Rationale

 While arriving at the ratings, ICRA has taken a consolidated view of BIBA Fashion Limited (BFL) and Kashida Apparels Private Limited (KAPL), commonly referred to as the Group, given the close business, financial and managerial linkages among them. The revision in the outlook on the long-term rating to Negative reflects ICRA’s expectations of the Group’s subdued performance continuing over the near term, after registering a weaker-than-anticipated performance in FY2024. The Group’s consolidated revenue declined ~12% to ~Rs. 767 crore in FY2024 due to relatively weak industry wide demand as well as internal issues faced by the company in implementing SAP during the peak season of FY2024, which caused a revenue loss of ~Rs. 50 crore, as per management estimates. The resultant under-absorption of fixed overheads and some one-time expenses due to bad debt and losses in the distribution channel significantly contracted the Group’s operating profit margin (OPM) to 10% in FY2024 from 21% in FY2023. Moreover, a subdued cash flow generation and continued high working capital intensity increased the reliance on external debt (Rs. 268 crore as on March 31, 2024 vs. Rs. 216 crore as on March 31, 2023) and moderated the debt protection metrics. ICRA notes that the company has taken some cost rationalisation initiatives and revamped its strategies, which coupled with some improvement in demand and strong brand positioning, willsupport a recovery in revenue growth and OPM in the current fiscal. However, the growth could be much weaker than the earlier anticipated performance for FY2025. The Group is also focusing on optimising its inventory levels, which along with higher accrual generation, is expected to support the cash flow. A timely positive impact of these initiatives on the Group’s credit profile shall remain a key monitorable. The ratings also remain constrained by the high brand concentration risk and changing consumer preferences towards modern designs. The business also remains vulnerable to adverse market conditions due to factors including, but not limited to, intense competition in the highly fragmented apparel retail industry. However, the ratings continue to draw comfort from the Group’s healthy operational profile, 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 multichannel distribution network. The Group operates on an asset-light business model with almost the entire manufacturing outsourced to vendors on a job-work basis. The lower contribution of in-house manufacturing and the moderate capital expenditure (capex) requirement in store expansion supports the scalability in business. While the group is expected to benefit from control over quality and costs of the final product over the medium to long-term, a timely ramp-up of the capacity utilisation will remain a key monitorable. The company is entitled to certain incentives by the state government and also enjoys a moratorium of three years on the term loans availed for the capex undertaken.