The credit rating agency has downgraded the company's long term rating to “CRISIL BBB+/Negative” from “CRISIL A-/ Negative”. It has downgraded the short term rating to “CRISIL A2” from “CRISIL A2+”.

CRISIL said that the downgrade reflects delayed deleveraging and slower-than-expected improvement in credit metrics owing to weak operating performance because of inflationary pressure and subdued demand in fiscal 2023.

Operating performance weakened in the second half of fiscal 2022 owing to higher raw material prices and supply chain challenges. This is likely to continue in fiscal 2023 with heightened raw material inflation and subdued export demand because of inventory correction at retailers and inflationary impact on consumer demand.

During the first quarter of fiscal 2023, HSL reported loss of Rs 55 crore and decline in revenue by 17%. The operating performance will likely recover in the second half of fiscal 2023.

Revenue growth is expected to remain flat in fiscal 2023 because of short-term headwinds on account of 5-10% fall in demand driven by large inventories of retailers and lower price increases. Earnings before interest, tax, depreciation and amortisation (Ebitda) margin will improve in the second half of this fiscal aided by lower cotton prices and 5-10% higher demand but remain below historical levels owing to high raw material inflation and lower capacity utilisation.

Capacity utilisation will reduce in the near term on account of unprecedented levels of inflation, supply chain challenges and demand impact. As a result, net cash accrual is expected to decline to approximately Rs 200 crore in fiscal 2023 from Rs 294 crore in fiscal 2022.

Debt increased to Rs 2,805 crore as on March 31, 2022, from Rs 2,467 crore a year earlier owing to higher inventory despite completion of capital expenditure (capex). The increase in inventory was because of inflation and delay in reimbursements under the ROSCTL scheme. The industry took a hit on the realisable value of scripts due to which the company has been slow in offloading them.

Debt metrics will moderate in fiscal 2023 driven by decline in profitability and slower debt reduction.

Liquidity is expected to be adequate, with debt repayment of approximately Rs 160 crore in fiscal 2023, unencumbered cash balance of approximately Rs 150 crore and average bank limit utilisation of 94% in the 12 months through May 2022.

The Himatsingka group is a vertically integrated textile major with a global footprint. The group focuses on manufacture, retail and distribution of home textile products. It operates one of the largest capacities in the world for bed and bath products, drape and upholstery fabrics, and fine count cotton yarn. Spread across North America, Europe and Asia, it owns or has licenses for the largest brand portfolios in the home textile space.

The group reported loss after tax of Rs 55 crore (unadjusted for goodwill) and operating income of Rs 638 crore in the first quarter of fiscal 2023, as against profit after tax of Rs 57 crore (unadjusted for goodwill) on operating income of Rs 815 crore in the first quarter of fiscal 2022.

The scrip was currently down 0.85% to trade at Rs 105.50 on the BSE.