Rating Rationale

Brickwork Ratings has assigned the long-term and short-term ratings of “BWR BBB-/Stable/BWR A3” for the bank loan facilities of Rs. 99.69 Cr. of Lotus Ornaments Pvt. Ltd.

The Rating has factored, inter alia, Qualified and Experienced Management, Long-Standing Market Presence and Strong Order Book Position, Robust Leverage Profile and Comfortable Financial Risk Profile. The rating is constrained by Elongated Cash Conversion Cycle, Concentration and Counter Party Credit Risk, Susceptibility of operating performance to volatility in precious metal prices and regulatory risks, Intense Competition and Forex Risk.

Going forward, the ability of the company to improve its scale of operations, profitability, strengthen liquidity and credit profile will remain the key rating sensitivities. The rating outlook has been assigned as "Stable" as BWR believes that Lotus Ornaments Pvt. Ltd., 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 revenue and profitability margins show sustained improvement. The rating outlook may be revised to 'Negative' if the financial risk profile goes down.

The terms of sanction of the rated facilities include standard covenants normally stipulated for such facilities. The bankers have stipulated certain special covenants as listed below:

Punjab National Bank (PNB - Lead Bank):

• Ratio Benchmarks: Annual testing of financial parameters including DSCR, Interest Coverage Ratio, Asset Coverage Ratio (ACR/FACR), and Debt-Equity Ratio (TOL/TNW). Adverse ratio deviations exceeding 10% attract a penal interest of 0.50% p.a.
• Promoter Stake & Control: Promoter shareholding cannot be diluted below the current level or 51% controlling stake (whichever is lower) without 60 days prior written permission. Promoter shares cannot be pledged to outside FIs/NBFCs without consent.
• Single Buyer Concentration Limit: Exposure against a single buyer is capped at 20% of sanctioned limits
• Debt-to-Equity Conversion Right: In case of default extending beyond 90 days or debt restructuring, PNB reserves the right to convert outstanding debt into equity.

Bank of Baroda (BOB):

• ISCR Relaxation: Minimum Interest Service Coverage Ratio (ISCR) accepted at 1.41 (against standard policy norm of 1.50) as on 31.03.2025.
• Maintenance of projected Current Ratio and Debt Equity Ratio (TOL/TNW). 
• Full retention of Net Profit After Tax to support debt servicing and net working capital.
• No loans, advances, or inter-firm transactions with associate concerns/directors/family members without consent.

State Bank of India (SBI):

• Annual testing of DSCR, Interest Coverage Ratio, FACR, and Debt/EBITDA. Breach of any two parameters incurs 50 bps p.a. additional penal interest for deviations above 10%.
• Promoters' unencumbered shareholding must stay above agreed levels and never fall below 26% of total paid-up capital; falling below triggers an Event of Default.
• Promoter/director unsecured loans brought into the business cannot be repaid or withdrawn without SBI's prior approval
• Bank permission required if cumulative pledged shares by promoters exceed 50% of promoter holding or 20% of total share capital

Union Bank of India (UBI):

• Annual verification of DER, FACR, Current Ratio, TOL/TNW, and DSCR against projections. Promoters must infuse fresh capital if cash accruals or net worth fall below projected levels.
• Promoter loans to be subordinated to bank credit; inter-firm transactions permitted only if conducted as genuine business on an arm's length basis.

• Qualified and Experienced Management :

  The company is led by a well-qualified and experienced management team with over 4 decades of business experience and a global market presence. Mr. Sameer Shah (Director) holds industry leadership roles, serving as Honorary Secretary of the SEEPZ Association, a member of the Central Board of Film Certification, and a former director on the Skill Council of India under NITI Aayog. Extensive experience, coupled with a professional management setup, enhances the competitive position of the company in the industry, which has also helped the company in building strong supplier/customer base with relationship over decades and achieving financial and operational success.

• Long-Standing Market Presence and Strong Order Book Position :

  The company is into the business and globe market for over 2 decades which enhances its competitive advantage, this has also helped the company in improving its operating scale over time, building a strong supplier/customer base. Further, the company has achieved revenue of Rs. 270.00 Cr. in H1 FY2027 and secured orders worth Rs. 600.00 Crs and above ensuring future revenue visibility.

• Robust Leverage Profile :

  The company has converted its redeemable preference shares to non-cumulative convertible preference shares in FY2025. Tangible Net Worth increased from Rs. 534.95 Cr. in FY2025 to Rs. 539.69 Cr. in FY2026 (P), due to addition of retained earnings. Tangible Net Worth (Analyzed) including the USL borrowed from promotors and relatives stood at Rs. 618.58 Cr. at the end of FY2026 (P). Total Debt/TNW stood at 0.47x, Total Debt/TNW(Analyzed) at 0.28x and TOL/TNW at 0.23x at the end of FY2026 (P).

• Comfortable Financial Risk Profile :

  Total Operating Income exhibited volatility in recent years but improved marginally from Rs. 492.21 Cr in FY2025 to Rs. 501.11 Cr in FY2026 (P). The Operating Profit Margin improved from 2.91% in FY2024 to 4.03% in FY2025 and further improved to 4.56% in FY2026 (P). NPM also improved marginally along with operating profit margin but limited by the significant increase in finance costs and tax expenses. The company maintained moderate debt protection metrics, reporting an ISCR of 1.39x and a DSCR of 1.02x at the end of FY2026 (P), with ongoing liquidity support provided through unsecured loans infused by promoters and their relatives.

• Elongated Cash Conversion Cycle :

  Company operations are working capital intensive, with a major portion of funds blocked in debtors and inventory due to customer credit terms extending up to 450 days, in line with industry standards. This leads to an elongated working capital cycle. However, the company has been adequately managed its working capital requirement through a combination of banking limits, supplier credit, funds infused by the Directors and their relatives, and the company's internal accruals. Further, monthly collections average Rs 35.00 Cr to Rs 40.00 Cr with zero discounted bill defaults. All discounted receivables are protected under the ECGC Single Buyer Policy, while credit terms for non-discounted buyers extend up to 360 days based on business terms. Additionally, the company is benefited by Reserve Bank of India extended realization guidelines up to 450 days for export receivables in the gem and jewelry sector, this provides a competitive advantage to the company and helps them to liquidate legacy natural diamond stock without accepting product returns. Any changes in the central banks trade relief measures and its impact on business/financial risk profile of the company remains a key monitorable.

• Concentration and Counter Party Credit Risk :

  Over the past two years the top five customers generated over 55% of total revenue, exhibiting concentration. The top ten buyers are concentrated in the USA and Hong Kong, with USA-based clients contributing 70% to 80% of total turnover. Additionally, the company imports over 50% of its raw materials and consumables from two to three major suppliers. While operations remain exposed to geopolitical tensions and regional economic risks, these threats are partially mitigated by long-standing client relationships spanning over 4 years to a decade with few of them. These key players are reputable international entities carry a low risk of default because of their access to global market presence and strict corporate governance, significantly lowering the probability of sudden payment defaults. Furthermore, receivables are insured under the ECGC Single Buyer Policy and realized within agreed credit windows. LOPL has maintained long-standing business relationships with these customers/suppliers, which provides them a competitive advantage and continues business opportunities.

• Susceptibility of operating performance to volatility in precious metal prices and regulatory risks :

  The company's business remains exposed to volatility in the diamond, gold, and silver prices with regulatory changes, such as import duties, GST rates, and hallmarking norms may also impact operations and profitability.

• Intense Competition and Forex Risk :

  LOPL is present in the highly competitive & fragmented gems & jewelry industry with a number of organized and unorganized players, this limits its pricing flexibility. Moreover, the presence of reputed overseas customers intensifies the already prevailing competition in the industry. The company is engaged in the 100% export of studded jewellery, with revenues denominated largely in USD. While imports against export receivables provide a partial natural hedge against foreign exchange fluctuations, the company remains exposed to residual currency risks.

Going forward, the ability of the company to Improve their operational scale, profitability, strengthen liquidity and credit profile would be the key rating sensitivities.

Positive:

• Total operating income exceeding Rs. 575.00 Cr., while maintaining operating profit margin at 5.00% or above and net profit margin above 1.50%.
• ISCR above 1.70x and DSCR above 1.25x.
• Cash Conversion cycle below 500 days.

Negative:

• Revenue from operations and profitability going below 15% as reported in the actuals of previous years financials.
• ISCR and DSCR dropping below projected levels.
• Total Debt/TNW above 0.75x.
• Any change in RBI trade relief measures not being adequately mitigated by the company.

The company has adequately covered its interest expenses and CPLTD obligations through sufficient EBITDA and Net Cash Accruals in FY2026 (P), further supported by promotor's USL infusion. It is expected to report an EBITDA of Rs. 26.15 Cr. and Net Cash Accruals of Rs. 7.52 Cr. in FY2027, which can easily cover the projected interest cost of Rs. 16.56 Cr. and CPLTD obligation of Rs. 6.39 Cr. It has maintained moderate level of debt protection metrics, with an ISCR of 1.39x and a DSCR of 1.02x in FY2026 (P). It has marked a conversion cycle of 563 days, and the current ratio stood at 6.55x in FY2026 (P). The company has adequately utilized its working capital limits, with an average utilization of 90% during the past one year. The company had unencumbered cash and bank balance of Rs. 17.59 Cr at the end of FY2026 (P). As LOPL does not have any capital market exposure and relies entirely on banks and financial institutions to meet its funding requirements, BWR draws comfort from the financial flexibility and support provided by the promoters.

NA

Lotus Ornaments Pvt Ltd (LOPL) was incorporated in 2004, engaged in the manufacturing and exporting of diamond & colour stone studded gold and silver jewelry (including custom-made and high-end designer jewelry). LOPL operates in a B2B (Business-to-Business) model and sell products in large quantities to wholesalers and established business customers. The manufacturing unit of the Company is located at Seepz, Mumbai. It is promoted by Mr. Sameer Shah and Mr. Digamber Bajrang Sawant.

The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated. It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument's credit rating. It also does not indicate the complexity associated with analysing an entity's financial, business, industry risks or complexity related to the structural,transactional or legal aspects. Details on the complexity levels of the instruments are available on BWR's website Complexity Levels.

Not Applicable

None

BWR Board of Directors have no influence over rating decisions, nor do they sit on the rating committee or review, discuss or evaluate any credit rating during the Board meetings.

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