BIBA Apparels Private Limited

February 22, 2019

Summary of rating action

Previous Rated Amount Current Rated Amount
Instrument* Rating Action
(Rs. crore) (Rs. crore)
Long-term fund-based - Working
69.00 112.00 [ICRA]A+(Stable); Reaffirmed
Capital
Long-term fund-based - Term Loans 20.00 8.33 [ICRA]A+(Stable); Reaffirmed
Long-term/Short-term [ICRA]A+(Stable)/[ICRA]A1+;
81.00 19.67
Unallocated/Proposed Bank Facilities Reaffirmed
Commercial Paper (CP) 25.00 60.00 [ICRA]A1+; Reaffirmed
Total 195.00 200.00
*Instrument details are provided in Annexure-1

Rationale
The ratings continue to reflect the healthy operational profile of BIBA Apparels Private Limited (BAPL), characterised by
the strong presence of its flagship brand, BIBA, in the domestic ethnic wear segment for women, as well as its
established pan India multi-channel distribution network. Further, the company's financial profile remains strong with
healthy return indicators supported by an asset-light business model, strong capitalisation and debt protection metrics
and a comfortable liquidity profile (given the steady accrual generation and the timely funding enhancements from
banks). These strengths are, however, partially offset by the sizeable working capital requirements of the business, the
exposure to trends in consumer spending, and the fragmented and competitive nature of the domestic ethnic wear
market. Besides, the company has aggressive expansion plans, particularly for its economy brand. While the expansion is
expected to help the company diversify its brand, segmental and geographical presence, it may result in transitory
pressures on profitability, given the gestation period for new stores and the intense competition.

ICRA notes that BAPL's operating profitability recovered in FY2018, in line with expectations, from an all-time low
reported in FY2017 due to demonetisation-led pressures. Nevertheless, it has moved to a lower trajectory given the
competitive pressures as well as the management's stance on optimising inventory holding. This is corroborated by a
favourable correction in BAPL's inventory holding to ~252 days as on September 30, 2018 (from an all-time high level of
~340 days as on March 31, 2018) as well as an improved ageing profile with ~78% of the inventory pertaining to the
current season in September 20181, compared to ~75% in September 2017. In addition, the company's operating
margins remain in line with the industry benchmarks despite correction from the historical averages.

Outlook: Stable
The Stable outlook reflects ICRA's expectation of healthy growth in BAPL's sales, driven by same-store sales growth of
established outlets as well as store additions, and healthy profitability (in high teens) supported by strong brand equity,
despite competitive pressures. Further, optimisation of the inventory holding is expected to improve the working capital
intensity, which together with timely enhancements in the working capital limits would help BAPL maintain a
comfortable liquidity profile. The outlook may be revised to Positive if significant growth in scale, sustainable
improvement in profitability, and efficient working capital management strengthen the credit metrics. The outlook may

1
For September 2018, previous seasons include Autumn-Winter 2017 and earlier seasons

1
be revised to Negative if a decline in profitability, a significant stretch in the working capital requirement, or a large debt-
funded capital expenditure or inorganic expansion weakens the key credit metrics.

Key rating drivers

Credit strengths
Healthy operational profile with strong brand equity and established distribution network - Having commenced its
operations from FY2003, BAPL designs and retails women's ethnic wear under its flagship brand, BIBA, which has an
established presence and recall value in the domestic branded apparel market. In FY2014, the company launched
another brand in the value segment, Rangriti, to capture a wider market segment. Besides strong brand acceptance, the
company's growing retail network has helped it maintain a healthy growth rate over the years. This is reflected by the
Compounded Annual Growth Rate (CAGR) of ~23% in its sales turnover over the last eight years (FY2008-FY2018). The
company's pan India multi-channel distribution network comprised 314 Exclusive-Brand Outlets (EBOs) (254 for BIBA and
60 for Rangriti) as well as 465 Multi-Brand Outlets (MBOs) as on September 30, 2018. The EBOs allow the company
additional flexibility in promotion and brand building, enabling direct engagement with customers. The MBO channel, on
the other hand, helps the company expand its geographical presence with minimal investments.

Strong financial risk profile characterised by low gearing, strong debt coverage and comfortable liquidity - Despite a
shift in BAPL's operating profitability to a lower trajectory amid increased competition and the management's focus on
optimising inventory holding, the financial profile remains strong. This is reflected by Total Debt/Net Worth of 0.34 time,
Total Debt/OPBDIT of 1.04 times and interest coverage of 12.08 times in FY2018. Though the term as well as working
capital borrowings are expected to increase further (given the proposed increase in pace of expansion), ICRA expects the
company's capitalisation and debt coverage metrics to remain healthy, supported by a steady operating performance.

Asset-light model supports scalability and return metrics - BAPL designs, brands and retails apparels, and follows an
asset-light business model with the entire manufacturing outsourced to vendors on a job-work basis. The absence of in-
house manufacturing operations, along with the lower capital expenditure requirement in store expansion (given the use
of leased model for self-managed stores), supports scalability in business. This results in a healthy return on capital
employed (ROCE), averaging at over 35% for the last five years (FY2014-FY2018).

Credit challenges
High working capital intensity - BAPL's business is working capital intensive with high inventory holding requirements for
its existing as well as new stores. A slowdown in the targeted store expansion in FY2018 resulted in an inventory build-
up, translating into an increase in the working capital intensity (as reflected by NWC/OI) to ~61% from 53% in FY2017.
However, the company's focus on optimising the inventory levels subsequently moderated the NWC/OI ratio to ~53% in
H1 FY2019. The high level of finished goods inventory, coupled with the high proportion of older inventories pertaining
to the previous seasons, exposes the company to obsolescence risk, discounted sales realisations and, hence, pressurised
profitability.

Aggressive expansion plans - BAPL proposes to scale up its expansion plans to ~70-80 EBOs per annum in the near-to-
medium-term vis-à-vis the earlier plan of 40-50 stores per annum, particularly for its value brand, Rangriti. Though the
asset-light model supports scalability, the robust expansion plans will entail incremental investments towards stores as
well as inventory. Besides, expansions expose the company to risks pertaining to gestation period for new stores as well
as venturing into newer tier-II/III markets, considering the different target market for the Rangriti brand. In this scenario,
BAPL's ability to reach its targeted sales growth from both brands, while sustaining operating profitability and keeping
inventory levels under check, remains crucial for a stable credit profile.

2
Exposure to consumer spending trends and intense competition - BAPL's sales, profitability and cash accruals, like any
other apparel retailer, are closely linked to macro-economic conditions, consumer confidence and spending patterns,
particularly considering the discretionary nature of its products. Besides, its sales remain vulnerable to the consumers'
changing tastes and preferences, and the competition from branded as well as fragmented boutique segments in the
women's ethnic wear market. The company had a high proportion of fixed costs with rentals accounting for ~12% of the
total cost of goods sold in FY2018, and employee and power costs accounting for another 14%. Given the high
proportion of fixed costs and the consistent additional advertisement expenses (to capture consumer mind share as well
as wallet share), revenue fluctuations will continue to have a bearing on profitability.

Liquidity position

ICRA expects BAPL's healthy cash accruals and sizeable cushion available in working capital limits vis-à-vis drawing power
(average utilisation of 36% in 7M FY2019) to keep the company's liquidity profile comfortable.

Analytical approach
Analytical Approach Comments
Corporate Credit Rating Methodology
Applicable Rating Methodologies
Rating Methodology for entities in the Indian Textile Industry- Apparels
Parent/Group Support None
The ratings are based on the standalone business and financial risk profiles of
Consolidation/Standalone
BAPL

About the company

Biba Apparels Private Limited, incorporated in FY2003 by Mrs. Meena Bindra and her son, Mr. Siddharth Bindra, designs
and retails women’s ethnic wear, primarily in the domestic market under its flagship brand, BIBA. As on September 30,
2018, BAPL's products were retailed through 314 EBOs and 465 large-format stores/ MBOs, such as Shoppers Stop,
Lifestyle, Central and Pantaloons. In FY2014, the company introduced another brand in the economy segment, Rangriti.
While the company used to focus on retailing Rangriti through MBOs earlier, from FY2016 it started setting up EBOs for
the brand.

Key financial indicators (audited)

FY2017 FY2018
Operating Income (Rs. crore) 448.45 543.54
PAT (Rs. crore) 20.56 47.75
OPBDIT/OI (%) 10.98% 18.09%
RoCE (%) 12.84% 23.30%

Total Debt/TNW (times) 0.21 0.34

Total Debt/OPBDIT (times) 1.08 1.04
Interest Coverage (times) 22.48 12.08
Note: OI: Operating Income; OPBDIT: Operating Profit before Depreciation, Interest, Taxes and Amortisation; ROCE: Return on Capital Employed =
PBIT/Avg (Total Debt + Tangible Net Worth + Deferred Tax Liability - Capital Work in Progress); NWC: Net Working Capital (Current Assets less Current
Liabilities)

3
Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for last three years

Current Rating (FY2019) Chronology of Rating History for the past 3 years
Date &
Amount
Amount Date & Date & Date & Rating in Rating
Instrument Rated
Type Outstanding Rating Rating in FY2018 FY2017 in
(Rs.
(Rs. crore) FY2016
crore)
Feb-19 Dec-17 Feb-17 Dec-16 Dec-15
Fund-based
[ICRA]A+ [ICRA]A+ [ICRA]A+ [ICRA]A+
1 - Working LT 112.00 -- [ICRA]A+ (Stable)
(Stable) (Stable) (Stable) (Stable)
Capital
Fund-based
[ICRA]A+
2 - Term LT 8.33 8.33^ [ICRA]A+ (Stable) -- -- --
(Stable)
Loans
3 CP ST 60.00 -- [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ -- --
Unallocated [ICRA]A+
LT/ [ICRA]A+(Stable)/
4 Bank 19.67 -- (Stable)/ -- -- --
ST [ICRA]A1+
Facilities [ICRA]A1+
^Outstanding as on December 31, 2018

Complexity level of the rated instrument

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The
classification of instruments according to their complexity levels is available on the website www.icra.in

4
Annexure-1: Instrument Details

Date of Amount
Instrument Issuance / Coupon Maturity Rated
ISIN No Name Sanction Rate Date (Rs. crore) Current Rating and Outlook
NA Cash Credit NA NA NA 112.00 [ICRA]A+(Stable)
NA Term loans 22-Feb, 2017 NA FY2020 8.33 [ICRA]A+(Stable)
Unallocated
NA NA NA NA 19.67 [ICRA]A+(Stable)/[ICRA]A1+
Line of Credit
NA CP* NA NA 7-365 days 60.00 [ICRA]A1+
Source: BIBA Apparels Private Limited

*The rating of the aforementioned instrument is based on the condition that the company's total short-term borrowings (including CP, short-term debt
and bank borrowings) at any given point of time should not exceed its drawing power or the bank sanctioned fund-based limits (whichever is lower).

Annexure-2: List of entities considered for consolidated analysis: Not applicable

5
ANALYST CONTACTS
Jayanta Roy Nidhi Marwaha
+91 33 7150 1100 +91 124 4545 337
jayanta@icraindia.com nidhim@icraindia.com

Annu Mendiratta
+91 124 4545 887
annu.mendiratta@icraindia.com

RELATIONSHIP CONTACT
Jayanta Chatterjee
+91 80 4332 6401
jayantac@icraindia.com

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
communications@icraindia.com

Helpline for business queries:

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)

info@icraindia.com

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
companies as an independent and professional investment Information and Credit Rating Agency.

Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit
Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.

For more information, visit www.icra.in

6
ICRA Limited
Corporate Office
Building No. 8, 2nd Floor, Tower A; DLF Cyber City, Phase II; Gurgaon 122 002
Tel: +91 124 4545300
Email: info@icraindia.com
Website: www.icra.in

Registered Office
1105, Kailash Building, 11th Floor; 26 Kasturba Gandhi Marg; New Delhi 110001
Tel: +91 11 23357940-50

Branches

Mumbai + (91 22) 24331046/53/62/74/86/87

Chennai + (91 44) 2434 0043/9659/8080, 2433 0724/ 3293/3294,
Kolkata + (91 33) 2287 8839 /2287 6617/ 2283 1411/ 2280 0008,
Bangalore + (91 80) 2559 7401/4049
Ahmedabad+ (91 79) 2658 4924/5049/2008
Hyderabad + (91 40) 2373 5061/7251
Pune + (91 20) 2556 0194/ 6606 9999

© Copyright, 2019 ICRA Limited. All Rights Reserved.

Contents may be used freely with due acknowledgement to ICRA.

ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to a process of
surveillance, which may lead to revision in ratings. An ICRA rating is a symbolic indicator of ICRA’s current opinion on the relative capability of the issuer
concerned to timely service debts and obligations, with reference to the instrument rated. Please visit our website www.icra.in or contact any ICRA
office for the latest information on ICRA ratings outstanding. All information contained herein has been obtained by ICRA from sources believed by it to
be accurate and reliable, including the rated issuer. ICRA however has not conducted any audit of the rated issuer or of the information provided by it.
While reasonable care has been taken to ensure that the information herein is true, such information is provided ‘as is’ without any warranty of any
kind, and ICRA in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such
information. Also, ICRA or any of its group companies may have provided services other than rating to the issuer rated. All information contained
herein must be construed solely as statements of opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication
or its contents