RATING RATIONALE
16Mar2023
Karp Impex Limited
Brickwork Ratings revised the ratings of Karp Impex Limited and removed from ISSUER NOT COOPERATING* category/Upgraded the ratings for the Bank Loan Facilities of Rs. 706.30 Crs.
Particulars| Facilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
|---|---|---|---|---|---|
| Previous | Present | Previous (13 Sep 2022) |
Present | ||
| Fund Based | 706.30 | 706.30 | Long Term |
BWR BBB- /Stable
ISSUER NOT COOPERATING* /Reaffirmation |
BWR BBB
/Stable removal from ISSUER NOT COOPERATING* category/Upgraded |
| (30.00) | (30.00) | ||||
| (23.60) | (23.60) | ||||
| Grand Total | 706.30 | 706.30 | (Rupees Seven Hundred Six Crores and Thirty lakhs Only) | ||
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure
Note: * Issuer Not Cooperating based on best available information.
RATING ACTION / OUTLOOK
Removed from Issuer Not Cooperating category and upgraded to "BBB/Stable"
KEY RATING DRIVERSCredit Strengths:
-
Long track record of operations supported by experienced promoters :
KIL has an established position in the diamond manufacturing business with a track record of for almost four decades mainly catering to the overseas clientele. The Company derived around 86 percent of its revenue from sales of cut and polished diamonds whereas remaining 14 percent from the sale of rough diamonds during FY2022. The Company also benefits from the extensive experience of its key promoters i.e. Mr. Kishor B. Virani and his brother Mr. Anil B. Virani who collectively possesses more than three decades of experience in the diamond business. The Company also benefitted from the funding support extended by the promoters in the form of interest-free unsecured loans of Rs. 99.29 crores in the Fy 2020. There is proper succession planning. The top management is further supported by a well qualified and experienced team of second line management. The extensive experience of the promoters and management have helped the Company to maintain long standing relations with its customers and suppliers.
-
Association with De Beers facilitating steady supply of quality rough diamonds
:
The Company benefits from its DTC sightholder status as De beers sells rough diamonds only to an exclusive group of manufacturers throughout the world called sightholders. The status enables the Company to procure rough diamonds as per fixed-term contracts with Alrosa offering a stable supply of a wide variety of rough diamonds at competitive rates. Hence long term contracts with major mining companies provides a competitive advantage to the KIL’s sourcing arrangements. The Company has also gained experience in procuring raw materials through tender based market.
-
Modest profitability and modest coverage indicators
:
The Company’s operating profitability margins (EBITDA) continues to remain modest and in the range of 3~5 percent during the last three years ended FY2022. The modest profitability can be attributed to the low value addition nature of the business as well as stiff competition in the cut and polished diamond industry. However, the coverage indicators have improved significantly as the Interest Coverage Ratio (ISCR) of 4.13 times for FY2022 as against 1.73 times for FY2021. Further, the return on capital employed (ROCE) has improved at 6.67 percent for FY2022 as against 3.01 percent in FY2021. The Company has reported marginal improvement in the profit after tax (PAT) margin as the same stood at 2.25 percent for FY2022 as against 0.92 percent in the previous year due to lower depreciation and interest cost.
-
High working-capital intensity of business operations
:
Because of the nature of operations involved, import of rough diamonds, polishing and exporting back, the industry faces the requirement of high working capital. The working capital cycle can't be compressed beyond a certain limit. Availability of working capital at the right time, taking the international position and price movement on account of forex fluctuations is credit risk for such enterprises.
-
Profitability of the Company is susceptible to volatility in foreign exchange rates
:
The Company derives around 86 percent of its revenue from export sales thereby exposing its profitability to fluctuations in foreign exchange rates. However, the Company’s imports are backed by a substantial amount of exports resulting in natural hedge to a large extent. The Company also has its own policy of managing the forex transactions and taking care of the forex fluctuations.
The company has the following associate concerns. 1. KARP Jewellery Pvt Ltd 2. KARP Dimaonds Pvt Ltd 3. KAP Impex H K Ltd
The share of the associate concerns is insignificant in the consolidated statements of KARP Impex Ltd .However, the analystical approach considered is the Consolidated Approach.
RATING SENSITIVITIES
Positive:
- Significant growth in revenue and profitability leading to improvement in debt coverage indicators.
Negative:
- Significant deterioration in the performance of the Company.
- Any further stretch in receivables days resulting in deterioration in the liquidity position of the Company.
LIQUIDITY INDICATORS - Adequate
Current Ratio for FY 2022 was 2.23X which indicates a healthy liquidity. The company has no term loans. Hence, there is no pressure on debt repayments. The company does not have any planned capital expenditure in the near future.Cash accruals as at FY 2022 was Rs. 45.71 Crs and cash and cash equivalents stood at Rs. 16.42 Crs.
ABOUT THE ENTITY
Karp Impex Limited (KIL or ”The Company”) was initially established in the year 1983 as a partnership firm however subsequently in the year 1996 the constitution was converted to a limited company. KIL is promoted by the Virani family with Mr. Kishor B B. Virani and his brother Mr. Anil B. Virani are the key promoters having more than three decades of experience in the diamond business.
The registered office of the Company is located in Mumbai, Maharashtra. The Company has been engaged in processing and trading of cut and polished diamonds since 1983. The cutting and polishing centers of the Company are located in Surat and Rajkot. KIL is DTC sight holder and a large player in the gems & jewellery sector. KIL derives around 41% of revenue from the domestic market and remaining revenue from sales to overseas markets including Hong Kong (48%), Belgium (5.25%), Japan, U.A.E. and Thailand etc. for FY2022.
The Company purchases rough diamonds from suppliers in Hong Kong, Belgium, U.A.E., Russia, Botswana etc. against advance and credit period of 60 days. The Company derives around 86% of its revenue from sales of polished diamonds and around 14% from trading of rough diamonds in FY2022.
| Key Parameters | Units |
FY 21-22 (Audited) |
FY 20-21 (Audited) |
FY 21-22 (Audited - Midterm_Annual) |
|---|---|---|---|---|
| Operating Revenue | Rs.Crs. | 2188.11 | 1470.85 | Not Available |
| EBITDA | Rs.Crs. | 91.43 | 45.72 | Not Available |
| PAT | Rs.Crs. | 49.24 | 13.50 | Not Available |
| Tangible Net Worth | Rs.Crs. | 760.09 | 710.63 | Not Available |
| Total Debt/TNW | Times | 0.66 | 0.88 | Not Available |
| Current Ratio | Times | 2.23 | 1.84 | Not Available |
| Key Parameters | Units |
FY 21-22 (Audited) |
FY 20-21 (Audited) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | 2202.24 | 1553.08 |
| EBITDA | Rs.Crs. | 85.39 | 41.71 |
| PAT | Rs.Crs. | 40.81 | 1.45 |
| Tangible Net Worth | Rs.Crs. | 810.81 | 768.12 |
| Total Debt/TNW | Times | 0.62 | 0.81 |
| Current Ratio | Times | 2.17 | 1.82 |
The terms of sanction include standard covenants normally stipulated for such facilities.
STATUS OF NON-COOPERATION WITH PREVIOUS CRA
CARE vide its press release dated 28th May 2021, has migrated the ratings to Issuer Not Cooperating; based on best available information, as the company has not provided the requisite information for surveillance of rating and simultaneously withdrawn the rating.
ANY OTHER INFORMATIONNot Applicable
RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)| Facilities | Current Rating (2023) | 2022 | 2021 | 2020 | |||||
|---|---|---|---|---|---|---|---|---|---|
| Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating |
| Fund Based | LT | 706.30 |
BWR BBB/Stable
(removal from ISSUER NOT COOPERATING* category/Upgraded) |
13Sep2022 |
BWR BBB- Stable
(ISSUER NOT COOPERATING* /Reaffirmation) |
09Jun2021 |
BWR BBB- Stable
(Reaffirmation) |
20Feb2020 |
BWR BBB- Negative
(Downgrade) |
| FB SubLimit | LT | (30.00) |
BWR BBB/Stable
(removal from ISSUER NOT COOPERATING* category/Upgraded) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
| (23.60) |
BWR BBB/Stable
(removal from ISSUER NOT COOPERATING* category/Upgraded) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
||
| Grand Total | 706.30 | (Rupees Seven Hundred Six Crores and Thirty lakhs Only) | |||||||
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 | |
|---|---|
|
Chidanand Poddar Senior Rating Analyst chidanand.p@brickworkratings.com |
Vidya Shankar Principal Director - Ratings Board : +91 80 4040 9940 vidyashankar@brickworkratings.com |
| 1-860-425-2742 | media@brickworkratings.com | |
| SL.No. | Name of the Bank/Lender | Type Of Facilities | Long Term(Rs.Crs.) | Short Term(Rs.Crs.) | Total(Rs.Crs.) | |
|---|---|---|---|---|---|---|
| 1 | Axis Bank Ltd. | Export Packing Credit (EPC)Sanctioned | 35.00 | _ | 35.00 | |
| 2 | Axis Bank Ltd. | Post ShipmentSanctioned | 52.00 | _ | 52.00 | |
| Sub-Limit (Inland Bills Purchase / Discounting) Sanctioned | (30.00) | |||||
| 3 | Bank of India | Post ShipmentSanctioned | 51.00 | _ | 51.00 | |
| 4 | Bank of India | Export Packing Credit (EPC)Sanctioned | 34.00 | _ | 34.00 | |
| 5 | Export Import Bank of India | Export Packing Credit (EPC)Sanctioned | 21.00 | _ | 21.00 | |
| 6 | IDBI Bank | Export Packing Credit (EPC)Sanctioned | 12.50 | _ | 12.50 | |
| 7 | IDBI Bank | Post ShipmentSanctioned | 12.50 | _ | 12.50 | |
| 8 | Punjab National Bank | Post ShipmentSanctioned | 23.60 | _ | 23.60 | |
| Sub-Limit (Foreign Usance Discount Bill Purchase) Sanctioned | (23.60) | |||||
| 9 | Punjab National Bank | Export Packing Credit (EPC)Sanctioned | 17.40 | _ | 17.40 | |
| 10 | Ratnakar Bank Ltd | Export Packing Credit (EPC)Sanctioned | 25.00 | _ | 25.00 | |
| 11 | Ratnakar Bank Ltd | Post ShipmentSanctioned | 25.00 | _ | 25.00 | |
| 12 | State Bank Of India (SBI) | Post ShipmentSanctioned | 118.65 | _ | 118.65 | |
| 13 | State Bank Of India (SBI) | Export Packing Credit (EPC)Sanctioned | 118.65 | _ | 118.65 | |
| 14 | Union Bank of India | Export Packing Credit (EPC)Sanctioned | 60.00 | _ | 60.00 | |
| 15 | Union Bank of India | Post ShipmentSanctioned | 87.00 | _ | 87.00 | |
| 16 | Yes Bank | Post ShipmentSanctioned | 7.80 | _ | 7.80 | |
| 17 | Yes Bank | Export Packing Credit (EPC)Sanctioned | 5.20 | _ | 5.20 | |
| Total | 706.30 | 0.00 | 706.30 | |||
| TOTAL (Rupees Seven Hundred Six Crores and Thirty lakhs Only) | ||||||
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