­Sheetal Manufacturing Company Private Limited (SMCPL) is a part of the Mumbai-based larger Sheetal Group (SG, including SMCPL and its subsidiaries) which was established in 1985 by the first-generation entrepreneurs, Mr. Govind Kakadia and his two brothers - Mr. Vallabh Kakadia and Mr. Ravji Kakadia. The company is engaged in the manufacturing and export of cut & polished diamonds (CPD). It is a designated four-star export house status by the Government of India.

­The gems and jewellery industry and particularly the cut and polished diamond segment plays an important role in generating employment particularly in India. While employment is material from the social perspective, the sector needs to ensure a healthy and safe working environment for its employees. On the governance aspect, ethical business practices and adherence to appropriate accounting norms including arms-length accounting with overseas group entities are important for the sustainability of the business and enjoying the confidence of the stakeholders including the lenders. Although the environmental factors are not highly material, the industry has to be vigilant that the mining of the raw materials do not damage the environment in a significant manner. SMCPL has taken some initiatives to make its business sustainable and compatible with the generally accepted ESG norms. The company’s business operations abide by a code of practices outlined by the Responsible Jewellery Council (RJC). These practices address issues such as human rights, labour rights, environmental impact, mining operations and product disclosure. On the social front, SMCPL had undertaken a special vaccination drive at its manufacturing facility in Surat last year to safeguard its employees from the pandemic. This apart, the company is involved in several CSR activities which includes investment in education and healthcare. The company also provides support to people in rural areas to make their livelihoods and activities environmentally sustainable.

Improvement in the operating income while maintaining the margins
Elongation in working capital cycle leading to liquidity constraints
Any deterioration in the financial risk profile

The company has an adequate liquidity position marked by moderate net cash accruals against the maturing debt obligations. The company generated cash accruals of Rs.272.47 crore in FY23 as against nil maturing debt obligations over the same period. The company is estimated to generate cash accruals of Rs.220.36-259.21 crore over the period 2024-2025 against nil maturing debt obligations over the same period. The company maintains unencumbered cash and bank balance of Rs.22.75 crore as on March 31, 2023. The current ratio stood at 2.24 times as on March 31, 2023. Acuité believes the liquidity profile is expected to remain adequate over the medium term owing to sufficient available liquid funds and adequate cash accruals against maturing debt obligations.   

­Acuité believes that SMCPL will maintain a ‘Stable’ outlook led by the Group’s established position in cut and polished industry and healthy financial risk profile. The outlook may be revised to ‘Positive’ in case the Group reports higher than expected growth in revenue and significant improvement in the profitability while maintaining the capital structure. Conversely, the outlook may be revised to ‘Negative’ in case of a deterioration in the revenue growth and operating performance, thereby impacting its overall financial risk profile and the overall 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.