­Experienced management and established track record of operations
MDPL was incorporated in 2009, has established track record of over a decade of operations in the industry. The key promoter, Mr. Paresh Kirtilal Mehta, has been associated with the gems and jewellery industry for more than four decades and is ably assisted by an experienced second line of management. Before promoting MDPL, the promoter had an experience of nearly three decades in the aforementioned industry through ‘Kirtilal Kalidas Jewellers Private Limited’. Currently, the day-to-day operations of the company are managed by Mr. Paras Mehta, who has experience of more than a decade in this industry. Acuité believes that the company will continue to benefit from its established presence in the diamond industry and the promoter's demonstrated ability to scale up the operations across various cycles. 

Improvement in working capital operations
The company’s operations have improved as evident from the GCA days of 110 days as on March 31, 2023 (Prov) as against GCA days of 203 days as on March 31, 2022. The inventory days stood at 75 days for FY23(Prov) as against 138 days for FY22. Average inventory holding period is around 30-60 days. The company is focusing on the efficient inventory management. The debtors’ days stood at 27 days for FY23(Prov) as against 62 days for FY22. The average credit period allowed to the customers is around 60 days. Majorly advance payments are received from the customers. The creditors days stood at 39 days for FY23(Prov) against 85 days for FY22. The average credit period received from the supplier is around 60 days. The average utilization of the bank limits is low at around 21 percent for six months ending June ‘2023. Acuité believes that the ability of the company to maintain efficient working capital operations will remain key sensitivity in medium term.

Moderate financial risk profile
The company has a moderate financial risk profile marked by moderate net worth, low gearing and healthy debt protection metrics. The tangible net worth of the company stood at Rs.121.40 crore as on March 31, 2023 (Prov), as against Rs.116.61 crore as on March 31, 2022. The increase in the net worth is due to accretion of profits to reserves. The gearing of the company stood at 0.15 times as on March 31, 2023(Prov), as against 0.12 times as on March 31, 2022. The total debt of the company consists of long-term debt of Rs.3.24 crore and short-term debt of Rs.13.08 crore as on March 31, 2023. The long-term debt consists of the GECL loan. The interest coverage ratio stood at 5.43 times as on March 31, 2023, as against 7.20 times as on March 31, 2023. The DSCR stood at 2.56 times as on March 31, 2023, as against 4.36 times as on March 31, 2022. Acuité believes that the financial risk profile of the firm is expected to remain moderate in the medium term in the absence of any major debt funded capex in near to medium term.

Non-payment of dues
The company has failed to make the payment of ~Rs.16.77 crore to the operational creditor i.e., State Bank of India, Antwerp reflecting stretched liquidity position.

Thin profitability margins albeit improvement in scale of operations
The revenue of the company stood at Rs.573.54 crore in FY2023 (Prov) as against the revenue of Rs.329.78 crore in FY2022. The increase in the revenues is due to the increase in the demand for the diamonds amidst the festive seasons. The operating margins have declined and stood at 1.37 percent in FY2023(Prov) as against 2.48 percent in FY2022. The decline in the margins is on account of increase in the employee costs as well as increase in the raw materials costs. The PAT margin declined and stood at 0.59 percent in FY2023(Prov) as against 0.67 percent in FY2022. Acuité believes that the ability of the company to improve the profitability margins in medium term will be a key rating sensitivity.

Customer concentration risk
The company is exposed to customer concentration risk as ~50-60 percent of its total sales are derived from a single customer - Kirtilal Kalidas Jewellers Private Limited. However, the company is planning to increase the customer base in medium term.

Intense competition from players in the industry
The gems & jewellery (G&J) industry is characterised by a large number of organised and unorganised players and intense competition resulting in pressure on margins. The demand for cut and polished diamonds (CPD) is directly linked to discretionary spending by the clients. Significant continued slowness in CPD market generally results in piling up of inventory or delays in realization of receivables due to challenges faced by the end customers. The CPD segment has witnessed intense competition with presence of large and small players. Acuité believes that the ability to manage steady revenue growth, while maintaining profitability and efficiently managing working capital cycle will be the key rating sensitivity factors.