RATING RATIONALE
05Oct2020
H R V Gems
Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs.5.00 Crs. of H R V Gems
Particulars| Facilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||||
|---|---|---|---|---|---|---|---|
| Fund Based | |||||||
| Term Loan | 05.00 | Long Term | BWR | ||||
| Sub Total | 5.00 | ||||||
| Grand Total | 5.00 | (Rupees Five Crores Only) | |||||
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure RATING ACTION / OUTLOOK
BWR believes that H R V Gems business risk profile will be maintained over the medium term. The 'Stable' outlook indicates a low likelihood of rating change over the medium term. The rating outlook may be revised to 'Positive' in case the revenues and profit show sustained improvement. The rating outlook may be revised to 'Negative' if the revenues go down and profit margins show lower than expected figures.
KEY RATING DRIVERSBWR has assigned the long term rating of BWR BB- Stable of HRV Gems for the bank loan facilities of Rs 5.00 Crs. The rating continues to draw strength from the extensive experience of the partner in the diamond industry and moderate Tangible Net Worth. The rating, however, is constrained by the susceptible margins of the firm to exchange rate fluctuations and partnership constitution of the firm.
Credit Strengths:
1. Extensive experience of partners in the diamond industry: The Promoters have almost 2 decades of experience in the gems and jewelry business which has helped in establishing strong relationships with the customers as well as suppliers.
2. Moderate Financial Risk Profile: The financial profile of the firm is moderate with a tangible net worth of Rs 9.23 Crs and moderate gearing of 0.68x in FY19.The operating profit margins is 3.11% and the net profit margin is 2.19% in FY19. The debt protection metrics represented by ISCR and DSCR of 3.58x and 2.23x respectively in FY19 indicate the ability of the firm to service its debt obligations. The current ratio of 1.19x in FY19 is adequate.
Credit Risks:
1. Vulnerability due to low-value addition and intense competition - The firm’s profit margin remains low in the range of 2%-3% at the operating levels due to limited value addition in the diamond polishing business. Further, the firm faces stiff competition from organized and unorganized players, which limits the pricing flexibility.
2. Susceptibility of margins to fluctuations in forex rates - The firm procures the majority of rough diamonds from foreign countries and the majority of export sales are made in dollars. Hence, due to dollar-denominated sales-purchase, the firm’s margins are susceptible to exchange rate fluctuations. The firm does not have any hedging policy.
3. Inherent risks associated with the withdrawal of the capital by the partners: The partnership nature of the constitution restricts the financial flexibility of the firm and carries the risk of withdrawal of the capital negatively impacting the capital structure.
ANALYTICAL APPROACH
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
Going forward the ability of the company to improve its scale of operations, Profitability, and maintain its liquidity profile will be its key rating sensitivity.
Positive:
The ratings may be upgraded with improvement in scale of operations, profit margins, and tangible net worth.
Negative:
The ratings may be downgraded in case revenues of the company and profit substantially plunge from the current levels and gearing and debt service metrics deteriorate.
LIQUIDITY INDICATORS -
Liquidity Position: Adequate
The liquidity position of the company is has a adequate liquidity position. Additionally, the current ratio, DSCR, and ISCR ratio are 1.19x, 2.23x, and 3.58x respectively for FY 2019, thereby, indicating a secure liquidity position. The company's net cash accruals have also increased to 3.16 crores in FY 2019 against 1.56 crore for FY 2018.
ABOUT THE ENTITYHRV was registered in February 2016 by Pravinbhai Kevadiya, Rajesh Vithalbhai Kevadiya, and Valjibhai Vithalbhai Kevadiya. The firm imports manufacture and sells diamonds.
KEY FINANCIAL INDICATORS (Standalone)| Key Parameters | Units |
FY 18-19 (Audited) |
FY 17-18 (Audited) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | 124.51 | 71.10 |
| EBITDA | Rs.Crs. | 3.88 | 2.46 |
| PAT | Rs.Crs. | 2.73 | 1.81 |
| Tangible Net Worth | Rs.Crs. | 9.23 | 5.46 |
| Total Debt/Tangible Net Worth | Times | 0.68 | 1.52 |
| Current Ratio | Times | 1.19 | 1.31 |
NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY
| CRA Name | Date | Amount | Rating |
|---|---|---|---|
| India Ratings | 08 Jun 2020 | 6.75 | IND BB-/IND A4+ |
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.
| Analytical Contacts | |
|---|---|
|
Parth Agrawal Lead Analyst parth.a@brickworkratings.com |
Dileep Narayan Singh dileep.s@brickworkratings.com |
| 1-860-425-2742 | media@brickworkratings.com | |
| SL.No. | Type Of Facilities | Long Term(Rs.Crs.) | Short Term(Rs.Crs.) | Total(Rs.Crs.) |
|---|---|---|---|---|
| 1 | Term Loan | 5.00 | _ | 5.00 |
| Total | 5.00 | |||
| TOTAL (Rupees Five Crores Only) | ||||
| Instrument | Issue Date | Amount (Rs.Crs) | Coupon Rate | Maturity Date | ISIN Particulars |
|---|---|---|---|---|---|
| NA | NA | NA | NA | NA | NA |
| Name of Entity | % Ownership | Extent of consolidation | Rationale for consolidation |
|---|---|---|---|
| NA | NA | NA | NA |
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Brickwork Ratings (BWR) has assigned the rating based on the information obtained from the issuer and other reliable sources, which are deemed to be accurate. BWR has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented "as is" without any express or implied warranty of any kind. BWR does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by BWR should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses incurred by users from any use of this report or its contents. BWR has the right to change, suspend or withdraw the ratings at any time for any reasons.