Rationale

 The rating reaffirmation factors in Monte Carlo Fashions Limited's (MCFL's or the company's) strong market position in the winter-wear segment with an established brand (Monte Carlo) and a multi-channel distribution network. Further, the ratings continue to be supported by MCFL's healthy financial risk profile characterised by a strong capital base, negative net debt position during most part of the year, robust debt coverage indicators (interest coverage of 8.6 times and debt-service coverage ratio of 4.0 times for FY2021) and a strong liquidity position. While the pandemic-led operational disruptions and resultant pressures on discretionary consumer spending resulted in a decline in the company's turnover in FY2021, steps taken to rationalise expenses helped the company report an improvement in profitability, and maintain healthy coverage metrics. The ratings, however, continue to be constrained by the fragmented and competitive nature of the domestic apparel industry and the company's exposure to trends in consumer spending. Despite MCFL's established position in the winter-wear segment, it faces intense competition in the summer-wear segment from several established brands operating in the country. In addition, the ratings are constrained by concentration risks from its high dependence on the winter-wear segment under a single brand, which in turn drives seasonality in sales, limits geographical diversification, and makes sales vulnerable to weather conditions. The seasonality in business also results in high working capital requirements during the peak season (NWC/OI in the range of ~30-45%) due to high levels of apparel inventory and credit sales to distribution channel partners. Nonetheless, the company's reliance on the outright sale model for most of the sales with limited provision for sales returns partially mitigates the risk of obsolete inventory from unsold stock. The Stable outlook on the [ICRA]AA- rating reflects ICRA's expectation that a sustained recovery in demand post the second wave of the pandemic, together with a less severe impact of lockdowns seen this year, would help the company report an improvement in turnover and maintain profitability at healthy levels in FY2022, despite a subdued performance in Q1 FY2022. Coupled with low dependence upon debt and a strong liquidity position, this is expected to support its credit profile.