terms of expansion and customer-focused approach. The company targets mid-market customers and is focused on maintaining its relationships.
The ratings are constrained by the low margins and working capital intensive nature of the business which have put pressure on the company's cash flow from operations. The company had marginal negative free cash flows (FCF) at 1.3% of revenue for FY08 reflecting an increased inventory levels during the year. Fitch also remains concerned on the relatively high leverage of the entity with adjusted debt /EBITDAR at 5.2x in FY08 (FY07: 5.2x). With additional capex from expansion of its Madhya Pradesh operations and additional working capital requirements coupled with the weaker economic outlook and its impact on the consumer retail business, Fitch expects financial leverage to remain relatively high in the short-to-medium term and has factored this deterioration in its forecasts; any material deterioration beyond 6.5x on an adjusted debt /EBITDAR basis could potentially act as a negative rating trigger.
Pakiza is a multi-brand multi-product hypermarket which stocks an entire range of fabric, garments, home furnishing, FMCG, accessories, kitchenware, cosmetics and related products. For the year to end-March 2008, Pakiza had a net revenue of INR507.9m (FY07: INR488.1m), with an EBITDAR margin of 7.3% (FY07: 6.7%) and a net income of INR3.8m (FY07: INR2.8m). For the nine months to end-December 2009, Pakiza had net revenue of INR419.1m with an EBITDAR margin of 6.4%.
Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(ind)' for National ratings in India. Specific letter grades are not therefore internationally comparable.
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