­Acuite has considered the consolidated approach of the business and financial risk profiles of Hari Krishna Exports Private Limited (HKEPL), H K Jewels Private Limited (HKJPL) and H K Designs India LLP (HKD) to arrive at the rating. The consolidation is in the view of a similar line of business, common management, and significant business and financial interlinkages between these entities. The group is herein referred to as H K Group (HKG).

Experienced management and established market position in the gems and jewellery industry
HKG is engaged in manufacturing and trading of cut & polished diamonds (CPD) with carat range majorly from 1 to 3 carats in any of the cut, clarity and color ranges since 1992. Further, the group is also engaged in manufacturing of diamond studded and plain gold jewellery. The group is promoted by Mr. Savji Dholakia, Mr. Ghanshyam Dholakia, Mr. Tulsi Dholakia and Mr. Himmatbhai Dholakiya.  HKG also has a global presence and is among one of the leading diamond players in India. They have a diversified customer base in around 53 countries namely USA, Europe and Hong Kong. HKEPL, parent company is a sight holder with leading miners such as De Beers, Rio Tinto which ensures steady supply of rough diamonds. Therefore, the extensive experience of the promoters for over three decades has helped the company to establish long and healthy relationships with reputed customers like Malabar Gold and Diamond, Titan, Kalyan Jewelers and Joyalukkas and suppliers over the years. Acuité believes that the company is likely to sustain its existing business profile over the medium term on the back of an established track record of operations and experienced management.

Healthy Financial Risk Profile
The financial risk profile of the company remains healthy, marked by healthy net worth, low gearing and comfortable debt protection metrics. The gearing of the group improved marginally and stood at 0.54 times on March 31, 2024 as against 0.63 times on March 31, 2023 owing to lower utilization of working capital limits by HKEPL due to sluggish demand in the cut and polish diamond industry, which reduced the overall debt levels of the group. Further, the Debt-EBITDA stood at 2.48 times as on March 31, 2024 as against 2.20 times on March 31, 2023, due to decline in the absolute value of EBITDA in FY2024. Moreover, the TOL/TNW improved at 0.89 times on March 31, 2024 as against 1.25 times on March 31, 2023.

The debt protections metrics stood comfortable with Interest Coverage Ratio (ICR) at 4.56 times in FY2024 as against 6.22 times in FY2023 and Debt Service Coverage Ratio (DSCR) stood at 3.57 times in FY2024 as against 3.18 times in FY2023.

Further, going forward, the ability of the group to maintain a healthy financial risk profile remains a key rating sensitivity.

­Working Capital Intensive Operations­
The operations of the group are working capital intensive, marked by high GCA of 227 days on March 31, 2024 as against 181 days on March 31, 2023. This is mainly attributable to the inventory days which increased to 191 days on March 31, 2024 as against 151 days on March 31, 2023. The debtor days also increased to 44 days on March 31, 2024 as against 29 days on March 31, 2023 in order to combat which the group now follows stringent policy for credit period extension to few customers only . Further, the creditor days stood at 49 days on March 31, 2024 as against 64 days on March 31, 2023. The average credit period received from creditors is 60 days. Advance payment is required in case of purchases made for rough diamonds. 

Declining revenue owing to downtrend in the cut and polished diamond industry
HKG has recorded a decline in the revenue by ~27 percent to Rs. 7658.66 Cr. in FY2024 as against Rs. 10473.05 Cr. in FY2023. This decline is due to the slump in the demand for cut and polished diamonds in the international markets such as USA and China. However, while HKEPL recorded a decline in the revenues due to the cut and polish diamonds segment, H K Designs and H K Jewels witnessed an improvement in their operating income due to boost in the demand for the gold studded jewellery segment. The revenue for H K Designs India LLP and H K Jewels Private Limited stood at Rs. 841.29 Cr. and Rs.1740.81 Cr. in FY2024 respectively as against Rs. 679.45 Cr. and Rs. 1457.59 Cr. respectively in FY2023. Despite the declining revenue, the group has been able to maintain their profitablity margins with growth in EBITDA margin to 8.11 percent in FY2024 as against 7.21 percent in FY2023. Further, group is expected to maintain the operating margins at the existing levels in near to medium term. 

Acuite believes that the ability of the group to sustain their profitability margins while achieving revenue growth will be a key rating sensitivity.