Product Quantum (Rs. Cr) Long Term Rating Short Term Rating
Bank Loan Ratings 142.49 ACUITE BBB- | Stable | Reaffirmed -
Total Outstanding 142.49 - -
 
Rating Rationale

­Acuité has reaffirmed its long-term rating of ‘ACUITE BBB-’ (read as ACUITE Triple B minus) on the Rs. 142.49 Cr bank facilities of Davariya Brothers Private Limited (DBPL). The outlook is ‘Stable’. 

Reason for reaffirmation
The rating reaffirmation reflects DBPL’s moderate financial risk profile along with its adequate liquidity position. As per the GJEPC reports, the Cut and Polished Diamond (CPD) industry has recorded a decline of 9.78% YOY between FY2023 and FY2022 in its total exports. In accordance with the industry trend, the company’s revenues have also declined marginally and stood at Rs.456.66 crore in FY2023 as against the revenue of Rs.487.49 crore in FY2022.  Further, the CPD industry recorded a decline of 29.37% in 7MFY2024 as against the same period during last year, and accordingly the company’s revenues have declined and stood at Rs.236.66 crore in 9MFY24. The operating margins stood at 5.11 percent in FY2023 as against 4.67 percent in FY2022. Going forward, the company's ability to improve its operating performance in order to service the increasing maturing debt obligations will remain a key rating monitorable. 

About the Company

­DBPL is a Mumbai based company manufacturing and trading of cut and polished diamonds. Started as a partnership firm in 1986 by Mr. Manubhai B. Davariya and Mr. Chandubhai Davariya, it was subsequently incorporated into a company in 2012. DBPL is currently managed by the founders along with their brothers and sons. The Company has a manufacturing facility at Surat with a total cutting and polishing capacity of ~15000 carats per month. The Company deals in both natural diamonds as well as lab grown diamonds of size less than 50 cents. The lab-grown diamond segment has been demerged fully into a separate company named- “Diamond Desire” in February 2020. These diamonds are largely used in jewelry, watches, and other luxury products. DBPL caters to both domestic as well as overseas markets with exports forming approx. 44 percent in FY23. It primarily exports to Hong Kong, USA, and Belgium.
 
Unsupported Rating
­None
 
Analytical Approach

­Acuité has considered the standalone business and financial risk profile of DBPL for arriving at this rating. 
 
Key Rating Drivers

Strengths

­Experienced management and long track record of operations
DBPL’ operations were started in 1986 to process and sell polished diamonds by Mr. Manubhai B. Davariya and Mr. Chandubhai Davariya. DBPL is currently owned and managed by the founders along with their brothers and sons. The management of the company has an industry experience of over three decades. This has helped the company in maintaining good business relations with clients. DBPL exports around 44 percent of its total sales primarily in the markets of Hongkong, USA and Belgium and imports around 60 percent of its total requirement of rough diamonds. Acuité believes the experience of the promoters is likely to help the company in maintaining their business risk profile over the near to medium future.

Moderate financial risk profile 
The tangible net worth of the company stood at Rs.139.56 crore as on March 31, 2023, as against Rs.133.69 crore as on March 31, 2022. The networth includes quasi equity of Rs.40.00 crore. The gearing of the company stood at 1.05 times as on March 31, 2023, as against 0.98 times as on March 31, 2022. The total debt of the company consists of long-term debt of Rs.27.06 crore, unsecured loan of Rs.4.93 and short-term debt of Rs.114.29 crore as on March 31, 2023. The interest coverage ratio stood at 1.96 times as on March 31, 2023, as against 2.54 times as on March 31, 2022. The DSCR stood at 1.71 times as on March 31, 2023, as against 2.16 times as on March 31, 2022. Acuité believes that the ability of the company to maintain the capital structure will remain key sensitivity.


Weaknesses

­­Working capital intensive operations
The company’s operations are intensive as evident from the GCA days of 225 days as on March 31, 2023, as against GCA days of 192 days as on March 31, 2022. The inventory days increased and stood at 134 days for FY23 as against 104 days for FY22. The inventory levels have further increased and stood at 246 days as on December 2023. The inventory levels have increased due to low demand in the markets leading to the pileup of inventory. The debtors’ days stood at 97 days for FY23 as against 90 days for FY22. The average credit period allowed to the customers is around 100 days. The creditors days stood at 31 days for FY23 against 27 days for FY22. The average credit period received from the supplier is around 30 days. The average utilization of the bank limits is high at around 84 percent for six months ending December ‘2023. Acuité believes that the ability of the company to improve its working capital management will be key monitorable over the medium term.

Susceptibility of profitability margins to volatility in prices of diamonds and fluctuations in forex risk
Due to high inventory holding period, the Company runs an inherent risk of volatility in raw material prices. The Company imports 60 percent of its raw material requirement i.e. rough diamonds and exports around 45 percent of its total sales. While the forex risk on exports is largely covered against imports, the price volatility risk in rough diamonds threaten the thin profitability margins of the company due to long working capital cycles.

Rating Sensitivities

Improvement in scale of operations while maintaining the profitability margins and capital structure
Further elongation in the working capital cycle
Deterioration in the liquidity position
 
Liquidity position: Adequate

­The company has an adequate liquidity position marked by moderate net cash accruals against the maturing debt obligations. The company generated cash accruals of Rs.8.47 crore in FY23 as against nil maturing debt obligations over the same period. The company is estimated to generate cash accruals of Rs.5.79-7.09 crore over the period 2024-2025 against maturing debt obligations of Rs.6.84 crore over the same period. The company maintains unencumbered cash and bank balance of Rs.1.22 crore as on March 31, 2023. The current ratio stood at 1.95 times as on March 31, 2023.

 
Outlook: Stable

­Acuité believes that DBPL will maintain a ‘Stable’ outlook over medium term on account of extensive experience of its management, long track record of operations and moderate financial risk profile. The outlook may be revised to ‘Positive’ in case the Company achieves higher than expected improvement in its scale of operations while maintaining its profitability and capital structure. Conversely, the outlook may be revised to ‘Negative’ in case of deterioration in its operating performance marked by decline in scale of operations or any further elongation in its working capital cycle impacting its liquidity profile or deterioration in its financial risk profile.
 
Other Factors affecting Rating

­None
 

Particulars Unit FY 23 (Actual) FY 22 (Actual)
Operating Income Rs. Cr. 456.66 487.49
PAT Rs. Cr. 5.85 8.39
PAT Margin (%) 1.28 1.72
Total Debt/Tangible Net Worth Times 1.05 0.98
PBDIT/Interest Times 1.96 2.54
Status of non-cooperation with previous CRA (if applicable)

­Not applicable
 
Any other information

­None
 
Applicable Criteria
• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm
• Entities In Manufacturing Sector:- https://www.acuite.in/view-rating-criteria-59.htm
• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm
Note on complexity levels of the rated instrument

­In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.
 

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook
04 Nov 2022 Post Shipment Credit Long Term 64.73 ACUITE BBB- | Stable (Upgraded from ACUITE BB+ | Stable)
Packing Credit Long Term 3.60 ACUITE BBB- | Stable (Upgraded from ACUITE BB+ | Stable)
Packing Credit Long Term 13.46 ACUITE BBB- | Stable (Upgraded from ACUITE BB+ | Stable)
Term Loan Long Term 27.30 ACUITE BBB- | Stable (Upgraded from ACUITE BB+ | Stable)
Post Shipment Credit Long Term 8.40 ACUITE BBB- | Stable (Upgraded from ACUITE BB+ | Stable)
Packing Credit Long Term 25.00 ACUITE BBB- | Stable (Upgraded from ACUITE BB+ | Stable)
10 Oct 2022 Packing Credit Long Term 3.60 ACUITE BB+ | Stable (Assigned)
Packing Credit Long Term 13.46 ACUITE BB+ | Stable (Assigned)
Term Loan Long Term 27.30 ACUITE BB+ | Stable (Assigned)
Post Shipment Credit Long Term 8.40 ACUITE BB+ | Stable (Assigned)
Post Shipment Credit Long Term 64.73 ACUITE BB+ | Stable (Assigned)
Packing Credit Long Term 25.00 ACUITE BB+ | Stable (Reaffirmed)
13 Oct 2021 Packing Credit Long Term 25.00 ACUITE BB+ | Stable (Assigned)
­

Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum
(Rs. Cr.)		 Complexity Level Rating
Union Bank of India Not avl. / Not appl. PC/PCFC Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 51.60 Simple ACUITE BBB- | Stable | Reaffirmed
Punjab National Bank Not avl. / Not appl. PC/PCFC Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 3.60 Simple ACUITE BBB- | Stable | Reaffirmed
Punjab National Bank Not avl. / Not appl. Post Shipment Credit Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 8.40 Simple ACUITE BBB- | Stable | Reaffirmed
Union Bank of India Not avl. / Not appl. Post Shipment Credit Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 51.59 Simple ACUITE BBB- | Stable | Reaffirmed
Union Bank of India Not avl. / Not appl. Term Loan Not avl. / Not appl. Not avl. / Not appl. 31 Mar 2028 27.30 Simple ACUITE BBB- | Stable | Reaffirmed

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