Core Jewellery downgraded to IND D
India Ratings and Research (Ind-Ra) has downgraded Core Jewellery Private Limited’s (CJPL) Long-Term Issuer Rating to ‘IND D’ from ‘IND BB (Issuer Not Cooperating)’. The instrument-wise rating actions say, the Fund-based working capital facilities (Long-term/Short-term), IND D- Downgraded and Term loan (Long-term) also IND D- Downgraded. In a Rating Historical Rating/Outlook until February 2019, the company rating was IND BB/ Stable
The downgrade reflects instances of delays in CJPL’s term loan repayments (both interest and principal) during the six months ended in May 2020 due to liquidity constraints.
The ratings reflect CJPL’s medium scale of operations and modest operating margins, as indicated by revenue of INR982 million in FY18 (FY17: INR1,168.8 million) and EBITDA margin of 6.9% (5.3%). The RoCE was 7.3% in FY18 (FY17: 7.2%). After having increased steadily for the three years ended FY17, revenue declined in FY18 on account of a fall in offtake from the Hong Kong market. The modest margins are a result of the volatile prices of raw material and product mix. The company has indicated revenue of INR750 million and margins of 7.4% in 8MFY19.
The ratings also factor in CJPL’s modest credit metrics. The net financial leverage (adjusted net debt/operating EBITDAR) worsened to 7.6x in FY18 (FY17: 7.1x) and gross interest coverage (operating EBITDAR/gross interest expense + rent) reduced to 1.6x (FY17: 1.7x) on account of increased utilization of fund-based working capital limits and a rise in interest expenses, respectively.
The ratings are constrained by the company’s tight liquidity owing to the working capital-intensive nature of operations. Its peak utilization of the working capital limits was around 94% on average during the 12 months ended November 2018. Furthermore, the networking capital cycle of the company is long and lengthened further to 284 days in FY18 (FY17: 205 days) because of an increase in debtor days to 284 days (195 days).
The unrestricted cash balance stood at a negative INR1.9 million as of 31 March 2018. Cash flow from operations was at a negative INR67.3 million in FY18 (negative INR3.1 million), while free cash flow stood at a negative INR69.1 million (negative INR9.1 million).
The ratings, however, are supported by the promoter’s experience of around two decades in the jewellery business, which has led to established relationships with customers and suppliers. Incorporated in 1999, Mumbai based CJPL manufactures and exports diamond-studded gold jewellery.