Fine Jewellery Manufacturing Ltd.

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs.63.30 Crs of Fine Jewellery Manufacturing Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (30 Apr 2020)	Present
Fund Based	63.30	63.30	Long Term	BWR BBB- /Stable	BWR BBB - /Stable Reaffirmation
Grand Total	63.30	63.30	(Rupees Sixty Three Crores and Thirty lakhs 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 reaffirmation in the rating factors in the continuous, albeit moderate, growth in the scale of operations, fluctuating profit margins & profitability and continuous improvement in the capital structure & debt coverage indicators.
The rating, further, continues to draw strengths from the long track record of operations coupled with experienced management and diversified presence in the exports market.
The rating, however, continues to be constrained by the scale of operations, working capital intensive nature of operations, exposure to volatility in gold prices & foreign exchange rates albeit hedging policies in place, and presence in highly competitive & fragmented gems & jewellery industry.

KEY RATING DRIVERS

Credit Strengths:

• Long track record of operations coupled with experienced management :

  FJML possesses a long track record of over two decades of operations in the manufacturing of studded gold jewellery. The company is engaged in the manufacturing of gold jewellery which is studded by diamonds or other gemstones, as per the requirements of the customers. The designing & manufacturing is done in-house in its manufacturing facility at Seepz in Mumbai, Maharashtra. The overall operations of FJML are looked after by the promoters - Mr. Sohil Kothari and Mr. Viral Kothari, who possess a total experience of more than three decades in the gems & jewellery industry.

• Diversified presence in the exports market :

  FJML’s products are exported to various countries, out of which UK, France, USA, Belgium, Germany and UAE are the topmost countries (exports to the top 5 countries comprised 82.50% of the export sales in FY21, 84.62% in FY20). The direct customers of the company comprise various branded retail chains as well as a few wholesalers, in a 75:25 ratio.

• Moderate financial risk profile :

  The financial risk profile of FJML stood moderate with relatively modest scale of operations, and comfortable capital structure & debt coverage indicators. The total operating income increased by 4.67% y-o-y to Rs.203.61 crore in FY20 owing to increase in volumes on the back of a regular increase in the demand in the exports market coupled with increase in labour charges received. The total operating income further increased by 5.91% y-o-y in FY21 (Prov.) on the back of increase in gold prices coupled with increase in specialized products sold, thereby commanding higher realizations. The ISCR and DSCR improved and stood comfortable at 3.90 times and 3.43 times respectively in FY21 (Prov.) as against 3.02 times and 3.14 times respectively in FY20 and 2.87 times and 2.58 times respectively in FY19, given the moderate profitability. The overall gearing stood comfortable and improved from 0.92 times as on March 31, 2020 to 0.84 times as on March 31, 2021 (Prov.) owing to increase in the tangible net-worth base on the back of accretion of profits.

• Moderate albeit fluctuating profit margins :

  The operating profit margin of FJML stood moderate, however deteriorated from 7.35% in FY19 to 6.50% in FY20 owing to increase in the employee costs on the back of annual pay hikes coupled with increase in the legal & professional fees, as against comparatively lower growth in the total operating income in that year. The operating profit margin further deteriorated to 6.03% in FY21 (Prov.) owing to increase in the gold prices, coupled with discounts given to new customers. Moreover, the company also undertakes job-work of manufacturing jewellery, in case of spare resources available after prioritizing them towards the exports orders. However, it is to be noted that the company employs contractual labourers to undertake the job-work activities, hence any fluctuations in the job-work income shall not have a direct bearing on the profitability of the company. Given the deteriorating operating profit margin, the net profit margin also stood fluctuating at 2.57% in FY21 as against 3.14% and 2.84% in FY20 and FY19 respectively, however it continued to stay moderate.

Credit Risks:

• Working capital intensive nature of operations :

  The operations of FJML are highly working capital intensive in nature with a majority of funds of about 100-120 days blocked in debtors, since a high credit period of about 90-150 days is required to be extended to the reputed overseas customers, which is also prevalent to the industry. Moreover, funds of about 100-130 days are blocked in inventory, since the company maintains a high level of diamonds inventory, given the diversified range of diamonds used in terms of various shapes, sizes, colors, varieties, etc. Moreover, the high level of diamond inventory is required to be maintained also due to the fact that sending unused diamonds back to the suppliers in the locations other than Seepz is very cumbersome. This has led to an elongated operating cycle of about 180-200 days. Given this, the average working capital utilization in the last 6 months ended May 2021 stood high at 83.70%.

• Exposure to volatility in gold prices & foreign exchange rates albeit hedging policies in place :

  FJML is exposed to volatility in gold prices, since gold is its primary raw material, whereas the export-oriented business makes it exposed to foreign exchange fluctuation risk. However, there is less than a week's gap in locking the gold rates with the customer at the time of booking the order, and placing the request to the banks for the procurement of gold. Moreover, the company enters into a forward contract with the bank if needed, to hedge the foreign exchange fluctuation risk, whereas it has a prescribed exchange control policy in place wherein 70% of the net foreign exchange receivable exposure is hedged.

• Presence in highly competitive & fragmented gems & jewellery industry :

  FJML is present in the highly competitive & fragmented gems & jewellery industry with a number of small & medium-sized players engaged in the manufacturing of diamond & gold jewellery, in Seepz as well as in Mumbai as a whole. Moreover, the presence of reputed overseas customers intensifies the already prevailing competition in the industry. This creates pricing pressure, which is evidently reflected in the moderate profit margins and elongated collection period.

ANALYTICAL APPROACH - Standalone

BWR has essentially relied upon the audited financials of the company up to FY20, provisional financials for FY21, 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: Significant improvement in the scale of operations & capitalization with improvement in the profitability & profit margins, liquidity position and further improvement in the debt coverage indicators while maintaining the capital structure.

Downward: Deterioration in the scale of operations, further deterioration in the profitability & profit margins, or further deterioration in the capital structure & debt coverage indicators.  

LIQUIDITY INDICATORS - Adequate

The current ratio marginally improved to 1.67 times as on March 31, 2021 (Prov.) as against 1.60 times as on March 31, 2020, whereas the conversion cycle stood elongated at 180 days in FY21 (Prov.) as against 192 days in FY20. The average fund-based WC utilization in the last 6 months ended May 2021 stood moderately high at 83.70%. On the other hand, the company is expected to generate net cash accruals worth Rs.9.42 crore and Rs.9.88 crore in FY22 and FY23 respectively, which would be more than sufficient to repay the debt worth Rs.0.19 crore and Rs.0.11 crore in the respective years.

ABOUT THE ENTITY

Incorporated in 2001 as a private limited company, Fine Jewellery Manufacturing Limited (FJML) is engaged in the manufacturing of diamond-studded gold jewellery and gems-studded gold jewellery, which is majorly exported to various countries across Europe, America, Middle East, Asia, and Australia (exports comprised 99.63% of the net sales in FY21 as against 99.75% in FY20). While the primary raw material viz. gold along with other accessories is procured from the domestic market, the diamond and various types of gemstones are procured from the domestic market as well as imported from various countries across Europe, America, Middle East, and Asia (imports comprised 8.88% of the total purchases in FY21 as against 18.24% in FY20). The manufacturing facility of the company is located at Seepz in Mumbai, Maharashtra.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Provisional)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	215.64	203.61
EBITDA	Rs.Crs.	13.01	13.23
PAT	Rs.Crs.	5.55	6.40
Tangible Net Worth	Rs.Crs.	64.39	58.42
Total Debt/Tangible Net Worth	Times	0.84	0.92
Current Ratio	Times	1.67	1.60

KEY COVENANTS OF THE FACILITY RATED

NA

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

NA

ANY OTHER INFORMATION

NA

RATING HISTORY FOR THE PREVIOUS 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	63.30	BWR BBB-/Stable (Reaffirmation)	30Apr2020	BWR BBB-/Stable ()	22Mar2019	BWR BBB-/Stable ()	NA	NA
Non Fund Based	ST	NA	NA	30Apr2020	Rating Withdrawn ()	22Mar2019	BWR A3 ()	NA	NA
Grand Total		63.30	(Rupees Sixty Three Crores and Thirty lakhs Only)

Rating Advisory, as on 19May2021
Press Release, as on 19May2021
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

• General Criteria
• Approach to Financial Ratios
• Approach to Financial Ratios

Analytical Contacts
Sonali Y Bhatia Rating Analyst sonali.b@brickworkratings.com	Chintan Dilip Lakhani Director- Ratings chintan.l@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	Packing Credit (PC) - Sanctioned	5.85	_	5.85
2	Post Shipment - Sanctioned	5.85	_	5.85
3	Post Shipment - Sanctioned	9.90	_	9.90
4	Export Packing Credit (EPC) - Sanctioned	18.30	_	18.30
5	Stand by Line of Credit - Sanctioned	3.50	_	3.50
6	Post Shipment - Sanctioned	7.05	_	7.05
7	Export Packing Credit (EPC) - Sanctioned	7.05	_	7.05
8	Gold Card - Sanctioned	3.00	_	3.00
9	Stand by Line of Credit - Sanctioned	2.80	_	2.80
Total		63.30	0.00	63.30
TOTAL (Rupees Sixty Three Crores and Thirty lakhs Only)