Press Release

Faze Three Limited

March 15, 2017

Ratings
1
Facilities Amount (Rs. crore) Rating Rating Action
CARE BB; Stable Revised from CARE C
Long-term Bank Facilities 57.25
(Double B; Outlook: Stable) (Single C)
CARE A4
Short-term Bank Facilities 12.50 Reaffirmed
(A Four)
Term Loan - - Withdrawn
69.75
Total Facilities (Rupees Sixty-Nine Crore and
Seventy-Five lakhs Only)
Details of instruments/facilities in Annexure-1

Detailed Rationale & Key Rating Drivers

The revision in ratings assigned to the bank facilities of Faze Three Ltd. (FTL) factors in the turnaround in the company's
networth as on December 31, 2016 due to improved financial performance, fresh issue of equity capital, settlement of
corporate guarantee liability for its subsidiary (PANA Textil GmbH) and part repayment of Foreign Currency Convertible
Bond (FCCB) obligation (as per settlement terms). The ratings further derive strength from the promoters experience in
manufacturing home furnishing products, integrated nature of operations and the company's diversified customer base.
The ratings are however constrained by almost full utilisation of working capital limits, pending part payment of FCCB
liability, high level of gross current assets and susceptibility to fluctuations in raw material prices and foreign exchange
rates.
The successful settlement of the FCCB liability, efficient management of working capital requirements and growth in
operations remain the key rating sensitivities.

Detailed description of the key rating drivers

Key Rating Strengths
Experienced promoters and long track record: FTL is promoted by Mr Ajay Anand, Chairman & Managing Director. He has
about 30 years of experience in international marketing of home interiors/furnishings fabrics and made ups. He is
supported by Mr Sanjay Anand (Brother), whole time director of the company in overall administration.

Strong and Diversified Customer Base: FTL is engaged in manufacturing a wide range of home textiles right from
bathmats (including rubber backed), throws, blankets, cushions, curtains, bed-sheets etc. catering to international
retailers like Walmart, Target, ASDA, Dollar General, LIDL, J C Penney, Marks and Spencer, Sainsburys, Next, Macys,
Mothercare, etc. More than 90% of the companys revenue is from exports mainly to USA (55%), UK (35%) and balance to
Canada, Australia, Japan, Korea etc. The company does not face customer concentration risk as the top 10 customers
account for 60% of sales for FY16 (refers to the period April 1 to March 31).

Settlement of PANA Gmbh liability: Liability on account of German subsidiary PANA Gmbh as of March 31, 2016 stood at
Rs.46.06 crore (Euro 4.4mn plus outstanding interest). During FY17, FTL entered into a one-time settlement with the bank
wherein it settled the liability at Rs.33.23 crore.

Partial repayment of FCCBs: FTL in October 2016 entered into an agreement with the bondholders to redeem the FCCBs
for a maximum amount of USD 6.25 million in two tranches of USD 2.25 million payable in October 2016 and USD 4
million in March 2017 (settlement proposed at 78% of principal FCCB liability and 39% of total FCCB liability, contingent to
March 2017 payment). In case of default the whole agreement would be voidable at the option of bondholders and the
entire amount of USD 15.90 million would be reinstated. The company in October 2016 has successfully repaid the first
tranche and is in the process of making necessary arrangements to repay the second tranche.

Improvement in capital structure with moderate gearing: In FY16, FTL reported PAT of Rs.1.53 crore. Further, in FY17,
the company settled its corporate guarantee liability arising out of its PANA subsidiary and entered into an agreement
with its FCCB bondholders to settle the entire liability. Furthermore, with the company issuing shares to promoters and
investors, FTLs networth turned positive as of December 2016 and the company's debt coverage metrics improved with
the overall gearing, Total Debt/GCA and PBILDT interest coverage at 1.18x, 3.06x and 4.03x respectively.

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Key Rating Weaknesses

High gross current assets albeit consistent improvement: The companys gross current assets have remained high given
the nature of its business. About 45% of the companys operations are handloom, based in Panipat. The operations are
highly working capital intensive given the specific skill and limitation of capacity of skill involved. Albeit the handloom
enjoys premium in pricing, preference from customers, supportive government policies, etc. therefore the demand for
the same remains steady and sustainable. Furthermore, most overseas retailers have been working on minimum credit
period of 60 days going upto 120 days in a few cases. However, due to managements sustained efforts to reduce
collection period as well as inventory levels the company had been able to improve its average collection and average
inventory period to 83 days and 148 days as on March 31 2016 from 87 days and 163 days respectively as on March 31
2015. The average collection and average inventory period has further improved to 81 days and 134 days as on December
31, 2016 respectively.

Volatility in input prices & Foreign exchange fluctuation risk: The main raw material for the company is yarn, whose
prices of the yarn are volatile. In view of the volatility associated with the yarn prices, FTLs PBILDT margin remains
susceptible to any adverse price movements.
Exports contribute to approximately 90% of the total income of the company. The company hedges 60-65% of its export
receivables and is thus susceptible for the remaining 35-40%.

Analytical Approach: Standalone

Applicable Criteria
Criteria on assigning Outlook to Credit Rating
CARE's Policy on Default Recognition
Criteria for Short Term Instruments
Policy on Withdrawal of ratings
Rating Methodology-Manufacturing Companies
Financial Ratios-Non Financial Sectors

About the Company

Faze Three Limited (FTL), promoted by Mr Ajay Anand in 1985, is an integrated manufacturer and exporter of home
furnishing textile products mainly floor coverings i.e. bathmats, rugs and top of the bed i.e. blankets and throws with six
manufacturing facilities at Panipat, Silvassa and Vapi. FTL exports its home furnishings mainly to USA, UK, Germany,
Mexico, Canada and other countries.
Originally promoted as a trading company, FTL came out with a public issue during the year 1995, post which the
company set up its first plant for automotive textiles by entering into joint Venture (JV) with Aunde Achter & Ebels GmBh,
Germany, which was later hived off in FY2000 as an independent unit and renamed as Aunde India Limited.

For FY16, FTL, reported PAT of Rs.1.53 crore on total income of Rs.242.24 crore as compared to a net loss of Rs.4.30 crore
on total income of Rs.219.37 crore in FY15. For 9MFY17 (refers to the period April 01 to December 31), FTL reported a
PAT of Rs.34.59 crore on total income of Rs.196.92 crore.

Status of non-cooperation with previous CRA: Not Applicable

Rating History for last three years: Please refer Annexure-2

Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This
classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to
care@careratings.com for any clarifications.

Analyst Contact
Name: Mr Pulkit Agarwal
Tel: 022-67543505
Email: pulkit.agarwal@careratings.com

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**For detailed Rationale Report and subscription information, please contact us at www.careratings.com

CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com.
Investors/market intermediaries/regulators or others are welcome to write to care@careratings.com for any clarifications.

About CARE Ratings:

CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating
agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit
Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market
built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital
for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own
risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the
methodologies congruent with the international best practices.
Disclaimer
CAREs 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/outlooks 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.
In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the
partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of
capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant
factors.

Annexure-1: Details of Instruments/Facilities

Name of the Date of Coupon Maturity Size of the Rating assigned along
Instrument Issuance Rate Date Issue with Rating Outlook
(Rs. crore)
Fund-based - LT-EPC/PSC^ - - - 57.25 CARE BB; Stable
Non-fund-based - ST-BG/LC - - - 12.50 CARE A4
Fund-based - LT-Term Loan - - - - Withdrawn
^EPC:-Export packing credit; PSC:-Post shipment credit

Annexure-2: Rating History of last three years

Sr. Name of the Current Ratings Rating history
No. Instrument/Bank Type Amount Rating Date(s) & Date(s) & Date(s) & Date(s) &
Facilities Outstanding Rating(s) Rating(s) Rating(s) Rating(s)
(Rs. crore) assigned in assigned in assigned in assigned in
2016-2017 2015-2016 2014-2015 2013-2014
1. Fund-based - LT-EPC/PSC LT 57.25 CARE BB; - 1)CARE C 1)CARE C 1)CARE D
Stable (18-Feb-16) (17-Dec-14) (04-Feb-14)
2. Non-fund-based - ST- ST 12.50 CARE A4 - 1)CARE A4 1)CARE A4 1)CARE D
BG/LC (18-Feb-16) (17-Dec-14) (04-Feb-14)
3. Fund-based - LT-Term LT - - - 1)CARE C 1)CARE C 1)CARE D
Loan (18-Feb-16) (17-Dec-14) (04-Feb-14)

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