Krishna Jewels

Brickwork Ratings upgrades the rating for the bank loan facilities of Rs.65.00 Crores of Krishna Jewels.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (09 Aug 2021)	Present
Fund Based	65.00	65.00	Long Term	BWR BB+/Stable Downgrade/ISSUER NOT COOPERATING*	BWR BBB - /Stable Upgrade
Grand Total	65.00	65.00	(Rupees Sixty Five 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

The ratings for bank loan facilities of Krishna Jewels (“KJ” or “the firm”) continues to reflect the experience of the partners in the gold jewellery business, established track record and brand recall in the Kannur, Kerala retail jewellery market and above average financial risk profile marked stable topline of around ~Rs.300 crs, moderate net worth and comfortable gearing levels. These rating strengths remain partially offset by the firm's single store operations and geographic concentration in the revenue profile, exposure to risks relating to intense competition in the fragmented jewellery business, volatility in gold prices, high working capital requirement due to large inventory holding and exposure to regulatory risks.

The impact of Covid-19 on business operations and financial risk profile has resulted in subdued FY21 (Prov) and the steady recovery thereafter. BWR notes that the firm did not not avail relief under the Covid-19 moratorium from its lender. Further, the firm has not applied for one time restructuring (OTR) of loans under RBI Resolution Framework for Covid-19 related stress.

The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. The outlook may be revised to Positive if a sustained increase in scale of operations, improved geographical presence through the opening up of new branches and higher than envisaged improvement in profitability result in an improved financial risk profile. The outlook may be revised to Negative ' in case of lower than expected revenues, aggressive debt-funded capital expenditure, deterioration in operating margins or greater than expected withdrawals by partners leading to deterioration in its financial risk profile. Any sharp reversal in industry conditions may exert a downward pressure on the ratings.

KEY RATING DRIVERS

Credit Strengths:

Experienced management and established track record :
The partners of the firm are well experienced with over three decades in the gold and jewellery business and the firm has an established track record of operations with brand “Krishna Jewels” in the Kannur, Kerala retail jewellery market. The partners’ extensive experience and the established brand is expected to help the firm to maintain a stable business risk profile over the medium term.
Above average financial risk profile :
The firm’s financial risk profile is considered above average considering the modest scale of operations, adequate gearing levels and low profitability margins. BWR notes the muted financial performance in FY20 and FY21 on account of the impact of Covid-19 and elevated gold prices. The Revenue declined from Rs 409.59 Crs in FY19 to Rs 347.68 Crs in FY20. Operating Profit Margin declined from 4.18 % in FY19 to 2.85 % in FY20 mainly on account of increase in gold prices and at net level PAT declined from Rs.1.64 Crs in FY19 to Rs. (1.12) Crs in FY20. Partners' Capital declined to Rs.61.97 Crs as on 31 March 2020 from Rs.64.37 Crs as on 31 March 2019. Gearing has marginally deteriorated from 0.96 times as on 31March 2019 to 1.02 times as on 31 March 2020. Debt protection metrics were adequate with DSCR at 1.60 times and ISCR at 1.66 times as on 31 Mar 2020. On a provisional basis, the firm has reported an operating income of Rs.308.03 Crs, EBITDA of Rs.13.99 Crs and PAT of Rs. 4.79 Crs in FY21. On a provisional basis for 7MFY22, the firm has achieved sales of Rs.197 Crs and EBITDA of Rs. 5.95 Crs

Credit Risks:

Intense competition in the jewellery retail industry :
Jewellery retail industry in India is highly fragmented, with the presence of numerous unorganised players in addition to the large integrated manufacturers, leading to a high level of competition. BWR believes the established track record of the firm in the line of business, limits the competition to some extent, in its area of operation.
Regulatory risks in the jewellery industry :
The regulatory environment of the retail jewellery industry is evolving, which impacts the operating environment and consequently, the performance of jewellers. Measures such as limited access to gold metal loans, mandatory permanent account number disclosure requirement for purchases, limitation on jewellery saving schemes, demonetisation and the implementation of the Goods and Service Tax affected both demand and supply in the past, and mandatory hallmarking has impacted the jewellery industry further. However, Krishna Jewels is the India's first BIS Certified Hallmark jeweller and only the hallmarked jewels are sold by them. Therefore, the mandatory hallmarking scheme initiated by the government will not have any impact as the firm follows the practice to sell only the hallmarked jewels.
Low profitability and susceptibility of margins to volatility in gold prices. :
The firm is exposed to pricing pressure due to low value addition and high competition which has resulted in low OPM of 2.85% and NPM of (0.32)% in FY20. However, on a provisional basis in FY21, the firm has reported operating margin of 4.54 % and net margin of 1.56%. The earnings remain exposed to volatility in prices of gold and diamond, which depends on the prices in the international market and government regulations. Any sharp change in the pricing or in regulations could affect the operating performance
Geographical Concentration risk and Impact of COVID 19 pandemic on business :
The firm has its only showroom at Kannur, Kerala which limits growth potential and results in geographical concentration risk. Further the unprecedented situation arising out of the pandemic outbreak has led to some business loss for the firm in the Q1FY21 and Q1FY22. The firm had witnessed a steep decline in revenue on the closing down of shops during peak COVID in April and May 2021. Although normalcy is restored in Kerala, the state still records high COVID cases in comparison to other states in India, which makes it vulnerable to lockdowns or other COVID restrictions. Even with the rise in COVID cases the firm still generates a revenue of Rs. 197 Crs till Oct 2021 The firm’s ability to improve its scale of operations further remains a key rating monitorable.

ANALYTICAL APPROACH - Standalone

The firm does not have any subsidiary. BWR has taken the standalone approach towards the rating of the bank loan facilities of the firm

RATING SENSITIVITIES

Ability of the firm to increase its scale of operations, improve profitability and prudently manage its working capital, achieve geographical diversification and strengthen its overall credit profile would remain the key rating sensitivities.

Positive

Significant growth in revenues and profits with improvement in competitive position on a sustained basis.
Locational diversification aiding the business profile

Negative

Subdued demand resulting in lower than expected accruals, stretch in working capital cycle or any large, debt-funded capital expenditure, leading to deterioration of credit profile and and impacting liquidity position
Specific credit metrics that could lead to a downgrade of ratings include gearing more than 2 times and ISCR being less than 1and DSCR being less than 2 times on a sustain basis

LIQUIDITY INDICATORS - Stretched

The liquidity position of the firm is stretched marked by the higher utilisation of working capital limits at more than 95% for the last six months. EBITDA of Rs. 13.99 Crs in FY21(Prov) is sufficient to cover the interest and finance charges of Rs. 6.07 Crs in FY21(Prov). Currently the firm does not have long term debt obligations and any business is expected to be supported by infusion of funds by the partners. The cash conversion cycle has increased from 85 days as on 31 March 2020 to 104 days as on 31 March 2021(prov) on account of increase in inventory days. Current ratio remains subdued at 1.13 times as on 31 March 2021 (Prov) and Cash and cash equivalents was low at Rs. 1.00 Crs as on 31 March 2021.

ABOUT THE ENTITY

Krishna Jewels formerly known as “Kunhikannan Jewellery Gold House”, established in 1985 at Kannur, Kerala, is engaged in the retail trading of jewellery, gold/silver/platinum ornaments, precious/semi precious stones, watches and handicraft goods. The firm’s office and retail outlet, located at Jawahar Road, Thavakkara, Kannur is spread over six floors and has an area of 24000 Sq.ft. Krishna Jewels is BIS Certified.

Mr. C.V Ravindranath is the Managing Partner and he is supported by seven other partners.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	347.68	409.59
EBITDA	Rs.Crs.	9.90	17.14
PAT	Rs.Crs.	-1.12	1.64
Tangible Net Worth	Rs.Crs.	61.97	64.37
Total Debt/Tangible Net Worth	Times	1.02	0.96
Current Ratio	Times	0.95	1.03

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2021)			2021 (History)		2020		2019		2018
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	65.00	BWR BBB-/Stable (Upgrade)	09Aug2021	BWR BB+Stable (Downgrade/ISSUER NOT COOPERATING*)	11Aug2020	BWR BBB-Stable (Upgraded )	25Feb2019	BWR BBB-STABLE (Reaffirmation)	NA	NA
		NA	NA	NA	NA	14Apr2020	BWR BB+Stable (Downgrade/ISSUER NOT COOPERATING*)	NA	NA	NA	NA
Grand Total		65.00	(Rupees Sixty Five 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
Kaushik Srikanth V Rating Analyst kaushik.s@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Krishna Jewels

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	South Indian Bank	Cash Credit - Sanctioned	65.00	_	65.00
Total			65.00	0.00	65.00
TOTAL (Rupees Sixty Five Crores Only)

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