Press Release HARI DARSHAN EXPORTS PRIVATE LIMITED March 06, 2023 Rating Assigned and Reaffirmed

Product	Quantum (Rs. Cr)	Long Term Rating	Short Term Rating
Bank Loan Ratings	37.81	ACUITE BBB | Stable | Assigned	-
Bank Loan Ratings	150.00	ACUITE BBB | Stable | Reaffirmed	-
Bank Loan Ratings	30.00	-	ACUITE A3+ | Assigned
Bank Loan Ratings	5.00	-	ACUITE A3+ | Reaffirmed
Total Outstanding Quantum (Rs. Cr)	222.81	-	-

Rating Rationale

­Acuité has reaffirmed its long term rating of ‘ACUITE BBB (read as ACUITE triple B)' and short term rating of 'ACUITE A3+ (read as ACUITE A three plus)' on the Rs. 155.00 crore bank facilities of Hari Darshan Exports Private Limited (HDEPL). Acuité has assigned its long term rating of ‘ACUITE BBB (read as ACUITE triple B)' and short term rating of 'ACUITE A3+ (read as ACUITE A three plus)' on the Rs. 67.81 crore bank facilities of Hari Darshan Exports Private Limited (HDEPL). The outlook is 'Stable'. Rating Rationale The rating reaffirmation factors in the experienced management, improvement in operating performance of the company  marked by increase in operating income, improvement in operating margins and moderate utilization of bank limits. The company in the current year has  recorded revenue of Rs.778.30 crore till December 2022. The operating income stood at  Rs. 713.35 crore in FY2022 as against Rs. 449.21 crore in FY2021.. The increase in revenue in FY'22 was mainly because of the increase in demand across  the diamond industry. The operating margin of the company stood at 7.27% in FY2022 as against 4.81% in FY2021. The improvement in margins is mainly driven by higher realisations and  reduction in employee costs. The PAT margin of the company stood at 6.16% in FY2022 as against 1.96% in FY2021. The financial risk profile of the company continues to remain moderate marked by moderate net worth, gearing and debt protection metrics.

About the Company

­Mumbai based Hari Darshan Exports Pvt ltd (HDEPL) was established as a partnership firm in 2004 by Mr.Bhavesh Odhavjibhai Lakhani, Mr. Nileshkumar Lavjibhai Lakhani, Mr. Riteshbhai Jerambhai Lakhani and Mr. Dineshkumar Vashrambhai Dhola. The firm was converted to a private limited company in 2014. HDEPL is engaged in processing and trading of cut and polished diamonds of size ranging between 0.02 to 1 carat.. HDEPL is a DTC sight certificate holder since 2017, and has eight manufacturing facilities spreads Bhavnagar, Rajkot and Surat. The Company has a total processing capacity of 20000 carats per month. HDEPL exports ~60-70 percent of its total sales in the key markets of Belgium,Israel, UAE, Hongkong and Spain among others.

Analytical Approach

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

Key Rating Drivers

Strengths

­Experienced management and established track record of operations HDEPL started operations in 2004 as a partnership firm to process and sell polished diamonds. The promoters, Mr.Bhavesh Odhavjibhai Lakhani, Mr. Nileshkumar Lavjibhai Lakhani, Mr. Riteshbhai Jerambhai Lakhani and Mr. Dineshkumar Vashrambhai Dhola have 2 decades of experience in the diamond industry. HDEPL is a DTC sight certificate holder since 2017. It exports 60-70 percent of its total sales primarily in the markets of Hong Kong, Belgium, Israel and UAE among others. The Firm’s revenue improved to Rs.713.35 Cr in FY2022, registering a growth of ~59 percent as against revenue of Rs.449.21 crore in FY2021.The operating profitability improved at 7.27 percent in FY2022 as against 4.81 percent in FY2021. Acuité believes the experience of the promoters will help the company in maintaining their business risk profile on the back of established track of operations in the near to medium future. Long-standing relationship with reputed diamond mining companies in the world HDEPL has a long-term association with a major diamond company viz. De Beers for sourcing rough diamonds. Such contracts with key suppliers like them allow a steady supply at competitive rates. Diamond Trading Company (DTC), the marketing arm of De Beers, sells rough diamonds only to an exclusive group of manufacturers throughout the world called sight-holders. The status of being a sight-holder with these mining companies lend significant comfort to the sourcing arrangements of the company whereby they procure rough diamonds as per fixed-term contracts with DTC that also assures uninterrupted supply at competitive pricing rather than sourcing from secondary markets. 20-25% of the supply is from the primary market and the remaining 75-80% is from secondary market. Acuité believes that HDEPL will benefit from its position as a sight-holder giving the Group a higher competitive advantage in terms of quality over the other players present in the diamond industry. Moderate financial risk profile The financial risk profile of the company stood moderate, marked by tangible net worth, moderate gearing and moderate debt protection metrics. The tangible net worth of the company stood at Rs.176.95 crore as on 31 March 2022 as against Rs.132.99 crore as on 31 March, 2021. The total debt of the company stood at Rs.134.87 crore which includes short-term debt of Rs.89.44 crore, long-term debt of Rs.37.94 crore, unsecured loans of Rs.2.91 crore and CPLTD of Rs.4.58 crore as on 31 March, 2022. The gearing (debt-equity) of the company stood at 0.76 times as on 31 March 2022 as compared to 1.13 times as on 31 March, 2021. This reduction is due to low utilization of forward bills discounting. Interest Coverage Ratio of the company stood at 7.20 times for FY2022 as against 2.69 times for FY2021. Debt Service Coverage Ratio (DSCR) of the company stood at 3.90 times in FY2022 as against 2.13 times in FY2021. Total outside Liabilities/Total Net Worth (TOL/TNW) of the company stood at 1.19 times as on 31 March, 2022 as against 1.48 times as on 31 March, 2021. Net Cash Accruals to Total Debt (NCA/TD) of the company stood at 0.34 times for FY2022 as against 0.07 times for FY2021. Acuité expects the financial risk profile to remain moderate over the medium term in the absence of any major debt-funded capex plan.

Weaknesses

­Working Capital Intensive nature of operations The working capital management of the company is intensive marked by GCA days of 170 days in FY2022 as against 228 days in FY2021. The GCA days are driven by high inventory days and debtor days. The inventory days stood at 66 days in FY2022 as against 80 days in FY2021. Generally, the company follows inventory holding period of 60-90 days. The debtor days stood at 107 days in FY2022 as against 147 days in FY2021. HDEPL generally gives a credit period of 90-120 days to its customers. The Creditor days stood at 34 days in FY2022 as against 29 days in FY2021. However, HDEPL generally allows a credit period within 90 days from its suppliers. However, despite high GCA days the average utilization of the Foreign Bill Discounting Limits of the company remained at 40-50%  percent in last six months ended Dec’ 22. Acuité believes HDEPL’s ability to restrict elongation in working capital cycle will be a key rating monitorable. 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 ~60-65 percent of its raw material requirement i.e. rough diamonds and its exports range between 60-70 percent of its total sales. The forex risk on exports is largely covered against imports, however, the price volatility risk in rough diamonds threaten the thin profitability margins of the company due to long working capital cycles.

Rating Sensitivities

­Any further elongation in its working capital cycle. Any further increase in unbilled revenue which may bear an impact on the earning profile of the company. Ability to sustain its operating performance while maintaining its profitability and capital structure.

Material covenants

­None.

Liquidity Position

Adequate

The company’s liquidity position is adequate, marked by healthy net cash accruals against its maturity debt obligations. The company generated net cash accruals in the range of Rs.9.04-Rs.46.37 Crore from FY 2020- 2022 against its maturity repayment obligations in the range of Rs.4.58-Rs.4.91 crore in the same tenure. In addition, it is expected to generate sufficient cash accrual in the range of Rs.49.78-Rs.61.39 crore against the maturing repayment obligations of Rs.7.11-Rs.9.67 crore over the medium term. The working capital management of the company is intensive marked by GCA days of 170 days in FY2022 as against 228 days in FY2021. The average of utilization of the working capital facilities stood at 40%-50% per cent for past 06 months ended December 2022. The company maintains unencumbered cash and bank balances of Rs.0.56 crore as on March 31, 2022. The current ratio of the company stands at 2.06 times as on March 31, 2022 as against 1.56 times as on 31 March, 2021. Acuité believes that the liquidity of the Company is likely to remain adequate over the medium term on account of comfortable cash accruals against debt repayment obligations over the medium term constrained to some extent by working capital intensive nature of operations.

Outlook: Stable

­Acuité believes that HDEPL will maintain a ‘Stable’ outlook over medium term on account of extensive experience of its management, moderate operating performance 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  further elongation in its working capital cycle impacting its liquidity profile or incurring of a debt funded capex plan adversely impacting the financial risk profile of the company.

Key Financials

Particulars	Unit	FY 22 (Actual)	FY 21 (Actual)
Operating Income	Rs. Cr.	713.35	449.21
PAT	Rs. Cr.	43.96	8.81
PAT Margin	(%)	6.16	1.96
Total Debt/Tangible Net Worth	Times	0.76	1.13
PBDIT/Interest	Times	7.20	2.69

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.

Rating History

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook 29 Jun 2022 Short Term Loan Short Term 2.50 ACUITE A3+ (Assigned) Short Term Loan Short Term 2.50 ACUITE A3+ (Assigned) Post Shipment Credit Long Term 15.00 ACUITE BBB | Stable (Assigned) Post Shipment Credit Long Term 60.00 ACUITE BBB | Stable (Assigned) Post Shipment Credit Long Term 75.00 ACUITE BBB | Stable (Assigned)

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Annexure - Details of instruments rated

Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Complexity Level Rating Indusind Bank Ltd Not Applicable Covid Emergency Line. Not Applicable Not Applicable Not Applicable 26.79 Simple ACUITE BBB | Stable | Assigned State Bank of India Not Applicable Covid Emergency Line. Not Applicable Not Applicable Not Applicable 11.02 Simple ACUITE BBB | Stable | Assigned Indusind Bank Ltd Not Applicable Post Shipment Credit Not Applicable Not Applicable Not Applicable 90.00 Simple ACUITE BBB | Stable | Reaffirmed State Bank of India Not Applicable Post Shipment Credit Not Applicable Not Applicable Not Applicable 60.00 Simple ACUITE BBB | Stable | Reaffirmed Yes Bank Ltd Not Applicable Post Shipment Credit Not Applicable Not Applicable Not Applicable 30.00 Simple ACUITE A3+ | Assigned Indusind Bank Ltd Not Applicable Short-term Loan Not Applicable Not Applicable Not Applicable 2.50 Simple ACUITE A3+ | Reaffirmed State Bank of India Not Applicable Short-term Loan Not Applicable Not Applicable Not Applicable 2.50 Simple ACUITE A3+ | Reaffirmed

­Sublimits: 1. Indusind Post Shipmet Credit facility of Rs. 90 Cr includes sub-limit of EPC facility of Rs. 36 Cr and PCFC/Diamond dollar bills under collection facility of Rs.90 Cr. 2. SBI Post Shipment Credit facility of Rs.60 Cr includes sub-limit of EPC/PCFC facility of Rs.30 Cr and EBR of Rs.30 Cr.

Contacts

Analytical	Rating Desk
Aditya Gupta Vice President-Rating Operations Tel: 022-49294041 aditya.gupta@acuite.in Siddharth Shah Analyst-Rating Operations Tel: 022-49294065 siddharth.shah@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.