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Archies Ltd. Audit Report / Information 2020
62096_rns_2020-12-08_50bcb30a-1ae5-441f-8a64-d432f4b50e15.pdf
Audit Report / Information
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Date: oath December, 2020
| 1)TheManager, | 2)TheManager, |
|---|---|
| ListingDepartment, | ListingDepartment, |
| NationalStockExchangeofIndia | CorporateRelationshipDepartment, |
| Limited,ExchangePlaza,C-l,Block-G, | BSELimited, |
| BandraKurlaComplex,Bandra(East), | 1stFloor,NewTradingWing, |
| Mumbai-400051 | P.J.Towers,DalalStreet,Fort, |
| Mumbai-400001 | |
| ScripID-ARCHIES | ScripCode-532212 |
SUB: Intimation of Credit Ratings for Rs. 33.00 Crores Bank line(s) of Archies Limited pursuant to the applicable Regulations of SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015
Dear Sir/Madam,
Pursuant to the applicable Regulations of Securities Exchange Board of India (Listing Obligations & Disclosure Requirements) Regulations, 2015, it is hereby informed that the Rating Committee of ICRA, after due consideration, has affirmed the long-term rating for the captioned Line of Credit (LaC) at [ICRA]BB+ (pronounced ICRA double B plus). The Outlook on the long-term rating has been revised to [ICRA]BB+ (Stable) from [ICRA]BBB- (Negative).
Please take the above on records.
Thanking You.
Yours sincerely,
ARCHIES LIMITED
C -113, NARAINA INDUSTRIAL AREA, PHASE -1, NEW DELHI-11 0028 (INDIA), CIN : L36999HR1990PLC041175 TEL.: 91-11- 4141 0000, 41412222, Fax: 91-11- 41410060, Email : [email protected], Website: www.archiesonline.com REGISTERED OFFICE: PLOT NO. 191- F,SECTOR-4, I.M.T. MANESAR, GURUGRAM -122050, HARYANA (INDIA)
December 8, 2020
Archies Limited: Ratings revised
Summary of rating action
| Instrument* | Previous RatedAmount (Rs. crore) | Rating Action | ||||
|---|---|---|---|---|---|---|
| Long-term/Non-fund Based | 3.00 | 3.00 | [ICRA]BB+ | (Stable);[ICRA]BBB- (Negative) | revised | from |
| Long-term/FundBased/Cashcredit | 30.00 | 30.00 | [ICRA]BB+ | (Stable);[ICRA]BBB- (Negative) | revised | from |
| Total | 33.00 | 33.00 |
*Instrument details are provided in Annexure-1
Rationale
The rating action factors in Archies Limited's (Archies) shrinking scale of operations and continued pressures on profitability on account of the nationwide lockdown following the rapid spread of Covid-19, and limited sales in the recent months in areas where its stores have resumed operations. Furthermore, challenges of weak macro-economic environment translating to lower discretionary spends and potential change in consumer behaviour towards visiting public places due to the ongoing pandemic are likely to maintain pressure on its operating performance going forward. Thus, Archies' revenues are expected to register a sharp YoY decline FY2021, while its margins are likely to contract further due to weak absorption of fixed costs. To minimise the impact on profitability, the company is mulling options including closure of lossmaking stores, invocation of force majeure clauses for lease rental payments during the period of lockdown, rental negotiations with landlords for the rest of the year, employee restructuring and rationalisation of other discretionary spends, etc. Also, while the retail sales are expected to be low, the revenues are likely to be supported by the company's foray into the export market for its paper bags business. However, given the expected weakness in the overall demand in the near term, the improvement is likely to be gradual. The pressure on its credit profile is also accentuated by the increased working capital requirements following heightened inventory and receivable levels. These factors are likely to result in a moderation in the company's liquidity cushion. Hence, timely infusion of funds by the promoters is crucial to manage its liquidity requirements in the near term. The ratings, however, continue to favourably factor in Archies' experienced promoters and its long track record of operations in the organised social expressions market in India. The ratings also take comfort from the financial support extended by the promoters to Archies in the past in the form of unsecured loans, which kept its interest burden low. ICRA expects similar support from the promoters in the form of unsecured loans to bridge funding gaps, if any, to continue over the medium term.
The Stable outlook on the [ICRA]BB+ rating reflects ICRA's opinion that the company will benefit from its established brand presence in the social expressions market and continued funding support from the promoters to bridge funding gaps, if any. However, turnaround in operating performance will remain crucial to ramp-up revenues during the vital festival season in H2 FY2021.
Key rating drivers and their description
Credit strengths
Three-decade-long experience of promoters in industry – The promoters have more than three decades of experience in the social expressions industry. The brothers, Mr. Anil Moolchandani and Mr. Jagdish Moolchandani, hold key positions and are supported by a professional team.
Established brand name and leadership position with significant market share in India's organised social expressions industry – Archies has an established brand presence in the organised social expressions industry in India. The company enjoys a pan-India distribution network of 169-owned stores (of which 142 are operational) as on September 30, 2020. However, it generates most of the revenues from its stores in the North Indian states, which makes its profitability critically dependent on consumer spending in these states.
Credit challenges
Expected moderation in financial risk profile on account of the demand slowdown because of the pandemic – The company has a high operating leverage (fixed rentals and employee costs) and any sharp reduction in revenue results in significant pressure on its profitability. The nationwide lockdown imposed to contain the Covid-19 pandemic and limited sales traction across markets, where its stores have opened, resulted in a weak performance as reflected by operating income (OI) of Rs. 14.3 crore in H1 FY2021 compared to Rs. 67.2 crore in the corresponding year-ago period. Furthermore, challenges of a weak macro-economic environment translating to lower discretionary spends and potential change in consumer behaviour towards visiting public places due to the ongoing pandemic is expected to maintain pressure on the company's operating performance. Thus, revenues are expected to register a sharp YoY decline FY2021, while the margins are likely to contract further due to weak absorption of fixed costs.
High working capital intensity – Archies' business is working capital intensive with high inventory holding requirements for its stores. This typically translates into high working capital intensity. ICRA notes that a slowdown in sales in the past few quarters has resulted in consistently high inventory levels, despite the management's continued focus on liquidating older inventories. This, together with delay in debtor recovery, has resulted in moderation in the company's liquidity cushion.
Exposure to consumer spending trends and threat from alternative communication media – The company's sales, profitability and cash accruals are closely linked to consumer confidence and spending patterns, especially considering the discretionary nature of its products. Being sensitive to consumer discretionary spending, ICRA expects a prolonged impact on the demand, with recovery likely to be gradual over several months, and consumer reluctance to step out, which may keep footfalls subdued in its retail stores. Besides, its sales remain vulnerable to changes in consumer preferences. Over the years, consumer preference for traditional social expression industry (greeting cards and gifts) has declined due to the ease of digital modes of expression.
Decline in stores impacts penetration levels – The total number of company-owned stores has declined to 169 in September 2020 (of which 142 are operational) from 240 in March 2014. Over the same period, the franchisee/noncompany managed stores have also seen a consistent decline. This in turn has impacted the penetration levels. To expand its network, the company may have to open its own stores, which may increase the inventory costs and in turn, debt levels.
Liquidity position: Stretched
ICRA expects the liquidity position of the company to remain stretched on account of low cash flow from operations. Moreover, given the high operating leverage of the retail business and in the backdrop of sharp revenue decline, fixed cost
rationalisation becomes imperative. Continued support from the promoters in the form of unsecured loans to bridge funding gaps would support the liquidity position to some extent, going forward. In addition, undrawn line of credit, subject to available drawing power, will provide some comfort to its liquidity position. An improvement in cash flows through turnaround of operations and better profitability remains critical for improvement in the liquidity profile.
Rating sensitivities
Positive triggers – Given the current business scenario, a ratings upgrade in the medium term is unlikely. However, fullfledged revival of operations with ramp up in scale and sustained improvement in profitability, along with improvement in liquidity profile, could lead to an upward rating revision.
Negative triggers – Continued deterioration in profitability on account of the Covid-19 pandemic or slower-than-expected ramp up in sales resulting in further moderation in credit metrics may create downward pressure on the ratings. Further, any delay in financial support from the promoters, if warranted, would be a negative trigger.
Analytical approach
| Comments | |
|---|---|
| Corporate Credit Rating Methodology | |
| Applicable Rating Methodologies | Rating Methodology for Entities in the Retail Industry |
| Parent/Group Support | Not applicable |
| Consolidation / Standalone | Standalone |
About the company
Archies Greetings & Gifts was promoted by Mr. Anil Moolchandani and Mr. Jagdish Moolchandani in 1979 as a partnership firm. In 1995, the company was converted into a public limited company and in November 2002, it was renamed Archies Limited. The company has an established presence in the social expressions industry in India and is a renowned retailer of greeting cards, gifts and stationery items. The company's selling and distribution network across India comprises 169 company-owned stores, apart from distributors, franchisees, and retailers. The manufacturing facility of the company is in Manesar, Haryana.
Key financial indicators
| FY2019 | FY2020 | H1FY2021 |
|---|---|---|
| 161.4 | 139.3 | 14.3 |
| 0.7 | -7.2 | -2.5 |
| 3.5% | 11.7% | -14.8% |
| 0.5% | -5.2% | -17.8% |
| 0.4 | 1.1 | 1.0 |
| 2.8 | 5.5 | -19.8 |
| 2.1 | 1.7 | -0.5 |
Source: Financial statements of Archies; ICRA research
Status of non-cooperation with previous CRA: Not applicable
Any other information: None
Rating history for last three years
| Current Rating (FY2021) | Chronology of Rating History for the Past 3 years | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Name ofInstrument | Type | Rated | Amount | Month-year & | Month-year and Rating in | |||||||
| SNo | outstandiamountng | Rating | FY2020 | FY2019 | FY2018 | |||||||
| December | May 4, | November | July 03, | February | July 04, | February 8, | August 21, | |||||
| (Rs. crore) | 8, 2020 | 2020 | 22, 2019 | 2019 | 21, 2019 | 2018 | 2018 | 2017 | ||||
| 1 | Fund-based | Long | 30.00 | - | [ICRA]BB+ | [ICRA]BBB - | [ICRA]BBB - | [ICRA]BBB | [ICRA]BBB | [ICRA]BBB | [ICRA]BBB | [ICRA]BBB |
| Limits | term | (Stable) | (Negative) | (Stable) | (Stable) | (Stable) | (Stable) | (Negative) | (Negative) | |||
| Non-fundLong | [ICRA]BB+ | [ICRA]BBB - | [ICRA]BBB - | [ICRA]BBB | [ICRA]BBB | [ICRA]BBB | [ICRA]BBB | [ICRA]BBB | ||||
| 2 | Based Limits | term | 3.00 | - | (Stable) | (Negative) | (Stable) | (Stable) | (Stable) | (Stable) | (Negative) | (Negative) |
| 3 | Commercial | Short | 15.00 | - | [ICRA]A3+; | |||||||
| Paper | term | - | - | - | - | withdrawn | [ICRA]A3+ |
*Amount in Rs. crore
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: Instrument details
| ISIN No | InstrumentName | Date ofIssuance /Sanction | CouponRate | MaturityDate | AmountRated(Rs. crore) | Current Rating andOutlook |
|---|---|---|---|---|---|---|
| - | Cash Credit | - | - | - | 30.00 | [ICRA] BB+ (Stable) |
| - | Non-fund Based | - | - | - | 3.00 | [ICRA] BB+ (Stable) |
Source: Archies
Annexure-2: List of entities considered for consolidated analysis: Not applicable
ANALYST CONTACTS
K. Ravichandran +91 44 4596 4301 ravichandra[email protected]
Manish Ballabh +91 124 4545 812 [email protected] Vipin Jindal +91 124 4545 355 [email protected]
Sugandha Arora +91 124 4545 398 [email protected]
RELATIONSHIP CONTACT
Jayanta Chatterjee +91 80 4332 6401 [email protected]
MEDIA AND PUBLIC RELATIONS CONTACT
Ms. Naznin Prodhani Tel: +91 124 4545 860 [email protected]
Helpline for business queries:
+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm) [email protected]
About ICRA Limited:
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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.
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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.
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