Arvind Fashions Ltd (AFL), part of Ahmedabad-based Lalbhai group, has opted to use moratorium on loan repayment amid closure of stores resulting in significant weakening of cash flows due to national lockdown to combat coronavirus spread.
On March 27, Reserve Bank of India had permitted lenders to grant borrowers the moratorium for three months for its debt obligations, including interest on working capital facilities as a Covid19-relief measure.
The company is also taking steps including slashing expenditure to manage adverse impact from sharp decline in demand and disruption in operations. Its promoters are extending unsecured loans facility worth Rs 50 crore and to use emergency credit limits of Rs 40-45 crore sanctioned by its bankers in April 2020, according to rating agency CARE.
AFL, through its two wholly owned subsidiaries and two joint ventures (JV), is engaged in the wholesaling and retailing of several owned and licensed branded apparels in India. The company has textile brands like Arrow, GAP, Tommy Hilfiger, Calvin Klein, Flying Machine and Sephora in its portfolio.
CARE has revised in the outlook on the long-term rating of AFL’s bank facilities from ‘Stable’ to ‘Negative’, reflecting expectation of adverse impact on the credit profile of AFL due to the temporary closure of its retail outlets on account of the outbreak of Covid-19.
The measures taken by the Central and various State governments to contain the novel corona virus have led to closure of all the stores of AFL in the country. The closure is likely to impact the profitability of the company in the medium term.
The liquidity of the company at a consolidated level is expected to remain adequate in light of the moratorium. The company’s operations are highly working capital intensive due to need to hold large inventory holding in its retail business and significant build-up of receivables in its wholesale/online channels.
AFL’s working capital borrowing rose in FY19 mainly due to increase in receivables from Rs 785 crore as on March 31, 2018 to Rs 879 crore as on March 31, 2019. They further increased to Rs 967 crore as on December 31, 2019.
Rating agency said it has taken cognizance of AFL’s plans to raise further equity share capital by way of rights issue of up to Rs 300 crore. This money will be mainly utilized towards reduction of its debt.
In March 2020, its Board of Directors decided to defer the rights issue by a few months compared with its earlier plans due to countrywide lockdown.
AFL’s management has articulated the various proactive steps to reduce its cost and augment liquidity. Lease is a major fixed cost for AFL, and it has invoked the force majeure clause for lease agreements with mall developers.