|
|
| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 37.50 | Not Applicable | Withdrawn | - |
| Bank Loan Ratings | 62.50 | - | ACUITE A3+ | Reaffirmed & Withdrawn |
| Total Outstanding Quantum (Rs. Cr) | 0.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 100.00 | - | - |
| Rating Rationale |
|
Acuité has reaffirmed & withdrawn its short term rating to ‘ACUITE A3+' (read as ACUITE A three plus)’ on bank facilities Rs 62.50 crore. The Proposed long term rating is withdrawn on bank facilities Rs 37.50 crore proposed bank facilities of Red Exim. The rating is being withdrawn on account of the request received from the firm and the NOC received from the banker as per Acuité’s policy on withdrawal of ratings.
Rationale for the reaffirmation The rating is reaffirmed considering the healthy financial risk profile of RE. It is also supported by experienced management & strong market presence. However, the rating is constrained by the working capital intensive nature of operations, inherent risk of capital withdrawn, volatility in prices of diamonds & fluctuations in forex risk. |
| About the Company |
| Constituted in 2010, RE is a Mumbai based partnership firm established by Mr. Sujal Shah and Mr. Heman Shah. It is engaged in cutting and polishing of diamonds. The firm procures its rough diamonds from both mining companies as well as secondary markets. Imports constitute around 40 percent of its total requirement and exports range between 57 percent of its total sales. RE primarily caters to East Asian region mainly Hongkong, Taiwan and China. It deals in range of 0.003 to 3 carats diamonds. |
| Analytical Approach |
| Acuité has considered the standalone business and financial risk profile of RE for arriving at this rating. |
Key Rating Drivers
| Strengths |
| Extensive experience of the partners and established track record of operations Constituted in 2010, RE is a partnership firm formed by brothers Mr. Sujal Shah and Mr. Heman Shah. Both have an industry experience of over three decades. Mr. Sujal Shah worked in Antwerp in the diamond assortment industry till 1995 and thereafter started his own diamond business. Mr. Heman joined Mr. Sujal Shah in 2010 to start RE. Prior to RE Mr. Heman Shah worked with a diamond company in its international sales department. Both the partners are actively involved in day-to-day operations of the Firm and are duly supported by a team of experienced middle level managers and staff. Operating Income for FY23 stood at Rs 744.73 crore as against Rs 739.40 Cr in FY22. The reason in the increase in turnover is due to increasing demand for diamonds in local market. Further, EBITDA Margin for the FY23 stood at 4.59% as against FY22 at 4.42%. The Profit after tax margins (PAT) stood at 2.39% in FY23 as against 2.63% in FY22. Acuité believes that RE will continue to benefit from the extensive experience of its partners and its established track record of operations. Healthy Financial Risk Profile The financial risk profile of the firm remained healthy marked by healthy net worth, low gearing ratio & healthy debt protection metrics. The net worth stood at Rs 229.62 Cr as on 31 March 2023 as against Rs 213.92 Cr same period last year. The gearing level of the company stood at 0.36 times as on 31 March 2023 as against 0.38 times same period last year. Also, the Total Outside Liabilities to Tangible Net Worth (TOL/TNW) ratio stood at 0.97 times in as on 31 March 2023 compared against 0.95 times as on 31 March 2022. The debt protection matrices of the company is improving marked by Interest Coverage Ratio (ICR) of 7.05 times for FY23 and Debt service coverage ratio (DSCR) of 5.07 times for the same period. Acuité believes that the financial risk profile of RE will remain healthy over the medium term. |
| Weaknesses |
| Working capital intensive nature of operations The operations of the firm remained working capital intensive in nature marked by GCA Days of 203 days for FY23 as compared against 195 days for FY22. Furthermore, the receivables days stood 53 days in FY23 & 47 days in FY22. The inventory days of the firm stood at 154 days for FY23 as against 144 days for FY22. The creditor days stood at 71 days for FY23 compared against 61 days for FY22. Susceptibility of profitability margins to volatility in prices of diamonds and fluctuations in forex risk Due to high inventory holding period, the Firm runs an inherent risk of volatility in raw material prices. While the forex risk on exports is largely covered against imports, the price volatility risk in rough diamond threaten the thin profitability margins of the firm due to long working capital cycles. Inherent risk of capital withdrawal in a partnership firm The Firm is susceptible to the inherent risk of capital withdrawal given its constitution as a partnership. Any significant withdrawal from the partner’s capital will have a negative bearing on the financial risk profile of the firm. |
| Rating Sensitivities |
|
Sustenance of the improved scale of operations while maintaining the profitability margins and capital structure Elongation in its working capital cycle |
| All Covenants |
| None |
| Liquidity Position |
| Adequate |
| The liquidity position of the firm remains adequate marked by moderate net cash accruals of Rs 20.02 Cr in FY23 against NIL maturing debt obligations for the same period. The current ratio of the firm remains above unity at 2.29 times as on 31 March 2023. The firm has unencumbered cash and bank balances of Rs1.98 Cr as on 31 March 2023. |
| Outlook: Not Applicable |
| |
| Other Factors affecting Rating |
| Not Applicable |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 744.73 | 739.40 |
| PAT | Rs. Cr. | 17.82 | 19.44 |
| PAT Margin | (%) | 2.39 | 2.63 |
| Total Debt/Tangible Net Worth | Times | 0.36 | 0.38 |
| PBDIT/Interest | Times | 7.05 | 23.94 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable |
| Any other information |
| Not Applicable |
| Applicable Criteria |
|
• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.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. |
|
| |
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
Contacts |
|
|
|
About Acuité Ratings & Research |
