Fitch Ratings has today affirmed B Sorabji Group's (B Sorabji) National Long-term rating and its sanctioned fund-based packing credit facility of INR35m at 'B(ind)'. In addition, the agency has assigned a 'B(ind)' rating to B Sorabji's sanctioned fund-based FDBP/FUDP/AFDBC facility of INR65m. The Outlook is Stable. This RAC further extends the version issued on 4 June 09.
The ratings factor in the firm's long operating track record in the garment exports industry, its established relationships with customers and its financial risk profile, which is expected to be moderate on account of conservative capex plans.
However, the ratings are constrained by the year-on-year decrease in sales over two consecutive years and increased demand risk arising from the firm's key export destinations, the U.S. and the EU, given the prevalent economic recession. The number of customers has also fallen on account of tight market conditions in the U.S. and Europe, coupled with B Sorabji's strategy of working with limited customers with lower receivable risk. The firm also follows the policy of keeping its receivables position unhedged. Customer concentration risk, along with foreign exchange volatility risk can negatively impact the firm's order book and operating margins.
Fitch also notes that a weaker domestic economic outlook and the impact of domestic and international competition can place pressure on B Sorabji's profitability. However, this downside is partly offset by the firm's high margin product profile such as children and ladies apparel. Nevertheless, the firm's leverage is expected to increase due to pressure on earnings, coupled with working capital stresses in the current environment. Any material deterioration beyond 1.2x on an EBITDA/Interest basis could potentially act as a negative ratings trigger.
For the year to end-March 2008, the firm had a net revenue of INR207.7m (FY07: INR263.3m), an EBITDA margin of 8.8% (FY07: 5.2%) and a net income of INR8.9m (FY07: INR20.8m). For the 12 months to end-March 2009, B Sorabji had estimated net revenue of INR198.6m with an EBITDAR margin of 13.3%.
Established as a partnership firm in 1978, B Sorabji manufactures and exports apparel to the U.S. and the EU. Its product profile includes men's wear, women's wear and children's wear. The firm operates out of one manufacturing unit in Bangalore and is headquartered in Mumbai, with excess orders being sub-contracted in Mumbai. B Sorabji caters mostly to distributors of renowned brands such as Inditex, Sears Canada and Neck Child. S.A.
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 credit s 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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