Moksh Ornaments Ltd.

Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs. 52.00 Crs. of Moksh Ornaments Ltd.

Particulars

Facilities**	Amount(Rs.Crs.)	Tenure	Rating#
Fund Based	52.00	Long Term	BWR BB + /Stable Assignment
Sublimit	20.00	Short Term	BWR A4 + Assignment
Grand Total	52.00	(Rupees Fifty Two Crores Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure RATING ACTION / OUTLOOK

Brickwork Ratings assigns the ratings of BWR BB+/Stable and BWR A4+ to the bank facilities of Moksh Ornaments Limited (MOL).

The ratings are constrained by working capital intensive nature of operations, moderate financial risk profile, exposure to volatile gold prices, and presence in competitive & fragmented industry.

The ratings, however, draw strength from long track record of the company and experienced promoters.

KEY RATING DRIVERS

Credit Strengths:

Long track record of the company :
MOL possesses a long track record of over 19 years of operations in the gold jewellery manufacturing business. In 2002 and 2008, two proprietorship entities viz. Jineshwar Gold and Padmavati Jewels were established respectively, whereas both of them got merged to form Moksh Ornaments Private Limited (MOPL) in 2012, which was later listed and converted into MOL. Over the years of its long-running operations, the company has established long-term relationships with various customers, suppliers and job-workers.
Experienced promoters :
The overall operations of MOL are looked after by the promoters - Mr. Jawanmal Shah along with his son - Mr. Amrit Shah and daughter-in-law - Mrs. Sangeeta Shah (W/O Mr. Amrit Shah), who possess a total experience of over 40 years, 20 years and 5 years respectively in the gems & jewellery industry. Prior to the incorporation of this company, they were involved in their forefathers’ family business.

Credit Risks:

Working capital intensive nature of operations :
The operations of MOL are working capital intensive in nature with a majority of funds of over 40-55 days blocked in inventory, given the said time taken to manufacture jewellery; coupled with a smaller portion of over 10-25 days blocked in debtors. Hence, the conversion cycle stood moderately elongated at 61 days in FY20 (vis-a-vis 53 days in FY19), whereas the same elongated marginally in FY20 over FY19 owing to a marginal elongation in the collection period. The average WC utilization in the last 6 months ended January 2021 stood high at 95.66%.
Exposure to volatile gold prices & foreign exchange fluctuation risk :
The profitability & profit margins of MOL are exposed to highly volatile gold prices, since sharp fluctuations in the same have been observed in the last 3 years. However, despite the continuously increasing & sharply increasing gold prices over the years, the company has been able to manage its operating profit margins owing to hedging of gold prices by immediately squaring off its buy or sell position. Moreover, the company is also exposed to foreign exchange fluctuation risk, since it has commenced exports to UAE from FY20 (exports comprised 27.25% of the net sales in FY20). However, the bank has permitted the company to book a forward contract by up to 3 times of its existing pre/post-shipment credit limit of Rs.20 crore. During FY20, the company posted a foreign exchange gain worth Rs.3.02 crore.
Presence in competitive & fragmented industry :
MOL operates in a highly competitive & fragmented industry with a large number of small-sized & mid-sized players engaged in the manufacturing of gold jewellery. Moreover, the presence of reputed retail outlets as the main customers, intensifies the already prevailing competition in the market. This, coupled with the fact that the company completely outsources the manufacturing of jewellery, is evidently reflected in the low profit margins.
Moderate financial risk profile :
The total operating income of MOL declined from Rs.380.87 crore in FY19 to Rs.343.95 crore in FY20 owing to commencement of exports thereby requiring higher focus on marketing for exports in the initial year, which in turn led to a decline in the domestic revenues. Moreover, the company was majorly affected by the prevailing COVID-19 pandemic situation from the demand & supply side, since there was hardly any sales in Q1FY21, whereas the net sales also declined from Rs.139.93 crore in H1FY20 to Rs.83.77 crore in H1FY21. The operating profit margin of MOL stood low and deteriorated marginally from 2.41% in FY19 to 1.83% in FY20 owing to increase in gold prices. Given the low operating profit margin, the net profit margin also stood low at 1.55% in FY20 (vis-a-vis 1.26% in FY19). On the other hand, the ISCR and DSCR stood moderate at 1.69 times and 2.45 times respectively in FY20 (vis-a-vis 3.01 times and 2.59 times respectively in FY19). The overall gearing of MOL stood moderately leveraged and deteriorated marginally from 1.62 times as on March 31, 2019 to 1.67 times as on March 31, 2020 owing to increase in the working capital bank borrowings.

ANALYTICAL APPROACH - Standalone

BWR has essentially relied upon the audited financials of the company up to FY20, projections up to FY23, publicly available information and information/clarifications provided by the management.

For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Upward: Improvement in the scale of operations amid the global pandemic situation coupled with improvement in the profit margins, capital structure & debt coverage indicators while maintaining the liquidity position.

Downward: Inability to achieve the envisaged improvement in the scale of operations in FY21 coupled with deterioration in the capital structure, debt coverage indicators and liquidity position.

LIQUIDITY INDICATORS - Adequate

The current ratio stood moderately comfortable at 1.52 times as on March 31, 2020 (vis-à-vis 1.53 times as on March 31, 2019), whereas the conversion cycle stood moderately elongated at 61 days in FY20 (vis-à-vis 53 days in FY19). The free cash & bank balance stood at Rs.11.31 crore as on March 31, 2020, whereas the average CC utilization in the last 6 months ended January 2021 stood at 95.66%.

ABOUT THE ENTITY

Incorporated as a private limited company in 2012, Moksh Ornaments Private Limited (MOPL) was later converted into a public limited company and subsequently got listed on NSE in 2018 with a subsequent change of name to Moksh Ornaments Limited (MOL). The company is engaged in manufacturing & wholesale of gold jewelleries viz. bangles, chains and mangalsutras. The jewelleries are outsourced for manufacturing on a job-work basis to various artisans in Kolkata & Mumbai, whereas the designing of jewelleries is also outsourced to various artisans. The products manufactured by the company are majorly sold to various reputed retail outlet brands across various parts of India, viz. Nakshatra Jewellery, P.N. Gadgil Jewellers, Neelkanth Jewelers, Ranka Jewellers, etc.; whereas the products are also exported to UAE. On the other hand, the primary raw material viz. gold is procured from various banks, bullion dealers and others from the domestic market. The corporate office of the company is located at Kalbadevi in Mumbai, Maharashtra.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	343.95	380.87
EBITDA	Rs.Crs.	6.28	9.17
PAT	Rs.Crs.	5.35	4.80
Tangible Net Worth	Rs.Crs.	35.93	30.58
Total Debt/Tangible Net Worth	Times	1.67	1.62
Current Ratio	Times	1.52	1.53

KEY COVENANTS OF THE FACILITY RATED

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

ANY OTHER INFORMATION

RATING HISTORY FOR LAST THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2021)			2020		2019		2018
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	52.00	BWR BB+/Stable	NA	NA	NA	NA	NA	NA
Fund Based	ST	(20.00)	BWR A4 +	NA	NA	NA	NA	NA	NA
Grand Total		52.00	(Rupees Fifty Two Crores Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.

Hyperlink/Reference to applicable Criteria

Analytical Contacts
Sonali Y Bhatia Rating Analyst sonali.b@brickworkratings.com	Noman Agashiwala Associate Director-Ratings Board : +91 22 2831 1426, +91 22 2831 1439 noman.a@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Moksh Ornaments Ltd.

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Cash Credit - Sanctioned	37.00	_	37.00
Sub-Limit (Pre-shipment/Post-shipment Credit) - Sanctioned		(20.00)
2	Working Capital Demand Loan - Sanctioned	5.00	_	5.00
3	Cash Credit - Proposed	10.00	_	10.00
Total		52.00	0.00	52.00
TOTAL (Rupees Fifty Two Crores Only)

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