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Archies Ltd. — Audit Report / Information 2024
Apr 5, 2024
62096_rns_2024-04-05_0754ebdd-085b-4286-b7f4-5a601e455458.pdf
Audit Report / Information
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JAGDISH Digitally signed by JAGDISH MOOLCH MOOLCHANDANI Date: 2024.04.05 ANDANI 17:24:19 +05'30'
ICRA Limited
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Ref: ICRA/Archies Limited/05042024/01
Date: April 05, 2024
Mr. Jagdish Moolchandani
Director Archies Limited
C-113, Naraina Industrial Area Phase 1, New Delhi 110028
Dear Sir,
Re: Surveillance of ICRA-assigned Credit Rating for Rs. 24.10 crore Bank Facilities (details as per Annexure) of Archies Limited.
Please refer to the Rating Agreement/Statement of Work dated July 15, 2011, executed between ICRA Limited (“ICRA”) and your Company, whereby, ICRA is required to review its rating(s), on an annual basis, or as and when the circumstances so warrant. Based on a review of the latest developments, the Rating Committee of ICRA, after due consideration has reaffirmed a long-term Rating of [ICRA]BB (pronounced ICRA double B) . Outlook on the long-term Rating is Negative . For Rating definition(s), please refer to ICRA website at www.icra.in.
In any of your publicity material or other document wherever you are using the above Rating(s), it should be stated as [ICRA]BB (Negative) .
The aforesaid Rating(s) will be due for surveillance any time before March 27, 2025. However, ICRA reserves the right to review and/or, revise the above Rating(s) at any time on the basis of new information becoming available, or the required information not being available, or other circumstances that ICRA believes could have an impact on the Rating(s). Therefore, request the lenders and Investors to visit ICRA website at www.icra.in for latest Rating(s) of the Company.
The Rating(s) are specific to the terms and conditions of the bank facilities as indicated to us by you, and any change in the terms or size of the same would require a review of the Rating(s) by us. In case there is any change in the terms and conditions or the size of the rated bank facilities, the same must be brought to our notice before the bank facilities is used by you. In the event such changes occur after the Rating(s) have been assigned by us and their use has been confirmed by you, the Rating(s) would be subject to our review, following which there could be a change in the Rating(s) previously assigned. Notwithstanding the foregoing, any change in the over-all limit of the bank facilities from that specified in the first paragraph of this letter would constitute an enhancement that would not be covered by or under the said Rating Agreement.
The Rating(s) assigned must be understood solely as an opinion and should not be treated, or cause to be treated, as recommendation to buy, sell, or hold the rated bank facilities availed/issued by your company.
You are also requested to forthwith inform us about any default or delay in repayment of interest or principal amount of the instrument rated, as above, or any other debt instruments/ borrowing and keep us informed of any other developments which may have a direct or indirect impact on the debt servicing
Building No. 8, 2[nd] Floor, Tower A DLF Cyber City, Phase II Gurugram – 122002, Haryana
Tel.: +91.124 .4545300 CIN: L749999DL1991PLC042749
Website: www.icra.in Email: [email protected] Helpdesk: +91 9354738909
Registered Office: B-710, Statesman House, 148, Barakhamba Road, New Delhi 110001. Tel: +91.11.23357940-41
R A T I N G ● R E S E A R C H ● I N F O R M A T I O N
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ICRA Limited
capability of the company including any proposal for re-schedulement or postponement of the repayment programmes of the dues/ debts of the company with any lender(s) / investor(s), or occurrence of any significant development that could impact the ability of the company to raise funds such as restriction imposed by any authority from raising funds through issuance of debt securities through electronic bidding system. Further, you are requested to inform us immediately as and when the borrowing limit for the instrument rated, as above, or as prescribed by the regulatory authority(ies) is exceeded.
We look forward to your communication and assure you of our best services.
With kind regards, Yours sincerely, For ICRA Limited
Digitally signed ANIL by ANIL GUPTA Date: 2024.04.05 GUPTA 10:43:11 +05'30'
Anil Gupta Senior Vice President [email protected]
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ICRA Limited
Annexure
| Details of Bank Limits Rated by ICRA (Rated on Long- Term Scale) |
Amount (Rs. crore) |
Rating | Rating Assigned on |
|---|---|---|---|
| Cash Credit Limits | [ICRA]BB (Negative) |
March 28, 2024 | |
| Kotak Mahindra Bank Limited | 12.60 | ||
| HDFC Bank Limited | 7.50 | ||
| Working Capital Term Loan | |||
| Kotak Mahindra Bank Limited | 3.00 | ||
| Non-Fund-Based Facilities ed | |||
| HDFC Bank Limited | 1.00 | ||
| Total | 24.10 |
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April 05, 2024
Archies Limited: Rating reaffirmed
Summary of rating action
| Instrument* | Previous Rated Amount (Rs. crore) |
Current Rated Amount (Rs. crore) |
Rating Action |
|---|---|---|---|
| Long-term fund-based – Cash credits |
23.10 | 23.10 | [ICRA]BB (Negative); reaffirmed |
| Long-term – Non-fund based | 1.00 | 1.00 | [ICRA]BB (Negative); reaffirmed |
| Total | 24.10 | 24.10 |
*Instrument details are provided in Annexure-I
Rationale
The rating reaffirmation and continuation of Negative outlook for Archies Limited (Archies/company) factor in its modest scale of operations, high working capital intensity and leverage levels. The company’s revenues are estimated to remain modest at Rs. 81-85 crore in FY2024 and FY2025 (FY2023: Rs. 86 crore) due to closure of few of the company-owned stores and continue to be affected by the structural shift in the gifting and greeting industry towards the digital medium. While cost-rationalisation initiatives resulted in an increase in operating margins to 13.2% in 9M FY2024 (FY2023: 5.2%), the sustainability of the trend remains to be seen. The company’s working capital intensity remained high at 65% in FY2023 due to increased levels of inventory. This, along with modest operating profits, is likely to result in high leverage with Total Debt/OPBDITA expected to be in the range of 5.1x-5.3x as of March 2024 and 4.5x -4.7x in March 2025 (11.3x as of March 2023). The rating is also constrained by the exposure of the company’s operations to consumer spending trends and threat from alternative communication media. The rating factors in the declining trend in the number of company-owned and operated stores in the recent past, which has impacted the penetration level and sales.
The rating, however, favourably factors in Archies’ experienced promoters and its proven operational track record in the organised social expressions market in India, which enabled it to build an established brand presence. The company has a panIndia distribution network of 97 owned and operated stores as of December 2023. However, it generates a major share of revenues from its stores in the North Indian states (~77% in 9M FY 2024), which makes its business critically dependent on consumer spending and macroeconomic factors impacting the region. The rating also draws comfort from the continuation of financial support extended by the promoters, in the past, in the form of unsecured loans of Rs. 3.1 crore in 9M FY2024 and Rs. 3.5 crore as of March 2023 (FY 2022: Rs. 1.6 crore). ICRA expects similar support from the promoters through unsecured loans to bridge funding gaps, if any, to continue over the medium term.
Key rating drivers and their description
Credit strengths
Established brand presence in domestic market – Archies has a successful operational track record which has enabled it to build a strong brand presence in the organised social expressions industry in India. The company has a pan-India distribution network of 97 owned and operated stores as of December 2023. However, it generates a major share of revenues from its stores in the North Indian states (~77% in 9M FY2024), which makes its business critically dependent on consumer spending and macroeconomic factors impacting the region.
www.icra .in
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Experienced promoters with established track record in organised social expression industry – Archies and its promoters have been involved in the social expressions industry for more than four decades. The promoters’ long presence in the industry has aided the company to establish a strong foothold in the domestic organised social expressions market, which supported its business growth in the past. The brothers, Mr. Anil Moolchandani and Mr. Jagdish Moolchandani, hold key positions and are supported by a professional team.
Credit challenges
Modest scale of operations – The company has modest scale of operations, with revenues estimated at Rs. 81-85 crore in FY2024 and FY2025 (FY2023: Rs. 86 crore) due to closure of few of the company-owned stores and continue to be affected by the structural shift in the gifting and greeting industry towards the digital medium. While cost-rationalisation initiatives resulted in an increase in operating margins to 13.2% in 9M FY2024 (FY2023: 5.2%), the sustainability of the trend remains to be seen.
High leverage and working capital intensity – The company’s working capital intensity remained high at 65% in FY2023 due to increased levels of inventory. This, along with modest operating profits, is likely to result in high leverage with Total Debt/OPBDITA expected to be in the range of 5.1-5.3x as of March 2024 and 4.5 -4.7x in March 2025 (11.3x as of March 2023).
Exposure to consumer spending trends and intense competition in the segment – 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. The sales remain vulnerable to changes in consumer preferences. The number of company-owned and operated stores have declined in the recent past, which impacted the penetration level and sales.
ESG risks
Environmental considerations: PVC, polypropylene and plywood remain the key raw materials for the gifting and stationery manufacturing industry. These are some of the environmentally damaging plastics and are non-biodegradable petroleumbased products. Hence, the company is exposed to the risk of tightening regulations on environment and safety, which can have a potential bearing on the cost structure. However, the company is also mitigating the environmental concerns by reducing dependence on plywood and to minimise wood wastage.
Social considerations: Changing consumer behaviour towards environmentally sustainable products and increasing shift towards online sales and limited presence of the company in online channels could impact the demand of the company’s products. Overall, its exposure to environment and social risks remains moderate.
Liquidity position: Adequate
Archies’ liquidity position is adequate, supported by undrawn fund-based limits of ~Rs. 5 crore on an average for past 12 months. The company has Rs. 0.25 crore and Rs. 0.8 crore of debt repayment obligations in Q4 FY2024 and FY2025, respectively, which are expected to be met from its cash flow from operations.
Rating sensitivities
Positive factors – The outlook can be revised to Stable, if there is a healthy growth in profitability, along with improvement in its debt coverage metrics and liquidity profile, on a sustained basis.
Negative factors – Pressure could emerge on the rating, if a significant decline in sales and profitability results in moderation in credit metrics. Further, lack of timely financial support from promoters to bridge funding gaps, if any, would also lead to downward rating revision.
www.icra .in
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Analytical approach
| Analytical Approach | Comments | |
|---|---|---|
| Applicable rating methodologies | Corporate Credit Rating Methodology Rating methodology for entities-Retail |
|
| 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, it was converted into a public limited company and later renamed as Archies Limited in November 2002. Archies has an established presence in the social expressions industry in India and is a renowned retailer of greeting cards, gifts and stationery items. Its selling and distribution network across India comprises 97 company-owned and operated stores, apart from distributors, franchisees, and retailers. Its manufacturing facility is in Manesar, Haryana.
Key financial indicators (audited)
| Archies Standalone | FY2022 | FY2023 | 9M FY2024* |
|---|---|---|---|
| Operating income | 77.2 | 86.0 | 58.3 |
| PAT | -2.6 | 2.4 | 0.4 |
| OPBDIT/OI | 10.4% | 5.2% | 13.2% |
| PAT/OI | -3.4% | 2.8% | 0.7% |
| Total outside liabilities/Tangible net worth (times) | 0.7 | 0.6 | - |
| Total debt^/OPBDIT (times) | 7.4 | 11.3 | - |
| Interest coverage (times) | 1.4 | 0.9 | 2.0 |
Source: Company, ICRA Research; * Provisional numbers; All ratios as per ICRA’s calculations; Amounts in Rs. crore; PAT: Profit after tax; OPBDIT: Operating profit before depreciation, interest, taxes and amortisation; ^Total Debt = External debt + Lease liabilities + Promoter Loans
Status of non-cooperation with previous CRA: Not applicable
Any other information: None
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Rating history for past three years
| Instrument | Current rating (FY2025) Chronology of rating history for thepast 3years |
Current rating (FY2025) Chronology of rating history for thepast 3years |
|---|---|---|
| Type Amount rated (Rs. crore) Amount outstanding as of Dec 31, 2023 (Rs. crore) |
Date & rating in FY2025 Date & rating in FY2024 Date & rating in FY2023 Date & rating in FY2022 |
|
| Apr 05, 2024 - Mar 13, 2023 Mar 31, 2022 |
||
| 1 Fund-based |
Long- term 23.10 21.0 |
[ICRA]BB (Negative) - [ICRA]BB (Negative) [ICRA]BB (Negative) |
| 2 Non-fund based |
Long- term 1.00 - |
[ICRA]BB (Negative) - [ICRA]BB (Negative) [ICRA]BB (Negative) |
Complexity level of the rated instruments
| Instrument | Complexity Indicator |
|---|---|
| Long Term – Fund Based | Simple |
| Long-term – Non-Fund Based | Very Simple |
The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated. It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument's credit rating. It also does not indicate the complexity associated with analysing an entity's financial, business, industry risks or complexity related to the structural, transactional or legal aspects. Details on the complexity levels of the instruments are available on ICRA’s website: Click Here
Annexure I: Instrument details
| ISIN | Instrument Name |
Date of Issuance | Coupon Rate |
Maturity |
Amount Rated (Rs. crore) |
Current Rating and Outlook |
|---|---|---|---|---|---|---|
| NA | Long-term – Fund- based |
- | 9.05% | - | 23.10 | [ICRA] BB (Negative) |
| NA | Long-term – Non-fund based |
- | - | - | 1.00 | [ICRA] BB (Negative) |
Source: Company
Annexure II: List of entities considered for consolidated analysis – Not Applicable
www.icra .in
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ANALYST CONTACTS
Rajeshwar Burla +91 40 6939 6443 [email protected]
Anupama Reddy +91 40 6939 6427 [email protected]
Neha Mittal
+91 124 4545 300 [email protected]
Lokesh Patni +91 124 4545 327 [email protected]
RELATIONSHIP CONTACT
L. Shivakumar
+91 22 6114 3406 [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)
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
www.icra .in
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ICRA Limited
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Registered Office
B-710, Statesman House, 148 Barakhamba Road, New Delhi-110001 Tel: +91 11 23357940-45
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Branches
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© Copyright, 2024 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.
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