PR

Press Release
DIABU DIAMOND TOOLS (INDIA) PRIVATE LIMITED
May 08, 2023
Rating Reaffirmed

Product	Quantum (Rs. Cr)	Long Term Rating	Short Term Rating
Bank Loan Ratings	8.95	ACUITE BB \| Stable \| Reaffirmed	-
Bank Loan Ratings	2.00	-	ACUITE A4+ \| Reaffirmed
Total Outstanding Quantum (Rs. Cr)	10.95	-	-

Rating Rationale

Acuité has reaffirmed its long-term rating of ‘ACUITE BB’ (read as ACUITE double B) and the short term rating of ‘ACUITE A4+’ (read as ACUITE A four plus) on the Rs. 10.95 crore bank facilities of Diabu Diamond Tools (India) Private Limited (DDTL). The outlook is 'Stable'

Rationale for reaffirmation
The rating reaffirmation is on account of improvement in the operating performance of the company as the revenue of the company stood at Rs.26.30 Cr. in FY2022 registering a growth of ~21 percent YoY compared to revenue of Rs.21.73 Cr. in FY2021. The growth is driven by both increase in volume sold and improved realisation. Further, the revenue for 11MFY2023 is Rs.22.19 crore. The rating also draws comfort from experienced management, moderate financial risk profile and long operational track record of the company. However, the rating remains constrained by the working capital intensive nature of operations and highly fragmented and competitive nature of the industry

About the Company

DDTL, based at Bangalore (Karnataka), was incorporated in 1993. The company is engaged in manufacturing of cutting tools since 2004. The manufacturing facility is located at Bangalore with an installed capacity of 7,50,000 pieces per annum of diamond cutting tools and 42,000 meters per annum of diamond wires.

Analytical Approach

Acuité has considered the standalone business and financial risk profile of DDTL to arrive at the rating.

Key Rating Drivers

Strengths

Experienced management and long operational track record
DDTL has established presence of over a decade since 2004 in the manufacture of cutting tools line of business. The company is Indian subsidiary of Heinz Büttner Gmbh, Diabü Diamantwerkzeuge, a 50-year old German company and one of Europe’s leading diamonds tools Company. The promoters possess over two decades of experience in the same line of business supported by stable revenue growth over the years. The extensive experience of the promoters and group has helped the company to maintain longstanding relations with its suppliers and customers.

Acuité believes that the company will benefit from its longstanding relationship with clients and experience of the promoters.

Moderate Financial Risk Profile
DDTL has moderate financial risk profile marked by moderate tangible net worth, low gearing levels and debt protection matrices. The tangible net worth of the company stood at Rs.18.07 crore as on 31 March, 2022 as against Rs.17.53 crore as on 31 March, 2021. The company follows a moderate leverage policy as observed in the low gearing level of the company which stood at 0.94 times as on 31 March, 2022 as against 0.85 times as on 31 March, 2021. The total debt outstanding of Rs.16.97 crore consists of working capital borrowings of Rs.8.59 crore, unsecured loan from promoters of Rs.6.14 crore and term loan of Rs.2.24 crore as on 31 March, 2022. The coverage ratios of the company remained moderate with Interest Coverage Ratio (ICR) of 2.27 times for FY2022 against 2.07 times for FY2021. Also, the Debt Service Coverage Ratio (DSCR) stood at 1.31 times for FY2022 against 1.73 times for FY2021. The total outside liabilities to tangible net worth (TOL/TNW) of the company stood at 1.26 times as on March 31, 2022 against 1.17 times as on March 31, 2021.

Acuite believes that the financial risk profile of the company is expected to remain moderate in the absence of any debt funded capex plan.

Weaknesses

Working capital intensive nature of operations
The operations of the company are of working capital intensive nature marked by high GCA of 318 days for FY2022. The high GCA days are on account of high debtor days of 216 for FY2022 as against 232 days for FY2021. The inventory days are moderate and stood at 90 days for FY2022 as against 127 days for FY2021. The creditor days stood at 67 days for FY2022 as against 87 days for FY2021. The working capital intensive nature of operations has led an higher utilisation of the working capital limits and stood at 82.47% for 10 months ended as on February 2023.

Highly fragmented and competitive industry
The industry is marked by presence of large number of organized and unorganized players in the industry. The industry is intensely competitive and fragmented industry because of low entry barriers and moderate capital requirements. The high competitive intensity limits the pricing flexibility and exerts pressures on the margins of all participants. Further, the end user of the products are cyclical industries like gems and jewelry and real estate. However, the established brand presence, diversified geographical presence and experienced management mitigates the risk to some extent.

Rating Sensitivities

Substantial improvement in scale of operation while maintaining profitability margins
Elongation in working capital cycle leading to higher reliance on working capital limits
Deterioration in debt protection metrics and liquidity profile

Material covenants

None

Liquidity Position

Stretched

The liquidity position of the company is stretched marked by low net cash accruals. The company generated net cash accruals of Rs.1.04 crore for FY2022 as against the repayment obligation of Rs.0.56 crore. The utilisation of the working capital limits is higher and stood at 82.47% for 10 months ended as on February 2023. Going ahead, the net cash accruals are expected to be in the range of Rs.0.91 to 1.08 crore and repayment obligations in the range of Rs.0.50 to 0.90 crore during FY2023-2025.

Outlook: Stable

Acuité believes that DDTL will continue to maintain a ‘Stable’ outlook over the medium term owing to its experienced and technically qualified management. The outlook may be revised to 'Positive' if the company reports significant improvement in revenue and scale of operations while maintaining operating profitability, leading to higher cash accruals. Conversely, the outlook may be revised to 'Negative' if the company registers decline in revenue and profitability leading to lower than expected cash accruals or deterioration in the financial risk profile or higher than expected working capital borrowings.

Other Factors affecting Rating

None

Key Financials

Particulars	Unit	FY 22 (Actual)	FY 21 (Actual)
Operating Income	Rs. Cr.	26.30	21.73
PAT	Rs. Cr.	0.53	0.32
PAT Margin	(%)	2.03	1.48
Total Debt/Tangible Net Worth	Times	0.94	0.85
PBDIT/Interest	Times	2.27	2.07

Status of Non Cooperation with Other CRA
None

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

Rating History

Date	Name of Instruments/Facilities	Term	Amount (Rs. Cr)	Rating/Outlook
18 Apr 2022	Letter of Credit	Short Term	2.00	ACUITE A4+ (Reaffirmed)
	Cash Credit	Long Term	7.40	ACUITE BB \| Stable (Reaffirmed)
	Proposed Bank Facility	Long Term	0.58	ACUITE BB \| Stable (Reaffirmed)
	Working Capital Term Loan	Long Term	0.97	ACUITE BB \| Stable (Reaffirmed)
02 Feb 2021	Term Loan	Long Term	0.30	ACUITE BB \| Stable (Reaffirmed)
	Working Capital Demand Loan	Long Term	1.25	ACUITE BB \| Stable (Assigned)
	Letter of Credit	Short Term	2.00	ACUITE A4+ (Reaffirmed)
	Cash Credit	Long Term	7.40	ACUITE BB \| Stable (Reaffirmed)
27 Feb 2020	Cash Credit	Long Term	7.00	ACUITE BB \| Stable (Reaffirmed)
	Term Loan	Long Term	0.20	ACUITE BB \| Stable (Reaffirmed)
	Letter of Credit	Short Term	3.00	ACUITE A4+ (Reaffirmed)
	Proposed Bank Facility	Long Term	0.75	ACUITE BB \| Stable (Reaffirmed)

Annexure - Details of instruments rated

Lender’s Name	ISIN	Facilities	Date Of Issuance	Coupon Rate	Maturity Date	Quantum (Rs. Cr.)	Complexity Level	Rating
Indian Bank	Not Applicable	Cash Credit	Not Applicable	Not Applicable	Not Applicable	7.40	Simple	ACUITE BB \| Stable \| Reaffirmed
Indian Bank	Not Applicable	Letter of Credit	Not Applicable	Not Applicable	Not Applicable	2.00	Simple	ACUITE A4+ \| Reaffirmed
Not Applicable	Not Applicable	Proposed Long Term Bank Facility	Not Applicable	Not Applicable	Not Applicable	0.58	Simple	ACUITE BB \| Stable \| Reaffirmed
Indian Bank	Not Applicable	Working Capital Term Loan	Not available	Not available	Not available	0.97	Simple	ACUITE BB \| Stable \| Reaffirmed

Contacts

Analytical	Rating Desk
Aditya Gupta Vice President-Rating Operations Tel: 022-49294041 aditya.gupta@acuite.in Vaishnavi Deshpande Analyst-Rating Operations Tel: 022-49294065 vaishnavi.deshpande@acuite.in	Varsha Bist Senior Manager-Rating Operations Tel: 022-49294011 rating.desk@acuite.in

About Acuité Ratings & Research

Acuité is a full-service Credit Rating Agency registered with the Securities & Exchange Board of India (SEBI). The company received RBI Accreditation as an External Credit Assessment Institution (ECAI) for Bank Loan Ratings under BASEL-II norms in the year 2012. Acuité has assigned ratings to various securities, debt instruments and bank facilities of entities spread across the country and across a wide cross section of industries. It has its Registered and Head Office in Kanjurmarg, Mumbai.

Disclaimer: An Acuité rating does not constitute an audit of the rated entity and should not be treated as a recommendation or opinion that is intended to substitute for a financial adviser's or investor's independent assessment of whether to buy, sell or hold any security. Ratings assigned by Acuité are based on the data and information provided by the issuer and obtained from other reliable sources. Although reasonable care has been taken to ensure that the data and information is true, Acuité, in particular, makes no representation or warranty, expressed or implied with respect to the adequacy, accuracy or completeness of the information relied upon. Acuité is not responsible for any errors or omissions and especially states that it has no financial liability whatsoever for any direct, indirect or consequential loss of any kind, arising from the use of its ratings. Ratings assigned by Acuité are subject to a process of surveillance which may lead to a revision in ratings as and when the circumstances so warrant. Please visit our website (www.acuite.in) for the latest information on any instrument rated by Acuité.