Corporates
Natural Resources
2014 Outlook: Gems & Jewellery
Exporters to Shine Brighter than Domestic Retailers
Outlook Report
Rating Outlooks
EXPORTERS
S TABLE
( 2 0 13 : S TA B LE )
RETAILERS
S TABLE
( 2 0 13 : S TA B LE t o
NE GA TI V E )
 Ease in Regulatory Restrictions
 Economic Recovery in Key Markets
Different Sector, Same Outlook: India Ratings & Research (Ind-Ra) has maintained a Stable
Outlook on gems & jewellery exporters for FY15 and revised the Outlook on domestic retailers
to Stable from Stable to Negative. While resilient export demand would support the credit
profile of exporters, the expected margin improvement in FY15 would check any deterioration
in the credit profile of domestic retailers.
Ratings Reflect Inherent Risk: Ind-Ra has already captured inherent risks in the sector in its
outstanding ratings on gems & jewellery companies. The agency rates 15 issuers in the
segment (nine exporters and six retailers), of which only two companies have investment grade
ratings, both being domestic retailers. To the extent the ratings reflect the risks, all the ratings
are at a Stable Outlook.
Economic Recovery Benefits Exporters: Ind-Ra expects improvements in the discretionary
purchasing power of consumers in export destinations to impact exporters positively. In FY15,
the agency expects demand growth from the US and Hong Kong to be better than that in the
UAE with current higher base. Fitch Ratings Ltd estimates real GDP growth rates of the US, the
UK, the UAE and Hong Kong for 2014 to be higher than that in 2013.
Resultant Stability in Exporters’ Credit Profile: Ind-Ra expects moderate revenue growth of
4%-5% yoy in FY15 for exporters. However, operating margins are likely to increase only to
around 3.5%-4%, given volatile currency and input costs.
Ind-Ra estimated exporters to have posted a decline in top line of around 10%-15% yoy in
FY14, led by a 1.3% yoy decline in CPD sales volumes. Also, polished diamond prices
remained volatile in FY14.
Fall in Prices to Fuel Domestic Demand: Domestic demand is likely to bounce back in FY15.
The key driver being higher volume uptake due to the expected fall in gold prices in FY15
(Refer: Gold Price Outlook FY15, dated 8 May 2014). Also, industry players are likely to
resume store additions in FY15 post muted expansion in FY14. This may support the top-line.
Related Research
Other Outlooks
www.indiaratings.co.in/outlooks
Special Commentary
Ind-Ra Market Wire: Gold Price Drop to have
a Mixed Impact on the Jewellery Industry
Outlook 2013: Indian Gems & Jewellery
Indian Gems and Jewellery: Suppressed but
Stable Margins
Go to appendix for list of rated entities
Analysts
Giribala Shah
+91 22 4000 1726
giribala.shah@indiaratings.co.in
Mahaveer Jain S
+91 22 4000 1768
mahaveer.shankarlal@indiaratings.co.in
Retailers to Exhibit Steady Credit Profile: Ind-Ra expects retailers’ overall revenue growth
for FY14 and FY15 to remain moderate in the range of 3%-8% yoy. This is attributed to new
store additions by the existing players in Tier II and Tier III towns. EBITDA margins for FY15
are likely to improve by 1 to 2 percentage points to the FY13 levels of around 9%.
Inventory Write-offs to Impact Profitability: Ind-Ra expects local gold prices to decelerate in
FY15, given the expected fall in global gold prices along with easing of regulations in the
domestic market. In such case, inventory write-offs could impact operating profitability to the
extent of around 1%-2%. However, the companies which largely undertake gold leasing are
likely to have a minimal impact.
Outlook Sensitivities
Pricing and Regulatory Risks: The Outlook on domestic jewellery retailers could be revised
to Negative if gold prices increase further or if regulatory risks persist, which could further
impact their operating profitability and thus credit profile. A Positive Outlook could result from a
favourable policy environment, continued stability in gold prices and a continuous improvement
in sales volume.
www.indiaratings.co.in
8 May 2014
Corporates
Geopolitical Pressures: Uncertainty in Russia and Ukraine or any financial turbulence in
global economies including that of China could severely affect the weak credit profile of most
gems & jewellery exporters and result in a Negative Outlook.
Indian Exporters
Export Volumes to be Supported
Figure 1
Ind-Ra expects modest demand growth from key export markets in FY15, driven by
improvements in private consumption on an overall improvement in economic activity (refer:
Appendix 2). Fitch estimates real GDP growth rates of the US, the UK, the UAE and Hong
Kong to be better in 2014 than that in 2013.
Proportion of Export
Revenues FY13
US
16%
Figure 2
ROW
17%
Hong
Kong
24%
Source: RBI, Ind-Ra
UAE
43%
Exports
Gold jewellery (LHS)
Total exports (RHS)
(USDm)
6,000
CPD (LHS)
Linear (Total exports (RHS))
5,000
4,000
3,000
2,000
1,000
Jan 11
Feb 11
Mar 11
Apr 11
May 11
Jun 11
Jul 11
Aug 11
Sep 11
Oct 11
Nov 11
Dec 11
Jan 12
Feb 12
Mar 12
Apr 12
May 12
Jun 12
Jul 12
Aug 12
Sep 12
Oct 12
Nov 12
Dec 12
Jan 13
Feb 13
Mar 13
Apr 13
May 13
Jun 13
Jul 13
Aug 13
Sep 13
Oct 13
Nov 13
Dec 13
Jan 14
Feb 14
Mar 14
0
(USDm)
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Source: Gems and Jewellery Export Promotion Council, Ind-Ra
Demand from Key Markets to Sustain
In FY15, the agency expects demand growth from both the US and Hong Kong to be better
than that in the UAE, given its current higher base. Exports to the UAE were at its highest
during 2008-2013, led by strong demand for CPD and diamond jewellery.
Figure 3
Exports of Gems & Jewellery
2008
(USDm)
2009
2010
2011
2012
2013
20,000
16,000
12,000
8,000
4,000
0
Hong Kong
US
UAE
Belgium
Israel
UK
Others
Source: RBI, Ind-Ra
Demand Drivers Show a Positive Trend
Exports to the US are likely to grow in FY15, after remaining muted till recently. The US
consumer confidence Index has been improving since August 2012 which indicates improved
consumer sentiment. This, along with higher disposable income in the hands of consumers,
may support export volumes of gems & jewellery in FY15.
2014 Outlook: Gems & Jewellery
May 2014
2
Corporates
Figure 4
US Gems & Jewellery Demand Drivers
USA disposable income
(Index)
170
US jewellery sales
US consumer confidence index
150
130
110
90
70
50
30
Mar 08=100
Mar 09
Mar 10
Mar 11
Mar 12
Mar 13
Dec 13
Source: Bloomberg, Ind-Ra Exports, RBI
The retail sales of jewellery and watches in the US improved in 2013 with growth rates better
than those that seen in 2012. The trend of improving sales continued till the last available data
set for the month of September 2013. In addition, markets such as Hong Kong and China are
likely to maintain their demand levels. Ind-Ra also expects incremental demand from EU, given
the improvement in economic activity.
Figure 5
Major Markets-Jewellery & Watch Sales Trends
YoY growth
USA (LHS)
(%)
20
EuroZone (LHS)
China (RHS)
HK (RHS)
(%)
80
16
65
12
50
8
35
4
20
0
5
-4
Sep 10
Feb 11
Jun 11
Oct 11
Mar 12
Jul 12
Nov 12
Apr 13
Aug 13
-10
Dec 13
Source: IDEX, Bloomberg, Ind-Ra estimates
Operating Performance of Exporters
Moderate Revenue Growth
Ind-Ra expects moderate revenue growth of 4%-5% yoy in FY15, given positive signals from
key demand drivers. However, the agency estimates that, key exporters’ top line declined in the
range of 10%-15% yoy in FY14. The key reasons being a decline in sales volume of CPD
(1.3% yoy) and high volatility of polished diamond prices (refer: Appendix 3).
As expected by Ind-Ra in its 2013
gems & jewellery outlook, the operating
margins remained at low but stable
levels (median: 3.7%).
2014 Outlook: Gems & Jewellery
May 2014
Stable Operating Profitability
Operating margins are also likely to have increased to around 3.5%-4% in FY14, where volatile
input costs may have moderated any benefit due to rupee depreciation. However for CPD
players, operating margins are likely to have remained at levels similar to FY14, aided by lower
volatility in the prices of rough and polished diamonds and rupee stabilisation.
3
Corporates
Figure 6
Revenue of Representative Exporters
Shrenuj & Co (LHS)
Winsome Diamondsª (LHS)
Rajesh Exports (RHS)
(INRm)
80,000
Suashish Diamonds (LHS)
Asian Star (LHS)
350,000
300,000
250,000
50,000
200,000
35,000
150,000
20,000
100,000
5,000
50,000
-10,000
0
2008
2009
2010
2011
2012
2013
2014
(expected)
Note: Consolidated Financials Statements considered; The above is based on Financial Years ending March 31.
Revenues exclude Other Income; 2014 revenues are annualised based on quarter results published by companies
a Winsome Diamonds has reported revenues of INR69183.8m for 18 months ended September 2013.; the company's
manufacturing operations and revenue generating activities have been suspended owing to disruption of working
capital cycle
a Winsome Diamonds (erstwhile Su-Raj Diamonds)
Source: Company reports, Ind-Ra
65,000
Figure 7
EBITDA Margins of Representative Exporters
(%)
Rajesh Exports
Shrenuj & Co
Wisome Diamondsª
Asian Star
Suashish Diamonds
12
8
4
0
-4
-8
2008
2009
2010
2011
2012
2013
2014 (expected)
Source: Company reports, Ind-Ra
Figure 8
EBITDA to Interest Cover of Representative Exporters
(x)
10
Rajesh Exports (LHS)
Winsome Diamondsª (LHS)
Suashish Diamonds (RHS)
Shrenuj & Co (LHS)
Asian Star (LHS)
6
2
-2
-6
2008
2009
2010
2011
2012
2013
50
40
30
20
10
0
2014
(expected)
Note: The above is based on Financial Years ending March 31. EBITDA calculations exlcude Other Income
Note: FY13 Financials for Winsome Diamonds Not Available
a Winsome Diamonds (erstwhile Su-Raj Diamonds)
Source: Company reports, Ind-Ra
2014 Outlook: Gems & Jewellery
May 2014
4
Corporates
Figure 9
Indexed Cost and EBITDA of Exporters
Revenues (LHS)
Labour (RHS)
Raw materials (LHS)
SG&A (RHS)
Manufacturing costs (RHS)
EBITDA (RHS)
(Indexed revenues & raw material (x))
300
(Indexed costs & EBITDA (x))
160
120
200
80
40
100
2008
2009
2010
2011
0
2013
2012
Note: The above is based on financial years ending March 31
Source: Company reports, Fitch 2008 - Base year value =100
Domestic Players
Gold Price Expected to Moderate Further
Ind-Ra expects gold prices to decelerate to a range of INR25,500/10g–INR27,500/10g, taking
cues from the expected international gold prices of USD1,150/oz-USD1,250/oz.
Impact of Gold Import Restrictions
Restrictions on gold import and rupee depreciation have led to domestic gold prices remaining
at near historical highs despite a correction in international prices. While global gold prices
declined by 17.7% during January to August 2013, domestic gold price declined to
INR25,695/10g in January 2013 before increasing to INR32,111/10g in August 2013.
Figure 10
Trends in Gold Imports
Growth rate (RHS)
58.1
41.6
8.27
2011-12
2010-11
2009-10
2008-09
2007-08
2004-05
2003-04
2002-03
36.0
2.9
1.3
-6.4
2006-07
5.6
2005-06
4.7
42.5
2012-13
36.5
46.1
(%)
75
60
45
30
15
-21.92 0
-15
-30
2013-14
(expected)
Gold imports (LHS)
60.9
2001-02
(Cr.)
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
2000-01
The goverment of India gradually
hiked the import duty on gold to 10%
in August 2013 from 2% in January
2013. In addition, nominated
agencies importing gold had to set
aside 20% of the gold imported for
exports. While fresh imports of gold
was allowed only after the
nominated banks and agencies had
exported 75% of the gold kept aside
for exports.
Continued stable demand for gold (increasing by 13% to 974.8 tonnes in CY13) despite high
import duty has led to gold being made available through unofficial channels. The World Gold
Council expects gold available through unofficial channels to have been in the range of 150
tonnes – 200 tonnes in 2013 (calendar year).
Source: RBI, Ind-Ra
Gold imports are likely to be 21.9% yoy lower for FY14.
2014 Outlook: Gems & Jewellery
May 2014
5
Corporates
Figure 11
For FY13, median raw material
costs increased 15.6% yoy, which
was significantly lower than the
34.6% growth witnessed in FY12.
For 9MFY14, the median raw
material costs increased 8.4% yoy.
Indexed Cost and EBITDA of Domestic Retailers
Sales (LHS)
Employees cost (RHS)
Rent, rates & taxes (RHS)
Materials cost (LHS)
Advertisement, selling & distribution cost (RHS)
EBITDA (RHS)
(Indexed costs (x))
400
(Indexed revenues & EBITDA (x))
400
300
300
200
200
100
100
2009
2010
2011
0
2013
2012
Note: The above is based on financial years ending March 31
Source: Company reports, Fitch 2008 - Base year value =100
Indian customers purchase gold jewellery on value terms. A reduction in gold prices could
cause customers to buy more units of gold in FY15 than previously. To the extent labour
charges are linked to per gram of gold, the purchase of more gold units could be beneficial to
domestic retailers.
Figure 12
India: Consumer Demand of Gold
(INR/10gm)
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Q413
Q313
Q213
Q113
Q412
Q312
Q212
Q112
Q411
Q311
Average gold price (RHS)
Q211
Q111
Q410
Q310
Q210
Q110
Q409
Q309
Total bar & coin (LHS)
Q209
Q109
Q408
Q308
Q208
Q407
Q307
Q207
Q107
Q108
Jewellery (LHS)
(ton)
300
250
200
150
100
50
0
-50
Source: WCG, Bloomberg, Ind-Ra
Expansion of Stores to Resume in FY15 with Demand Improvement
Ind-Ra expects domestic demand to bounce back in FY15, driven by end pricing cuts and
discounts. Although a fall in prices may discourage investment demand, retail sales will
generally improve with ease in prices. Industry players slowed down expansion plans in 2013
and would resume store additions in FY15. An increase in the proportion of branded sales is
likely to continue with increasing urban disposable incomes and rural migration. However, the
branded segment faces stiff competition from regional/local family brands.
Operating Performance of Domestic Retailers
Moderate Revenue Growth
Ind-Ra expects overall revenue growth for FY14 and FY15 to be moderate and in the range of
3%-8% yoy. This would be largely attributed to new store additions by existing players in Tier II
and Tier III towns. Revenue in FY14 was driven by gold prices and not volumes.
2014 Outlook: Gems & Jewellery
May 2014
6
Corporates
Figure 13
Revenues of Representative Domestic Retailers Expected at ~4% in FY14
In 9MFY14, the median operating
margins
of
domestic
players
declined to 7.3% from 9.0% in
9MFY13, with the exception of
Shree Ganesh Jewellery house. Its
subsidiary incurred a loss of
INR11,370m due to bullion purchase
agreeement it entered into for
importing
gold
for
domestic
purposes. However the agreement
had to be canceled due to regulatory
restrictions. The company thus
reported EBITDA losses (excluding
other income) of 9.2% for 9MFY14.
The company filed for corporate
debt restructuring in December
2013.
Tara Jewels (LHS)
TBZ (LHS)
Thangamayil Jewellery Ltd (LHS)
Gitanjali Gems (Consolidated) (RHS)
Titan (RHS)
Shree Ganesh Jewellery House (RHS)
(INRm)
20,000
16,000
12,000
8,000
4,000
0
2009
2010
2011
2012
2013
200,000
160,000
120,000
80,000
40,000
0
2014 (expected)
Note: Consolidated financials statements considered; The above is based on financial years ending March 31.
Revenues exclude other income; 2014 (6MFY14 annualised to arrive at 2014 numbers)
a TBZ financial data available for only 2011 and 2012
Source: Company reports, Ind-Ra
Margin to Improve in FY15
Ind-Ra expects gold prices to decline in FY15 and improve the margins of domestic players by
1 to 2 percentage points to FY13 levels. The margins were impacted in 2013 due to a rise in
domestic gold prices in the face of muted consumer demand and the players had to offer
discounts to attract customers.
Figure 14
EBITDA Margins of Representative Domestic Retailers
Operating margins declined 80bp
yoy (median) FY13, in line with IndRa’s expectation of a 50-75 bps
decline with the exception of Shree
Ganesh Jewellery house.
(%)
Gitanjali Gems (Consolidated) (LHS)
Titan (LHS)
Tara Jewels (LHS)
TBZ (LHS)
Thangamayil Jewellery Ltd (LHS)
Shree Ganesh Jewellery House (RHS)
12
10
8
6
4
2009
2010
2011
2012
2013
8
5
2
-1
-4
-7
-10
FY14 (expected)
Note: The above is based on Financial Years ending March 31. Titan Industries margins include watches, eyewwear
and jewellery ;TBZ - financials available since 2011; Shree Ganesh Jewellery House subsidiary has incurred has
incurred losses of INR11370m of which INR617.5m is to be provided in the standalone books as a dimunition in
value of investments and INR6237.2m has been provided against bad debt since the subsidiary is one of the
debtors for the company.
Source: Company reports, Ind-Ra
Inventory Challenge
Overall, working capital cycle
remained flat in FY13 at 132 days
(FY12: 132 days; FY11: 125 days)
as inventory levels remained at
levels witnessed in the previous
year (FY13: 151 days; FY12: 146
days; FY11: 144 days).
The working capital days of jewellery retailers have consistently increased since FY09. A
possible uptick in sales volume could reduce inventory levels. However, some industry players
have been impacted by restrictions on leasing gold which have caused them to purchase gold
outright for manufacturing. Given the typical inventory management practice, jewellers
replenish gold almost daily to the extent used. Thus, in an environment where gold prices are
falling gradually, it is unlikely to affect the inventory value significantly. However, any sharp
correction in gold prices could result in some inventory write-offs which could adversely impact
profit margins by around 1%-2% from an accounting perspective.
Interest Cover Rangebound
Operating margins have been stable since FY11 due to which interest coverage has also been
stable in the range of 3.0x-3.3x. Ind-Ra expects it to improve in FY14 with the expected
improvement in the operating margins.
2014 Outlook: Gems & Jewellery
May 2014
7
Corporates
Figure 15
EBITDA to Interest Cover of Representative Domestic Retailers
(x)
8
Gitanjali Gems (Consolidated) (LHS)
TBZ (LHS)
Shree Ganesh Jewellery House (RHS)
Tara Jewels (LHS)
Thangamayil Jewellery Ltd (LHS)
4
2
6
0
4
-2
2
0
2009
-4
2010
2011
2012
2013
-6
2014 (expected)
Note: EBITDA calculations exlcude Other Income; The above is based on Financial Years ending March 31.
Titan excluded since the company has low debt and thus lower interest outgo; TBZ - provided net interest expense
and hence higher interest cover is reflected
Source: Company reports, Ind-Ra
Ind-Ra Rated Gems & Jewellery Companies: Corporate Profiles
BC Sen & Company Limited (‘IND BBB+’/Stable) is a domestic jewellery manufacturer. The
company’s revenue grew 27.2% yoy to INR2,284m in FY13. Also, net financial leverage
declined to 0.66x in FY13 (FY12: 0.94x) and interest coverage improved to 6.03x (5.73x) as
working capital debt reduced to INR92.7m (INR133.2m).
Arena Lifestyle Pvt Ltd (‘IND BB’/Stable) is a jewellery retailer, specialising in gold and
diamond jewellery. It diversified into the export of polished diamonds in FY14. The company’s
credit metrics are moderate with financial leverage of 4.06x in FY13 (FY12: 4.07x) and interest
coverage of 1.88x (2.01x). Its debt comprises only working capital facilities. Hence, there are
no refinancing risks.
Karan Kothari Jewellers Pvt. Ltd. (‘IND B+’/Stable) is a gold jewellery retailer. Its revenue
grew at a 40% CAGR over FY10 to INR2,336.2m in FY13 (FY12: INR1,910.9m) aided by the
additional store launch during FY12, an expansion of customer base and increased gold
demand for investment purposes. EBITDA margins improved over the last three years (FY13:
5.4%; FY12: 5.0%; FY11: 3.5%). Net financial leverage (total adjusted net debt/ operating
EBITDAR) thus also improved to 5.7x in FY13 (FY12: 5.86x) from 7.25x in FY11 and interest
coverage remained stable at 1.34x over FY11-FY13.
SRS Limited (‘IND BBB-’/Stable) has three business verticals – jewellery, retail and multiplex.
The company is into the manufacturing, retailing and whole-selling of gold and diamond
jewellery. It has a chain of modern format retail stores and also operates a chain of cinemas
across north India.
SRS’ consistent revenue growth (FY10-FY13: 30% CAGR) is driven mainly by its jewellery
business coupled with a moderate brand recall of SRS in the National Capital Region. Revenue
grew 27% yoy to INR28,883m in FY13 on the back of growth in the jewellery and cinema
segments of 46% yoy and 49% yoy, respectively.
Credit metrics deteriorated with financial leverage (net adjusted debt/EBITDAR) increasing to
6.2x in FY13 (FY12: 3.8x) and interest coverage (operating EBITDAR/net interest expense +
rents) declining to 1.6x (2.1x). EBITDA margin fell to 3.2% (4.8%) due to a fall in the EBITDA
margin of the jewellery division. The jewellery segment contributes bulk of revenue (FY13:
91%) and EBITDA (above 90%) and recorded sharp growth in FY13 in the wholesale trading of
jewellery.
M/S Agarwal Jewellers (‘IND BB-’/Stable) is a partnership firm operating a 2,800 sqft retail
jewellery showroom in Bhopal. The scale of operations is modest with a revenue base of
INR313m in FY13 (FY12: INR282m) with EBITDA margins of 15.8% (10.7%). The business is
2014 Outlook: Gems & Jewellery
May 2014
8
Corporates
impacted by high competition from organised retailers and working capital intensity. Working
capital cycle stretched to 237 days in FY13 (FY12: 225 days) driven by higher inventories days
of 242 (228). Net financial leverage was 3.0x in FY13 (FY12: 3.2x) and EBITDA gross interest
coverage was 2.5x (1.7x).
Mani Exports (‘IND BB-’/Stable) exports polished diamonds. In FY13, the company’s financial
profile deteriorated marginally with revenue of INR1,534.8m (FY12: INR1,698.8m), EBITDA of
INR80.97m (INR84.6m), net financial leverage of 5.19x (4.99x) and interest coverage of 2.69x
(3.46x). Provisional financials for 9MFY14 indicate revenue of INR1,199.6m and EBITDA
margin of 5.7%. The high working capital intensive nature of ME’s business is indicated by an
increase in receivable days to 145 in FY13 (FY12: 117) and inventory days of 124 (91).
Om Anand Exports (‘IND A4’) is a partnership firm, involved in the export of cut and polished
diamonds. The company is characterised by large working capital requirements due to a
stretched net working capital cycle (FY13: 172 days, FY12: 125 days). According to FY13
provisional results, revenue was INR659.6m in FY13 (FY12: INR823.7m), EBIDTA profits were
INR27.8m (INR26m), financial leverage (total adjusted debt/EBITDA) was 7.9x (6.0x) and
interest coverage (operating EBITDA/gross interest expense) was 1.5x (1.6x).
MK (‘IND A4’) is a partnership concern, and manufactures and exports diamond-studded gold
jewellery. Revenue declined marginally to INR493m in FY13 (FY12: INR496m, FY11:
INR473.5m) and EBITDA profits fell slightly to INR18m (INR19m, INR29m). However, interest
coverage (operating EBITDA/gross interest expense) was comfortable at 4.5x in FY13 (FY12:
4.7x) due to the firm’s low use of working capital loan in FY13.
Jodhani Exports (‘IND A4+’) is a partnership firm, involved in the export of cut and polished
diamonds. Revenue grew 10.5% yoy to INR1,120m in FY13, despite weak demand from export
markets for CPD. EBITDA margins were stable at around 5% in FY11-FY13 despite volatile
diamond prices. Thus, its interest coverage (operating EBIDTA/gross interest expense)
remained above 2.5x for the three years ended FY13. However, the company is characterised
by the working capital intensive nature of business. Its net working capital cycle was 151 days
in FY13 (FY12: 149 days) mainly due to higher inventory and receivable days.
Patdiam Jewels (‘IND A4+’) is a partnership firm. It is part of Patdiam Group. The group
comprises two other companies, Patdiam Jewellery Pvt Ltd (similar line of business) and M/S
Patdiam (processing of diamonds). According to FY13 provisional results, revenue declined
32% yoy to INR155.0m (FY11: INR61m) mainly due to the substitution effect as gold prices
increased substantially during the year. Profitability margins improved to 24.5% in FY13 (FY12:
23.2%; FY11: 9.4%) and is higher than its peers’ because it deals in the high-end range of
jewellery. The company is characterised by the working capital intensive nature of business
with net working capital cycle of 243 days in FY13 (FY12: 194 days) mainly due to high
inventory as well as receivable days. Credit profile and liquidity are comfortable with EBITDA
interest coverage (operating EBIDTA/gross interest expense) of 5.6x in FY13 (FY12: 7.5x) and
financial leverage (net adjusted debt to EBIDTA) at 1.4x (1.3x).
M/S Parin Gems (‘IND B+’/‘IND A4’) is a partnership firm, engaged in the cutting and polishing
of diamonds. It had weak credit metrics in FY13 with net financial leverage of 4.9x (FY12: net
cash) and EBITDA interest cover of 1.6x (1.8x) based on preliminary results. Although the
company has a modest scale of operations, the operating profit margins are thin. Revenue was
INR969m in FY13 (FY12: INR802m) and EBITDA margin was 0.9% (0.7%).
2014 Outlook: Gems & Jewellery
May 2014
9
Corporates
Appendix 1
Figure 16
Issuer Ratings
Issuer
B C Sen & Company Limited
Tribhovandas Bhimji Zaveri (Delhi) Pvt Ltd
Arena Lifestyle Pvt. Ltd.
Karan Kothari Jewellers Pvt. Ltd.
SRS Limited
M/S Agarwal Jewellers
Om Anand Export
MK
Mani Exports
Mohan Gems & Jewels Private Limited
Delhi Diamonds Private Limited
M.M. Jewellers
Patdiam Jewels
M/S Parin Gems
Jodhani Exports
Rating/Outlook (current)
IND BBB+/Stable
IND BB+/Stable
IND BB/Stable
IND B+/Stable
IND BBB-/Stable
IND BB-/Stable
IND A4
IND A4
IND BB-/Stable
IND BB-/Stable
IND BB-/Stable
IND B+/Stable
IND A4+
IND B+/Stable
IND A4+
Rating/Outlook (End-2012)
IND BBB/Stable
IND BB+/Stable
IND BB/Stable
IND B+/Stable
IND A4
IND A4
IND B+/Stable
IND BB-/Stable
IND BB-/Stable
IND B+/Stable
IND A4
Source: Ind-Ra
2014 Outlook: Gems & Jewellery
May 2014
10
Corporates
Appendix 2
Figure 17
Real GDP Growth
USA
Hong Kong
UAE
India
UK
Singapore (RHS)
(%)
12
16
8
12
4
8
0
4
-4
0
-8
2009
2010
2011
2012
2013f
2014f
-4
2015f
Source: Fitch Ratings, Bloomberg, Ind-Ra
2014 Outlook: Gems & Jewellery
May 2014
11
Corporates
Appendix 3
Figure 18
Polished Diamond Prices Overall Index
(USD)
160
150
140
130
120
Apr 12
Jun 12
Sep 12
Nov 12
Feb 13
May 13
Jul 13
Oct 13
Jan 14
Mar 14
Source: RBI, Ind-Ra
2014 Outlook: Gems & Jewellery
May 2014
12
Corporates
The ratings above were solicited by, or on behalf of, the issuer, and therefore, India
Ratings has been compensated for the provision of the ratings.
ALL CREDIT RATINGS ASSIGNED BY INDIA RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS
AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS
LINK: HTTP://WWW.INDIARATINGS.CO.IN/UNDERSTANDINGCREDITRATINGS.JSP IN ADDITION,
RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE
AGENCY'S PUBLIC WEBSITE WWW.INDIARATINGS.CO.IN. PUBLISHED RATINGS, CRITERIA, AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. INDIA RATINGS’ CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE,
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE
OF CONDUCT SECTION OF THIS SITE.
Copyright © 2014 by Fitch, Inc., Fitch Ratings Ltd. and its subsidiaries. One State Street Plaza, NY, NY 10004.Telephone: 1-800-753-4824,
(212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights
reserved. In issuing and maintaining its ratings, India Ratings & Research (India Ratings) relies on factual information it receives from issuers
and underwriters and from other sources India Ratings believes to be credible. India Ratings conducts a reasonable investigation of the factual
information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from
independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of India Ratings
factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer,
the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and
nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party
verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other
reports provided by third parties, the availability of independent and competent third-party verification sources with respect to the particular
security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of India Ratings’ ratings should understand that
neither an enhanced factual investigation nor any third-party verification can ensure that all of the information India Ratings relies on in
connection with a rating will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the
information they provide to India Ratings and to the market in offering documents and other reports. In issuing its ratings India Ratings must
rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax
matters. Further, ratings are inherently forward-looking and embody assumptions and predictions about future events that by their nature
cannot be verified as facts. As a result, despite any verification of current facts, ratings can be affected by future events or conditions that were
not anticipated at the time a rating was issued or affirmed.
The information in this report is provided "as is" without any representation or warranty of any kind. A rating provided by India Ratings is an
opinion as to the creditworthiness of a security. This opinion is based on established criteria and methodologies that India Ratings is
continuously evaluating and updating. Therefore, ratings are the collective work product of India Ratings and no individual, or group of
individuals, is solely responsible for a rating. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is
specifically mentioned. India Ratings is not engaged in the offer or sale of any security. All India Ratings reports have shared authorship.
Individuals identified in a India ratings report were involved in, but are not solely responsible for, the opinions stated th erein. The individuals
are named for contact purposes only. A report providing a rating by India Ratings is neither a prospectus nor a substitute for the information
assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be
changed or withdrawn at any time for any reason in the sole discretion of India Ratings. India Ratings does not provide investment advice of
any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the
suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. India
Ratings receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. The assignment, publication, or
dissemination of a rating by India Ratings shall not constitute a consent by India Ratings to use its name as an expert in connection with any
registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or
the securities laws of any particular jurisdiction including India. Due to the relative efficiency of electronic publishing and distribution, India
Ratings research may be available to electronic subscribers up to three days earlier than to print subscribers.
2014 Outlook: Gems & Jewellery
May 2014
13