The credit rating agency has reaffirmed the company’s short term rating at ‘CRISIL A1+’.

CRISIL said that the revision in outlook factors in lower than expected operating profitability in Q3 of FY24, where the company has reported negative EBIDTA margins (including other income) of approximately 3% as against expected profits on account of festive demand in Q3 of FY24, largely on account of muted market demand and alignment of dormancy norms with Aditya Birla Fashion Retail [ABFRL].

Reported EBIDTA margins (including other income) have been negative by nealy 18% till December 2023. Going ahead as well, operating margins are expected to be under pressure for 2-3 more quarters on account of similar reasons.

Margins are expected to witness some improvement from H2 of FY25 after complete re-alignment with policies of ABFRL. The operations of the company shall continue to remain benefitted of parental support.

Due to operational losses, debt protection metrics remain subdued. Sustained improvement in operating margins amid steady operating income would therefore remain a key monitorable.

The ratings reflect strategic importance to ABFRL as product offering gets strengthened with entry into premium ethnic wear and its strong operational and management support from the parent along with estabilished market position of TCNS.

These strengths are partially offset by working capital intensive operations of the company and low operating profitability.

TCNS Clothing Co. manufactures, and retails ethnic and fusion womenswear through exclusive stores, multi-brand outlets, and chains such as Lifestyle, Reliance Trends, Pantaloons, and Shoppers Stop. TCNS has 648 exclusive stores in more than 100 cities.

The scrip had advanced 1.09% to end at Rs 381.30 on the BSE on Thursday.