Product Quantum (Rs. Cr) Long Term Rating Short Term Rating
Bank Loan Ratings 20.00 ACUITE BB+ | Stable | Reaffirmed -
Total Outstanding Quantum (Rs. Cr) 20.00 - -
 
Rating Rationale

­Acuité has reaffirmed its long-term rating of ‘ACUITE BB+’ (read as ACUITE double B plus) on the Rs.20.00 Cr bank facilities of Novex Communications Private Limited (NCPL). The outlook is ‘Stable’.

Rationale for reaffirmation
The rating reaffirmation reflects the improvement in the operating income of the company in FY2023. The operating income of the company stood at Rs. 105.34 crore in FY23 (Est.) as against Rs. 43.58 crore in FY22 and Rs.51.39 crore in FY21. The rating also draws comfort from the company’s healthy financial risk profile and adequate liquidity position marked by improving net cash accruals and minimal utilisation of its bank limits. However, the above mentioned strengths are partly offset by moderate working capital operations and continual acquisition of music rights.

About the Company

­Mumbai-based, NCPL was incorporated in 2002. The company is engaged in providing music copyrights and public performance rights for various popular movie songs to various public institutions such as hotels, gymkhanas, corporates, etc. The company is promoted by Mr. Ketan Kanakia, Mr. Miket Kanakia and Mrs. Minal Kanakia.
 
Analytical Approach

­Acuité has taken a standalone view of the business and financial risk profile of NCPL to arrive at the rating.
 

Key Rating Drivers

Strengths

­Experienced management & established presence in the music copyrights industry and reputed customers profile
The promoters, Mr. Ketan Kanakia, Mr. Miket Kanakia and Mrs. Minal Kanakia have over three decades of experience in the media industry. Currently, Novex holds licensing rights for reputed production houses such as Yash Raj Films, Shemaroo Entertainment, EROS, Zee Music Company and TIPS. The extensive experience, coupled with long track record of operations, has enabled the company to forge healthy relationships with customers. NCPL caters to reputed customers such as ITC Hotels, Taj Hotel, The Lalit, The Leela, Aditya Birla Retail Stores, Globus, Walmart, Inorbit, Phoenix, Club Mahindra, The Club, Fitness First, Lemon Tree, J W Marriot, Radisson Blue Group, Herbal Life, Imagica, Della, Hard Rock Café, Pizza Hut, Deltin Royale-Goa, to name a few. These customers are from all India, i.e. Mumbai, Delhi, Goa, Karnataka, etc. Such long standing relationship with the production houses and customers has lead to a strong growth in the operating performance of the company reflected by its growth in its operating income at Rs.105.34 crore in FY23 (Prov.) as against Rs.43.58 crore in FY22.
Acuité believes that the business is expected to benefit from its established presence in the aforementioned industry, established relations with customers, exclusive music copyrights from film producers and the directors’ demonstrated ability.

 Healthy financial risk profile
The financial risk profile of the company is healthy marked by a healthy networth, low gearing and above average debt protection metrics. The tangible networth of the company stood at Rs. 22.88 crore as on March 31,2022 as against Rs.18.51 crore as on March 31, 2021. The improvement in networth is on account of increase in accretion of profits to reserves. The total debt of the company stood at Rs. 7.98 crore as on March 31. 2022 as against 7.86 crore as on March 31, 2021. The debt profile of the company comprises of loan against property and vehicle loans. The management follows a conservative financial policy marked by peak gearing at 0.46 times as on March 31,2020. The gearing of the company improved at 0.42 times as on March 31, 2021 and 0.35 times as on March 31, 2022. The gearing is expected to improve in the near to medium term on account of repayment of existing debt obligations and no major debt funded capital expenditure. TOL/TNW of the company stood at 0.93 times as on March 31, 2022 as against 0.97 times as on March 31, 2021. The debt protection metrics of the company remained above average with debt service coverage ratio of 2.71 times in FY22 and 3.60 times in FY21. The interest coverage ratio of the company stood at 10.85 times for FY22 as against 10.56 times in FY21.
Acuité believes that the financial risk profile of the company is expected to remain heathy with regular accretions to reserves and no major debt funded capital expenditure planned in near term.

Weaknesses

Moderate working capital operations
The working capital operations of the company are moderate marked by GCA days of 169 days in FY22 as against 70 days in FY21 and 63 days in FY20. The GCA days are majorly driven by debtor collection period and cash balance maintained by the company. The company collects payments from its customers on advance payment basis. For yearly contracts of the billing is done on a quarterly basis. The debtor collection period of the company elongated at 63 days in FY22 as against 12 days in FY21. The elongated debtor collection period in FY22 is on account of year end billing. The company has maintained a cash balance of 8.62 crore as on March 31, 2022 and Rs. 3.81crore as on March 31, 2021.
The company’s ability to manage its working capital operations efficiently will remain a key rating sensitivity.

Risks incidental to the industry
The choice of acquisition of music rights plays a crucial role in the industry. Once the rights are acquired it remains with the company for a period of 3 years from the date of acquisition. Thus, the company would have to continuously acquire the right content to continue to grow in the long run and that stands crucial from credit perspective.

Rating Sensitivities
  • ­Growth in revenue with sustainability of the profitability margins.
  • Any deterioration of its financial risk profile and liquidity position.
  • Any elongation of the working capital cycle leading to deterioration in debt protection metrics.
 
Material covenants
­None
 
Liquidity Position
Adequate

Liquidity of the company remained adequate marked by sufficient net cash accruals as against debt service obligations. The net cash accruals of the company stood at Rs. 6.18 crore in FY22 as against repayment obligation of Rs. 1.79 crore. The net cash accruals of the company are expected to remain adequate to meet its debt service obligations in near to medium term. Further, the company’s reliance on bank limits is minimal with limit utilisation of 11.78 percent for 6 months ended March 2023. The company maintains cash balance of Rs. 8.62 crore as on March 31, 2022.
Acuité believes that the liquidity of the company is likely to remain adequate over the medium term on account of healthy cash accruals to its maturing debt obligation.
 
Outlook: Stable

­Acuité believes that NCPL will maintain a ‘Stable’ outlook over the medium term owing to its experienced management and long track record of operations. The outlook may be revised to 'Positive' if the company demonstrates substantial and sustained growth in its revenues from the current levels while maintaining its margins. Conversely, the outlook may be revised to 'Negative' in case the company registers lower than expected growth in revenues and profitability or deterioration in its working capital management or larger-than-expected debt funded capex leading to deterioration in its financial risk profile and liquidity.
 
Other Factors affecting Rating
­None
 

Particulars Unit FY 22 (Actual) FY 21 (Actual)
Operating Income Rs. Cr. 43.58 51.39
PAT Rs. Cr. 4.36 3.66
PAT Margin (%) 10.01 7.13
Total Debt/Tangible Net Worth Times 0.35 0.42
PBDIT/Interest Times 10.85 10.56
Status of non-cooperation with previous CRA (if applicable)
­None
 
Any other information
­None
 
Applicable Criteria
• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm
• Service Sector: https://www.acuite.in/view-rating-criteria-50.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.
 

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook
14 Mar 2022 Term Loan Long Term 8.77 ACUITE BB+ | Stable (Reaffirmed)
Proposed Bank Facility Long Term 2.42 ACUITE BB+ | Stable (Reaffirmed)
Term Loan Long Term 2.20 ACUITE BB+ | Stable (Reaffirmed)
Dropline Overdraft Long Term 1.60 ACUITE BB+ | Stable (Reaffirmed)
Dropline Overdraft Long Term 3.50 ACUITE BB+ | Stable (Reaffirmed)
Dropline Overdraft Long Term 1.51 ACUITE BB+ | Stable (Reaffirmed)
21 Dec 2020 Dropline Overdraft Long Term 1.48 ACUITE BB+ | Stable (Reaffirmed)
Proposed Bank Facility Long Term 9.75 ACUITE BB+ | Stable (Reaffirmed)
Term Loan Long Term 8.77 ACUITE BB+ | Stable (Reaffirmed)
­

Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Complexity Level Rating
Not Applicable Not Applicable Proposed Long Term Bank Facility Not Applicable Not Applicable Not Applicable 5.28 Simple ACUITE BB+ | Stable | Reaffirmed
Punjab National Bank Not Applicable Secured Overdraft Not Applicable Not Applicable Not Applicable 2.00 Simple ACUITE BB+ | Stable | Reaffirmed
Deutsche Bank Not Applicable Secured Overdraft Not Applicable Not Applicable Not Applicable 1.51 Simple ACUITE BB+ | Stable | Reaffirmed
Kotak Mahindra Bank Not Applicable Secured Overdraft Not Applicable Not Applicable Not Applicable 3.50 Simple ACUITE BB+ | Stable | Reaffirmed
Kotak Mahindra Bank Not Applicable Term Loan Not available Not available Not available 5.67 Simple ACUITE BB+ | Stable | Reaffirmed
Deutsche Bank Not Applicable Term Loan Not available Not available Not available 2.04 Simple ACUITE BB+ | Stable | Reaffirmed
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Contacts
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