January 11, 2017 Matrix Clothing Private Limited. Rating Action. (in crore) Term Loan 2.87 (revised from 3.73) Short Term Fund Based

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1 January 11, 2017 Matrix Clothing Private Limited Instrument^ Rated Amount (in crore) Term Loan 2.87 (revised from 3.73) Short Term Fund Based Limits (same as earlier) Short Term Non Fund Based Limits (same as earlier) Unallocated Limits 0.86 (nil earlier) Rating Action Reaffirmed at [ICRA] BBB Reaffirmed at [ICRA] A3+ Reaffirmed at [ICRA] A3+ Reaffirmed at [ICRA] BBB ^Instrument Details captured under Annexure-1 Rating Action ICRA has reaffirmed the long term rating at [ICRA]BBB (pronounced ICRA triple B) and the short term rating at [ICRA]A3+ (pronounced ICRA A three plus) for the Rs crore 1 bank facilities of Matrix Clothing Private Limited ( MCPL or the company ). The long term rating has a stable outlook. Rationale The rating reaffirmation takes into consideration the company s steady operating performance during the previous financial year FY2016 despite ongoing challenges faced by some of its key customers in overseas markets. Although the company has a strong customer base consisting of many reputed international companies and brands, there have been company-specific challenges faced by some of its key customers including bankruptcy and change in ownership, which impacted the revenues of MCPL over the past two fiscals. However, the company is actively engaged in expanding its customer base and gaining more business from its existing clients, which is expected to support its revenue growth and diversification over the medium term. The rating action also factors in the healthy scale up in performance of MCPL s wholly-owned subsidiary, Tangerine Design Private Limited (TDPL, rated [ICRA]A3+ (SO) based on the corporate guarantee from MCPL), which has supported the financial risk profile and credit metrics of the consolidated entity. ICRA also takes note of the company s recent acquisition in Jordan, acquiring 100% stake in IBG Jordan, a company which has presence in the manufacturing of polyester-based bottom-wear for women. In addition to the operational synergies in terms of expansion of product portfolio (primarily into polyester based garments) and customer base, the acquisition is also expected to improve MCPL s competitiveness for exports to USA by virtue of perpetual duty-free status enjoyed by Jordan for exports to the United States. However, the acquired entity is currently loss-making, and ICRA expects that MCPL would need to support the entity financially at least in the near-to-medium term. Accordingly, ICRA would continue to monitor the performance of the acquired entity and any funding support required by the same from MCPL. The ratings continue to remain constrained by the geographic concentration risks that the company is exposed to, on account of significant proportion of its revenues being derived from the Northern Hemisphere markets of North America and Europe. With more than 95% of revenues being derived from these markets, MCPL s business prospects also remain susceptible to any adverse change in duty structure or trade relations between key garment exporting nations and key consuming countries. With these two markets reporting weak retail demand sentiment during the previous financial year, MCPL s revenues also remained sluggish during the period. Furthermore, with its export-driven revenues profile, the company also remains vulnerable to foreign exchange rate fluctuations; however, hedging of receivables through forward contracts mitigates this risk to some extent Lakh = 1 Crore = 10 million For detailed rating scales and definitions refer the ICRA website or other ICRA publications

2 The rating decision also factors in the high competitive intensity in the textile export industry, with competition faced from other domestic players, as well as other low-cost textile exporting countries like Vietnam and Bangladesh, which limits the pricing power of the company. However, there is strong focus by the Government of India (GoI) on improving textile exports from India, and there have been various schemes introduced for providing support to players in the textile industry in India. Schemes for enhanced duty drawback coverage and government support in sharing expenditure related to employees which have been introduced recently are expected to aid competitiveness as well as improvement in profitability of textile exporters like MCPL going forward. Going forward, the ratings would remain dependent on the company s ability to revive its revenues and scaleup its operations in spite of challenges faced by key customers and a bleak demand sentiment in its key markets. The company s efforts to expand its customer base and increase presence with existing clients would remain critical in this respect. ICRA also notes that leading apparel brands in the US and European markets continue to face high competitive intensity in the industry, and are also facing increased competition from online retailers. In this respect, de-risking of MCPL s revenues by growing its presence with alternate customers would also remain important. ICRA would also monitor the performance of the recently acquired entity as continued cash losses reported by the entity would necessitate additional funding support from MCPL for meeting its debt servicing requirements. Hence, these would remain key rating sensitivities and would be monitored going forward. Key rating drivers Credit Strengths Long-standing experience of the promoters in the garment manufacturing and exporting industry for over thirty-five years Strong customer base consisting of renowned international players and reputed brands; business being built up with recently added customers keeps revenue growth prospects comfortable over the medium term Scale up in performance of wholly-owned subsidiary, TDPL supports the consolidated financial risk profile of the company; strong synergies with TDPL in the form of access to customer base and diversification benefits by virtue of TDPL being present in the leather accessories export business are added positive factors Expansion in company s product portfolio and customer base through recent acquisition done in Jordan; duty-free status of Jordan for exports to US expected to improve MCPL s competitiveness in catering to clients in the USA Strong push by the GoI towards improving textile exports from India and special schemes introduced for the same expected to support improvement in profitability and credit metrics going forward Credit Weakness Moderation in operating revenues in spite of favourable currency movement during the previous fiscal on account of weak retail demand sentiment in MCPL s major markets of North America and Europe; company-specific challenges faced by some major customers of the company put additional pressure on its revenues MCPL s revenues exposed to geographic concentration risks with significant proportion of revenues being derived from North Hemisphere markets of North America and Europe Exposed to foreign exchange rate fluctuations as major proportion of revenues are USD or GBPdominated; risk mitigated to some extent by hedging through forward contracts High competitive intensity in the industry, both from domestic players, as well as other low-cost garment exporting countries like Vietnam and Bangladesh which limits its pricing power

3 Rating Sensitivities Company s ability to scale up its operations in spite of challenges faced by key customers and a weak demand environment in its key markets Ability to turnaround inorganic acquisitions carried out by the company Description of key rating drivers highlighted above: MCPL has been operating in the Indian textile manufacturing industry since 1980 and the management and promoters of the company are veterans in the industry, with long-standing experience of more than 35 years. The company operates majorly as a garment exporter, primarily exporting to the markets of USA and Europe, and catering to reputed brands like Timberland, Ralph Lauren, Debenhams and The Banana Republic among others. Although bankruptcy of a major client and consolidation in the industry has resulted in moderation of revenues from some of its key customers during the past two fiscals, the company has been actively engaged in expanding its business with existing as well as new customers, benefits of which are expected to accrue over the medium term. During FY2014, MCPL ventured into the leather accessories segment through its wholly-owned subsidiary, Tangerine Design Private Limited. TDPL has been scaling up its operations healthily over the past two fiscals, reporting a revenue growth of 40% during FY2016 and steady profitability indicators. This has offered support to the consolidated financial risk profile of MCPL. During FY2017, MCPL acquired another entity, IBG Jordan a manufacturer of polyester-based ladies bottom-wear based out of Jordan. Since Jordan enjoys perpetual duty-free status for exports to USA, this acquisition is expected to improve MCPL s competitiveness in catering to its US-based clients, along with additional benefits like product portfolio and customer base expansion. By virtue of more than 95% of MCPL s revenues being derived from markets in the Northern Hemisphere like North America and Europe, the revenues of the company remain exposed to geographic concentration risks. The company reports higher off-take during the second half of the financial year, coinciding with the winter season in these markets. More importantly, MCPL s revenues remain susceptible to economic cyclicality in these markets and their impact on consumer spending. A relatively warmer winter in USA during 2015 and a weak retail demand sentiment in these markets moderated the off-take from MCPL s key customers during FY2016. Furthermore, with a largely export-driven revenue profile, MCPL s revenues are susceptible to foreign exchange rate fluctuations, though mitigated to some extent by hedging of its receivables. The garment exporting industry is highly competitive and competition from other low-cost exporting countries like Vietnam and Bangladesh severely limits the pricing power and profitability of players like MCPL. However, with the GoI s focus on improving the competitiveness of Indian garment exporters in the global market, several support schemes have been introduced, which are expected to offer some support to indigenous textile exporters. MCPL is also expected to benefit from such schemes, and its profitability indicators are expected to improve going forward. Analytical approach: For arriving at the ratings, ICRA has taken a consolidated view of MCPL along with its wholly owned subsidiaries TDPL and IBG, Jordan since MCPL has guaranteed the entire debt of both the entities, and also have strong operational synergies with the subsidiaries. Links to applicable Criteria Corporate Credit Rating A Note on Methodology Rating Methodology for Indian Textiles Industry - Apparels About the Company: Matrix Clothing Private Limited (MCPL), incorporated in 1977, is engaged in the manufacture of apparels for the international markets. MCPL s current product portfolio consists of knitwear and woven apparel and the company has dedicated divisions for each of the following product lines - men s knitwear, men s woven wear and women s apparel. While the men s division includes golf-wear, performance wear, rugbies, sweats, hoodies, jackets and boxer shorts, the women s division has embroidered, sequins, prints, casuals and loungewear. The company manufactures all its products at its facilities located in Gurgaon. Tangerine Designs Private Limited, a wholly owned subsidiary of MCPL, commenced operations in October 2013 and is engaged in the manufacturing and export of leather accessories comprising belts and wallets for

4 men and footwear and bags for women. The company operates out of a leased manufacturing unit in Manesar and reported operating revenues of Rs crore and Profit after Tax (PAT) of Rs. 5.5 crore in FY2016. The bank facilities being availed by Tangerine Designs Private Limited are backed by a corporate guarantee from MCPL. MCPL also recently acquired an entity IBG, Jordan in August 2016, which was rechristened as IJC (Indo Jordan Clothing). The acquired entity is primarily engaged in the manufacture of polyester-based bottom-wear mainly for women. MCPL is also providing corporate guarantee for the working capital debt on the books of IJC which has been availed from Citibank Jordan. Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History for last three years: Table: Rating History S.N Name of o Instrument Type (long term/ Short term) Current Rating (Year) Chronology of Rating History for the past 3 years Rated Month-year Month- year Month- year Month- year amount & & Rating in & Rating in & Rating in (Rs. Rating FY2016 FY2015 FY2014 crore) January Term Loan LT 2.87 [ICRA]BBB 2 Short Term Fund Based Limits 3 Short Term Non fund based limits 4 Unallocated Limits January 2016 [ICRA]BBB December 2014 [ICRA]BBB December 2013 [ICRA]BBB ST [ICRA]A3+ [ICRA]A3+ [ICRA]A3+ [ICRA]A3+ ST [ICRA]A3+ [ICRA]A3+ [ICRA]A3+ [ICRA]A3+ LT 0.86 [ICRA]BBB 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

5 Annexure-1 Details of Instrument Name of the Date of Coupon rate Maturity Size of the Rating assigned, along instrument issuance Date issue with Rating Outlook Term Loan FY % FY [ICRA]BBB Short Term Fund Based Limits Short Term Non fund based limits Unallocated Limits Source: Matrix Clothing Private Limited - Base Rate [ICRA]A3+ Linked Rate [ICRA]A3+ NA NA NA 0.86 [ICRA]BBB Name and Contact Details of the Rating Analyst(s): Subrata Ray subrata@icraindia.com Shamsher Dewan shamsherd@icraindia.com Sruthi Thomas sruthi.thomas@icraindia.com Name and Contact Details of Relationship Contacts: Jayanta Chatterjee jayantac@icraindia.com 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 Copyright, 2017, 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 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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