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Banks (Finance)

ICRA Reaffirms Ratings for Zodiac Clothing Company Limited

Strategic Insights

— 2 min read

Zodiac Clothing Company Limited (ZCCL) has received a reaffirmation of its ratings from ICRA, with the agency assigning its highest rating, ICRA A1+, to the company's short-term fund-based and non-fund-based facilities, as well as its commercial paper program. This decision is based on the company's strong financial flexibility, low gearing, and adequate liquidity, backed by a professional management team and the extensive experience of its promoters in the readymade garments business.

Key Takeaways:

  • ICRA has reaffirmed its ICRA A1+ rating for ZCCL's short-term fund-based facilities of Rs. 70 crore, non-fund-based facilities of Rs. 10 crore, and commercial paper program of Rs. 20 crore.
  • The rating reaffirmation is based on the company's strong financial flexibility, low gearing, and adequate liquidity, backed by a professional management team and the extensive experience of its promoters in the readymade garments business.
  • ZCCL has a strategic investment with a market value significantly in excess of its book value, which provides additional stability to the company's financial position.
  • The company's conservative financial management is reflected in its stringent receivables policy, low debtor days, and low inventory risk, with 75% of its inventory pre-sold according to the company management.
  • ZCCL's capital structure is sound, with a consolidated gearing of 0.22 times as on March 31, 2015.
  • Despite the company's strong financial position, ICRA notes that the sluggish macro-economic scenario in both domestic and export markets will continue to put pressure on both volumes and profitability, with any margin rebound dependent on demand pickup across markets.
  • The company's reliance on its flagship brand, CyZodiac', in the formal segment has been gradually decreasing, with increasing shares in other brands, which is a positive sign for the company's long-term prospects.
  • ZCCL's established brands in the premium men's wear category and their niche positioning in the branded garments industry, supported by the company's non-discounting policy, provide comfort for ICRA.
  • In the exports market, ZCCL's business is supported by its in-house design capabilities and long-term relationships with customers.
  • The company's liquidity is expected to remain adequate, supported by maintaining reasonable cash balances and tight control on working capital requirements.

Statistics:

  • ZCCL's short-term fund-based facilities: Rs. 70 crore
  • ZCCL's non-fund-based facilities: Rs. 10 crore
  • ZCCL's commercial paper program: Rs. 20 crore
  • ZCCL's consolidated gearing as on March 31, 2015: 0.22 times
  • ZCCL's debt days as on March 31, 2015: low
  • ZCCL's inventory risk: low, with 75% of inventory pre-sold
  • ZCCL's employment: around 3,200 people
  • ZCCL's manufacturing plants: located in Karnataka and Gujarat in India, and Dubai (UAE)
  • ZCCL's design offices: three of the fashion capitals of the world - London, New York, and Duesseldorf

Sources:

  • ICRA Limited
  • Zodiac Clothing Company Limited (ZCCL)
  • House of Zodiac
  • Metropolitan Trading Company (MTC)
  • ICRA India
  • ICRA Rating Agency Website: http://www.icra.in/

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