Rationale

 The ratings reaffirmation for Kalyan Silks Trichur Private Limited (KSTPL) considers the expected improvement in operational and financial performances over the medium term on the back of its established presence, expected benefits from the recent store additions and its comfortable financial profile. After witnessing a healthy revenue growth of ~23% in FY2023 on a YoY basis, KSTPL’s consolidated revenues remained flat at Rs. 1,329.3 crore in FY2024 (provisional). Despite an improvement in gross contribution margins, KSTPL’s operating margins moderated by 120 bps to 10.3% in FY2024 due to an increase in employee costs and advertisement expenses. Going forward, the growth in revenues is likely to be supported by incremental revenues from stores added in Kozhikode and Kollam locations and sustained footfalls at its existing stores. While the company has planned debt-funded store additions for ~Rs. 90 crore in FY2025, its financial profile is expected to remain comfortable, supported by its conservative capital structure and healthy coverage indicators. The total debt to operating profit and interest coverage ratios stood at 1.8 times and 4.7 times, respectively in FY2024. KSTPL’s liquidity position has improved over the last two fiscals, backed by steady earnings and relatively lower reliance on external debt and retention of its earnings. The ratings also consider the promoter’s long experience and track record of KSTPL in successfully ramping up volumes from new showrooms in the past, which provides additional comfort. The ratings, however, remained constrained by the intense competition in the apparel retail business from several large format stores and established brands, which resulted in continued high marketing spends to support brand recall, thus limiting the operating margins. The ratings also factor in the inherent working capital requirements in the business and high geographical concentration as the Kerala showrooms contributed ~90% to revenues in FY2024. The Positive outlook reflects ICRA’s expectation of an improvement in KSTPL’s scale of operations and margins in FY2025, supported by benefits derived from addition of recent showrooms.