­­­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 (HKJ) 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
The promoters of HKG started their business since 1992. The group 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. 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. The group’s promoters have been in the diamond industry for more than three decades and have established position in the industry. HKG 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, based in USA, Europe, and Hong Kong among other countries. Hari Krishna Exports Private Limited (HKEPL) is a sight holder with leading miners such as De Beers, Rio Tinto which ensures steady supply of rough diamonds. Apart from the sights, the company also procures roughs from the secondary market. The extensive experience of the promoters has helped the company to establish long and healthy relationships with reputed customers and suppliers over the years. Further, key customers of H K Jewels include names such as Malabar Gold and Diamond, Titan, Kalyan Jewelers and Joyalukkas. 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 tangible net worth of the group stood at Rs. 3,030.16 Cr. in FY2024 as against Rs. 2,723.27 Cr. in FY2023. Increase in net worth is on account of accretion of profit to reserves. 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. Improvement in gearing is attributable to lower utilization of working capital limits by Hari Krishna Exports due to sluggish demand in the cut and polish diamond industry, which has reduced the overall debt levels of the group. The group has added working capital limits of Rs. 50 Cr. in FY2024. Additional limits of Rs. 200  - 250 Cr are expected to be added in FY2025 in H K Jewels Private Limited. The Debt-EBITDA stood at 2.48 times as on March 31, 2024 as against 2.20 times on March 31, 2023, slightly on the higher side as compared to previous year due to decline in the absolute value of EBITDA in FY2024. TOL/TNW stood 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.

With expected enhancement in the working capital limits, going forward, the ability of the group to maintain a healthy financial risk profile remains a key monitorable.

­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. The high GCA days are mainly attributable to higher inventory days. The inventory days stood increased at 191 days on March 31, 2024 as against 151 days on March 31, 2023. The debtor days stood at 44 days on March 31, 2024 as against 29 days on March 31, 2023. The group has a stringent policy regarding debtors, credit period is offered only offered to few customers. 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. The average bank limit utilization stands at 84.03 percent for last six months ended June 2024.

Declining revenue,due to decline in the cut and polished diamond industry
The H K Group 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. The decline is due to the slump in the demand for the cut and polished diamonds in the international markets such as USA and China. Even though Hari Krishna Exports 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. The boost in the jewellery segments, were unable to fully offset the declining demand in the cut and polished diamond industry, thereby leading to a decline in the operating income of the group. Despite the declining revenue, the group has been able to maintain their profitablity margins. The profitability margins of the group have witnessed growth, with EBITDA margin at 8.11 percent in FY2024 as against 7.21 percent in FY2023. The group is expected to maintain the operating margins at the existing levels in the range of 7-8 percent in the near to medium term. The PAT margin of the group has remained similar at 4.23 percent in FY2024 as against 4.19 percent in FY2023.
The overall improvement witnessed in the profitability margins of the group is mainly on account of significant improvement in the profitability margins of H K Designs India LLP and marginal improvement in in operational profitability of Hari Krishna Exports Private Limited due to foreign exchange gain.

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