­Hyderabad based, Rainbow Stones Private Limited was incorporated in 2006 and is engaged in processing of granite rough blocks into polished granite slabs and exports primarily to Europe, USA, Australia, to name a few. The company is promoted by Mr. Bathula Venkat Reddy, Mr. Sagar Reddy Chapala and Mr. Gore Linga Reddy who have over three decades of experience in this industry. The processing unit is located at Hosur, Tamil Nadu. The installed capacity is 1, 39,000 meters per annum. The company has purchased a new facility in Ongole, Andhra Pradesh with 1,00,000 meters per annum capacity.

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

­Improvement in scale of operations while sustaining the profitability margins.
Any further stretch in working capital operations leading to deterioration of its financial risk profile and liquidity.

RSPL has a stretched marked by average cash accruals generation of Rs.2.53 crore in FY23 compared against maturing debt obligations of Rs.1.97 crore over the same period. Further, it has working capital intensive nature of operations marked by high  GCA days of 611 days as on March 31, 2023.. The cash accruals of the company are estimated to remain in the range of Rs.3.04-3.66 crore during 2024-25 period against nil maturing debt obligations over the same period. The company maintains unencumbered cash and bank balances of Rs.0.44 crore as on March 31, 2023. The current ratio stood below unity at 0.97 times as on March 31, 2023. 

­Acuité believes that RSPL will maintain a 'Stable' outlook in the medium term on account of its long track record of operations and experienced management. The outlook may be revised to 'Positive' if the company registers significant growth in revenue and effectively manages the working capital cycle. Conversely, the outlook may be revised to 'Negative' if the company registers lower than expected growth in revenues and profitability or in case of any further stretch in its working capital management leading to deterioration of its financial risk profile and liquidity position.

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­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.