Rationale

 The reaffirmation of Superhouse Limited's (Superhouse) ratings favourably factor in its established market position as one of the leading exporters of leather products in India and its experienced promoters, who have a long and wellestablished track record in the leather and footwear businesses. The ratings continue to derive comfort from Superhouse's integrated manufacturing operations that increase its cost competitiveness, its adequate liquidity position on the back of 30% buffer (Rs. 47.9 crore) in the working capital limits over the past six quarters ending in September 2020, and cash and equivalents of Rs. 38.8 crore as of March 31, 2020. The ratings continue to draw comfort from the company's diversified customer and supplier base with limited dependence on any particular customer or vendor, along with a diversified product portfolio consisting of finished leather, shoe uppers, finished footwear, textile garments, and other leather products. Further, ICRA notes that Superhouse has limited capital expenditure plans going forward and its annual cash accruals from operations are expected to remain adequate to service the overall debt obligations in a timely manner. The ratings, however, are constrained by the impact of Covid-19 and the lockdown effected by the Governments across countries to contain the pandemic, which impacted the revenues and accruals in Q4 FY2020 and Q1 FY2021. Revenues and operating profit declined by 28% and 27%, respectively in Q4 FY2020 and 60% each in Q1 FY2021. Although total debt declined to Rs. 158.6 crore in March 31, 2020 from Rs. 178.0 crore in March 31, 2019, the steeper drop in accruals led to deterioration in debt protection indicators on a YoY basis. Total debt/OPBDITA stood at 3.9x as of March 31, 2020 against 3.3x as of March 31, 2019, and interest cover fell to 2.7x for FY2020 against 3.1x for FY2019. The ratings continue to be constrained by the elevated working capital intensity of operations to 39% for FY2020 vis-à-vis 34% in FY2018 and FY2019. The ratings are further constrained by the intense competition in the leather footwear industry, geographical concentration of its revenues with Europe accounting for 52% of revenues in FY2020, and vulnerability of its profits to adverse movements in exchange rates and raw material prices. Further, over the last few years, the demand has been tepid in Europe (the company's main market) due to Brexit and subdued consumer sentiment, and muted demand environment is likely to persist over medium term, even after the exceptional impact of Covid-19. While reaffirming the ratings, ICRA has noted that there have been sizeable transactions related to overseas subsidiaries and associate companies over the years. ICRA has also noted the discontinuation of the Merchandise Exports from India Scheme (MEIS), under which Superhouse claimed Rs. 12.49 crore in FY2020. MEIS is to be replaced with Remission of Duties or Taxes on Export Products (RoDTEP). The rates and certain key points for RoDTEP are yet to be finalised, and the same would remain a monitorable. The profitability may be impacted in case of adverse changes in rates under the scheme.