CRISIL’s ratings on the bank facilities of Bholasons Jewellers (Gold Souk) [BJ; part of the Bholasons group] continue to reflect the Bholasons group’s healthy financial risk profile (marked by a healthy capital structure), effective risk management policies, and increasing diversification of the group’s domestic retail jewellery business. These rating strengths are partially offset by the Bholasons group’s modest scale of operations in the intensely competitive retail jewellery industry, exposure to demand pressures in the export markets, and susceptibility to volatility in gold prices in the domestic retail business.

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of Bholasons Enterprise (BE) and BJ, together referred to as the Bholasons group. This is because both the partnership firms have common partners, are in the same line of business, and have fungible funds. CRISIL has, however, deconsolidated Bholasons Creations (BC) from the Bholasons group because of complete closure of business in the firm leading to no operational and financial linkage with the other two Bholasons group entities (BE and BJ). BC was earlier consolidated with the Bholasons group, as the firm was set up to acquire the existing business of BE to continue availing of the fiscal benefits. In February 2010, however, the operations of BC were closed and its entire bank debt retired subsequently.

Outlook: Stable
CRISIL believes that the Bholasons group will maintain its healthy capital structure and its business risk profile over the medium term, backed by healthy cash accruals. The outlook may be revised to ‘Positive’ if the group increases its scale of operations and profitability significantly, while it maintains its capital structure and liquidity. Conversely, the outlook may be revised to ‘Negative’ in case of significant pressure on the Bholasons group’s revenues or profitability, especially in the export segment, or if the group undertakes a large, debt-funded capital expenditure programme.

Update
The Bholasons group’s business performance remains in line with CRISIL’s expectations, with domestic operations under BJ compensating for the moderation in export sales in BE. The Bholasons group is expected to report turnover of around Rs.1500 million in 2011-12 (refers to financial year, April 1 to March 31), in line with CRISIL’s expectations. The group is estimated to have clocked Rs.1250 million of revenues over the nine months through December 2011, with about 40 per cent coming from exports (mainly in BE). Lower-than-expected revenues in BE are expected to be partially offset by higher-than-expected growth in BJ. Lower-than-expected revenues in BE is mainly because of the fact that 80 per cent of its revenues are derived from the European Union and the US markets, which are reeling under recession, with Europe especially witnessing a sharp deterioration in demand and creditworthiness of importers. The Bholasons group’s promoters have near-term plans to transfer the business of BE to BJ because of expiry of tax benefits (under export-oriented unit [EOU] status) in BE in March 2011. BE is expected to shut operations from April 1, 2012, and the export business from thereon will be conducted in BJ. Promoters have decided to retain a single entity for both exports and domestic business and with the expiry of tax benefits in BE in March 2011, the entire capital of partners in BE (Rs.62 million as on September 2011) will be transferred to BJ eventually. CRISIL believes that transfer of business from BE to BJ is unlikely to have any negative impact on the business and financial risk profiles of the group. The Bholasons group’s financial risk profile is expected to remain intact over the medium with a low gearing, and healthy net worth and debt protection metrics.

The Bholasons group reported a profit after tax (PAT) of Rs.44.6 million on net sales of Rs.1385 million for 2010-11, against a PAT of Rs.31.8 million on net sales of Rs.1765 million for 2009-10.

About the Group
The Bholasons group is promoted by Mr. Rajendra Bhola. It manufactures and sells gold and diamond-studded jewelry in both the domestic and export markets. BE, set up in 2000, is an EOU, with a manufacturing facility in Karol Bagh (New Delhi). BE exports mainly to the US and the UK, with majority of its sales being derived from the US market. BE was fully exempt from income tax till March 2011 and is currently exiting from the EOU status post the expiry of EOU-related fiscal benefits. BE is expected to wind up its operations and its export business is expected to be transferred to its group concern BJ in the near term. BJ was set up in 2004; the firm currently caters to the domestic market with its retail showrooms in Gold Souk Mall in Gurgaon (Haryana). BJ deals in gold and diamond-studded jewelry at its two showrooms in the Gold Souk Mall, with a built-up area of 8100 square feet (sq ft), of which, around 6500 sq ft is currently operational. Both BJ and BE market their products under the ‘Bholasons’ name. Promoters of the Bholasons group had floated another firm, BC, in 2008, with a manufacturing unit in the special economic zone in Noida; however, BC closed its operations in 2009-10, and the firm’s partners now export through BE.

Annexure 1 - Details of various bank facilities

Current facilities			Previous facilities
Facility	Amount (Mln)	Rating	Facility	Amount (Mln)	Rating
Cash Credit	250	CRISIL BBB+/Stable	Letter of credit & Bank Guarantee	60	CRISIL A2
Letter of credit & Bank Guarantee	450	CRISIL A2	Letter of credit & Bank Guarantee*	60	CRISIL BBB+/Stable
Term Loan	30	CRISIL BBB+/Stable	--	0	--