ANKIT TNG RETAIL INDIA PVT. LTD.

Ratings Facilities/Instruments Long-term Bank Facilities Total Facilities Amount (Rs. crore) 45.00 45.00 Ratings1 'CARE B' (Single B) Remarks Assigned The major raw materials for ATNG are fabrics, buttons, zips, packing materials, thread, etc. Fabric is the major contributor of the total raw material costs and is mainly procured from Mumbai, Gujarat, Maharashtra and Rajasthan while Knitwear, T-shirts, Jackets, etc is procured from Ludhiana. The company also purchases imported fabrics through local dealers/distributors. Financial Results (Rs in crore) For the period ended / As at March 31, Rating Rationale The rating factors in ATNG's high financial leverage, declining profitability margins during FY09 and FY10, high working capital intensive nature of operations and its stretched liquidity position and competitive pressures in the garments industry. However, the rating draws comfort from the experience of the promoters and their demonstrated support through equity infusion and established distribution network. Going forward, the ability of ATNG to profitably scale up its operations to generate adequate cash accruals as well as effectively manage its capital structure and working capital requirements shall be the key rating sensitivities. Background Formed as a partnership concern in April 2003 under the name of Ankit Garments Manufacturing Company, ATNG was converted into a private limited company in July 2008. ATNG is engaged in manufacturing and trading of readymade garments for men and women. The company is promoted by Mr. Dwarka Das Agarwal who has been associated with the garment industry for about 25 years. The manufacturing facilities of the company are located in New Delhi with an installed capacity of 6 lakh shirts per annum and 5.4 lakh trousers per annum as on March 31, 2010. The company currently performs only cutting and finishing of products while the remaining work is outsourced to fabricators and job workers. Operations ATNG sells its products under TNG, DASH Casual and DMARS brands. Recently, ATNG launched a fixed-price brand called "Razor Lite". However, the brand - TNG contributed around 88% of gross sales during FY10. ATNG operates under the deep-discount format wherein it offers discounts ranging from 50%-80% along with other promotional schemes to its customers. The discount varies with the product, area, promotional schemes of competitors, season, etc. ATNG had 154 exclusive TNG outlets as on September 30, 2010 across India of which 60 are leased by the company but operated by the franchisee while the remaining are owned/leased and operated by the franchisee. The other brands are sold through dealers and distributors of the company. ATNG has an established presence in North India with 78 stores and contributing 73% of total revenues in FY10.
1

2008 (12m, A) 60.51 60.51 5.08 1.89 0.25 3.01 3.01 3.27 4.50 4.50 25.21

2009 (12m, A)* 100.26 100.26 6.61 2.87 0.56 3.17 1.97 2.50 3.00 4.36 44.94

2010 (12m, A) 138.22 138.22 8.60 4.47 0.95 3.22 2.03 2.92 5.50 8.83 65.91

Net Sales Total Operating Income PBILDT Interest and Finance Charges Depreciation PBT PAT (After Deferred Tax) Gross Cash Accruals Financial Position Equity Share Capital Partner's Capital Networth Total Capital Employed Key Ratios Growth Growth in Total Income (%) Growth in PAT [after Deferred Tax] (%) Profitability PBILDT / Total Operating Income (%) PAT / Total Income (%) ROCE (%) Average Cost of Borrowing (%) Solvency Long Term Debt Equity Ratio (times) Overall Gearing Ratio (times) Interest Coverage (times) Term Debt / Gross Cash Accruals (years) Liquidity Current Ratio (times) Quick Ratio (times) Turnover Average Collection Period (Days) Average Creditors (Days) Average Inventory (Days) Operating Cycle (Days) *

51.12 419.16 8.40 4.97 22.43 10.34 2.44 4.60 2.56 3.36 1.73 1.28 107 34 71 145

65.69 (34.62) 6.59 1.96 17.24 10.07 4.35 9.30 2.11 7.59 1.51 0.55 69 33 133 168

37.86 3.28 6.22 1.47 13.87 9.14 2.17 6.47 1.71 6.55 1.51 0.49 46 31 194 210

Complete definition of the ratings assigned are available at www.careratings.com and in other CARE publications

Audited P& L figures for period ending July 06, 2008 (3months: partnership firm) and March 31, 2009 (9 months: private limited company) have been clubbed while balance sheet figures are as on March 31, 2009

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Financial Analysis The total operating income of ATNG has increased at a Compounded Annual Growth Rate (CAGR) of around 52% over the 3-year period with major growth in FY09 and FY10 contributed by increase in sales volume on the back of increased outlets of the company. However, PBILDT margin was adversely affected during FY09 on account of increased competition and slowdown in the demand leading to pricing pressure. Also, higher incidence of fixed costs and financing charges led to tapering of PBILDT and PAT margins in FY09-10. Lower operating cash accruals led to higher reliance on bank credit as well security deposits from dealers thereby resulting in high financial leveraging. However, in FY10, the promoters and their associates infused equity of Rs.2.5 cr leading to improvement in the overall gearing as on March 31, 2010 but it still stood high at 6.4x as on March 31, 2010. The decline in the collection period and increase in inventory period during FY09 is attributable to the change in accounting treatment of sales and stock wherein during FY09 the company recorded the stock transferred to the franchisees as inventory which was recorded as sales in the previous years. However, with the increase in product lines and the number of stores, the inventory period continued to rise in FY10 resulting in higher requirement for working capital. As per the provisional results for Q1FY11, ATNG has achieved total operating income of Rs.21 cr with PBILDT and PBT margin of 9.12% and 2.31% respectively. Industry The Indian Retail industry is the seventh-largest retail destination

globally. As per the latest Global Retail Development Index (GRDI) Ranking-2009, India stood as the most attractive retail destination globally (ranked no.1 in four of the last five years) followed by Russia and China. The presence of approximately 12 mn retail outlets and the country's huge rural population base driving the consumption represent the industry's characteristics. During H1FY10, the Indian retailers were faced with declining sales and higher operating expenses leading to dent in their profitability margins. To counter the same, the retailers resorted to practices such as re-negotiation of rentals, maintaining better mix of Stock Keeping Units (SKUs) leading to optimum utilisation of inventories, cut-down on power bills etc. This combined with revival in retail sales during H2FY10 has brought about significant improvement in the retailers' profitability margins. With steady revival in the global economy during the latter part of FY10, CARE Research expects the consumer confidence to get restored thereby resulting in higher footfalls as compared to a year ago. CARE Research feels that the sales of lifestyle retailers would pick up more gradually as compared to value retailers and the proportion of private label sales to retailer's total sales would grow to 8-10% by FY11. CARE Research expects the total retail sales at Rs.22,357 bn by FY11. Of the same, the organized retail sales penetration is estimated to be 6.8% valued at Rs.1,520 bn. Prospects With the entry of international brands, the domestic competition in the branded apparel segment has been growing. The prospects for relatively smaller players like ATNG would depend upon their ability to scale up their operations and maintain their profitability margins along with effective working capital management.

November 2010 Disclaimer

CARE's ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments.

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