March 15, 2017

ABC Leathers
Instrument* Rated Amount Rating Action
(in crore)
Working Capital 9.0 [ICRA]A3+ upgraded from
[ICRA]A3
LC/BG 5.0 [ICRA]A3+ upgraded from
[ICRA]A3
Total 14.0
*Instrument Details are provided in Annexure-1

Rating Action

ICRA has upgraded the short-term rating of ABC Leathers (ABCL)1 from [ICRA]A3 (pronounced ICRA
A three) to [ICRA]A3+ (pronounced ICRA A three plus) for Rs. 14.0 crore bank lines.

Detailed Rationale

In assigning the ratings, ICRA has taken a consolidated view of ABCL, Richa Global Exports Private
Limited2 and Gaurav International Clothing LLP3.

The rating action factors in the steady revenue growth registered by the Group in FY2016 and the current
fiscal due to increase in average realisations and production volumes on the back of increase in
manufacturing capacities; and continued improvement in debt protection metrics on the back of stable
debt levels and steady internal accrual generation following the Group’s ability to sustain its profitability
margins. The Group continues to benefit on account the long experience of its promoters in the garment
manufacturing and export industry and its established operational track record; long standing relations
with its customer base which includes reputed international brands; and a sizeable manufacturing base.

However the ratings are constrained by limited pricing flexibility of the industry participants including the
Group owing to highly competitive nature of the industry; and vulnerability of the Group’s profitability to
volatility in raw material prices, foreign exchange risk, and export duty structure. Further, the liquidity
position of the Group remains dependent on capital withdrawals by the partners, which has kept the
dependence on bank funding high, as demonstrated by high utilisation of the working capital limits
availed from the bank. Also, concentration of exports primarily to USA and Europe exposes the Group to
geographic concentration risk. ICRA has also taken note of the risks inherent in a partnership firm such as
limited ability to raise equity capital, risk of dissolution, etc.

Going forward, the Group’s ability to maintain its revenue growth and profitability margins in light of
competitive pressures; contain the capex levels, and reduce the capital withdrawals will remain the key
rating sensitivities.

1
For complete rating scale and definitions please refer to ICRA’s website www.icra.in or other ICRA Rating Publications
2 Rated [ICRA]BBB+(stable)/[ICRA]A2
3 Rated [ICRA]A3+
Credit Strengths

a. Experienced management with over three decades of experience in the textiles industry
b. Sizeable scale of operations and manufacturing base of the group
c. Long established relationship with leading international brands such as Walmart, Abercrombie &
Fitch, etc. Repeat orders from these customers have driven the group’s revenue growth.
d. Steady growth in group’s operating income and improvement in operating margins in past few years.
e. Improvement in debt coverage metrics

Credit Weakness

a. Competitive intensity of the business, domestically as well as internationally, limits the bargaining
power of the garment exporters
b. Exposure to adverse movement in foreign exchange rate given that majority of revenue is contributed
by exports.
c. Exposure of profitability to raw material price fluctuation risk given the levels of inventory
maintained.
d. Revenue is exposed to geographical concentration risk, as majority of the exports are to USA and
Europe.
e. The industry derives benefit from favourable government policies such as duty drawback, export
oriented incentives, etc and any adverse changes in these can impact the competitiveness of the
industry
f. Some of the group entities are partnership firms and are exposed to inherent risks like withdrawal of
capital as has been witnessed in past, limited ability to raise capital, risk of dissolution etc.

Detailed description of key rating drivers highlighted above:

The Group is involved in garment manufacturing and export industry for more than three decades. The
Group was founded in 1977 by members of the Uppal family. Over the years, the Group has steadily
increased its manufacturing capacities and garment product portfolio in terms of design, fabrics, etc.
These strengths have enabled the Group to develop a wide customer base, which includes leading
international brands. Repeat orders from these customers as well as addition of new customers, coupled
with steady increase in production volumes and average realisations have driven the Group’s revenue
growth over the years. Additionally the group also benefits from economies of scale given its sizeable
manufacturing base. Steady increase in production volumes and average realisations across the product
segments has enabled the group to achieve steady revenue growth in recent years.

The garment manufacturing industry is highly fragmented characterized by intense competition between a
number of exporters both in India and other low cost countries such as Bangladesh, China, Vietnam and
Indonesia. The intense competition keeps the pricing power in check thereby limiting the profitability and
the ability of the industry participants to pass on the increase in the input costs of yarn and fabric. The
Group is exporting primarily to USA and European countries, which exposes it to high geographical
concentration and any change in regulations, trade policy, etc in these regions. Also given that the group’s
revenues are almost entirely contributed to by exports, its profitability is susceptible to adverse movement
in foreign exchange rates. Any appreciation of rupee vis-à-vis USD will adversely impact the group’s
revenue and profitability in short term and its competitiveness against other exporting countries. The
industry derives benefit from favourable government policies such as duty drawback, export oriented
incentives, etc and any adverse changes in these can impact the competitiveness of the Group. The group
entities are partnership firms and are exposed to inherent risks like withdrawal of capital as has been
witnessed in past, limited ability to raise capital, risk of dissolution etc. This is also demonstrated by
regular capital withdrawal by the partners in the firms of the Group, which has kept the dependence on
bank funding high, as demonstrated by high utilisation of the working capital limits availed from the
bank.

Analytical approach:

In assigning the ratings, ICRA has taken a consolidated view of ABCL, Richa Global Exports Private
Limited (RGEPL) and Gaurav International Clothing LLP (GICLLP). Following a business division
between the promoter family, these three entities are now fully owned and operated by Mr. Virender
Uppal and his family members. The other two entities which were earlier part of the group, namely,
Gaurav International4 (GI) and Richa & Company5 (R&C) are now fully owned and operated by Mr.
Vijay Uppal, Mr. Viney Uppal and their family members.

Links to applicable Criteria

Corporate Credit Rating –A Note on Methodology

About the Company:

Established in 1999 as a partnership concern, ABC Leathers (ABCL) is engaged in manufacturing and
export of leather garments mainly to European countries. ABCL’s manufacturing unit is located in
Gurgaon. The firm caters mainly for exports to renowned brands such as Hugo Boss AG, Armani
Xchange, etc.

In FY2016, ABCL has reported an operating income of Rs. 34.1 crore and profit after tax of Rs. 2.1 crore.

Status of non-cooperation with previous CRA: Not Applicable

Any other information: Not Applicable

4 Rated [ICRA] A2
5 Rated [ICRA]BBB+(stable)/[ICRA]A2
 Rating History for last three years:
Table: Rating History
Current Rating (2017) Chronology of Rating History for the past 3 years
Name of
S.No Instrument Amount Date & Date &
Type Date & Date & Rating in
outstanding Rating in Rating in
Rating FY2016
(Rs. Crore) FY2014 FY2013
March Februar April March
March 2013
2017 y 2016 2015 2014
Working Capital Short
1 9.0 [ICRA]A3+ [ICRA]A3 [ICRA]A3 [ICRA]A4+ [ICRA]A4+
Limits Term
Bank
Short
2 Guarantee/Letter 5.0 [ICRA]A3+ [ICRA]A3 [ICRA]A3 [ICRA]A4+ [ICRA]A4+
Term
of Credit
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
Annexure-1
Details of Instrument

Size of
Name of the Date of Maturity Current Rating and
Coupon rate the issue
instrument issuance Date Outlook
(Rs. Cr)
Working Capital - - - 9.0 [ICRA]A3+
Bank Guarantee/
- - - 5.0 [ICRA]A3+
Letter of Credit

Name and Contact Details of the Rating Analyst(s):

Sabyasachi Majumdar Harsh Jagnani

+91-124-4545304 +91-124-4545394
sabyasachi@icraindia.com harshj@icraindia.com

Deepak Jotwani
+91-124-4545870
deepak.jotwani@icraindia.com

Name and Contact Details of Relationship Contacts:

Jayanta Chatterjee
+91-80-43326400
jayantac@icraindia.com

About ICRA Limited:

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For more information, visit www.icra.in

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