CRISIL’s ratings on the bank facilities of Lalchand Jewellers Pvt Ltd (Lalchand) continue to reflect Lalchand’s weak financial risk profile marked by low net worth, high gearing, weak debt protection measures, and driven by its working-capital-intensive operations; limited scale of operations; geographic concentration in its revenue profile; and vulnerability of its operating margin to volatility in gold prices. These weaknesses are partially offset by the benefits that Lalchand derives from its established regional market position, and its promoters’ extensive experience in the jewellery retail business.

Outlook: Stable
CRISIL believes that Lalchand will maintain its business risk profile over the medium term, backed by its established market position in Bhubaneshwar (Orissa). The outlook may be revised to ‘Positive’ if Lalchand’s financial risk profile improves, most likely because of an increase in cash accruals and an improvement in its capital structure. Conversely, the outlook may be revised to ‘Negative’ in case of a decline in the company’s profitability.

Update
Lalchand’s performance in 2009-10 (refers to financial year, April 1 to March 31) has been broadly in line with CRISIL expectations; the company registered an operating income of Rs.1129.6 million for the year, as against Rs.856.1 million for 2008-09. The growth in operating income was primarily value driven, with increasing gold prices and a revamped business strategy by the promoters; amid increasing gold prices, the company increased its focus on low-cost/weight jewellery, targeted at the lower- and middle-income customer base. Lalchand’s operating margin improved to 6.6 per cent in 2009-10, compared with 5.8 per cent in 2008-09, on the back of benefits derived from its inventory holding. In the wake of increased gold prices, the company’s working capital requirements have increased, leading to higher reliance on external debt.

Lalchand reported a profit after tax (PAT) of Rs.18.6 million on net sales of Rs.1129.2 million for 2009-10, as against a PAT of Rs.15.2 million on net sales of Rs.855.6 million for 2008-09.

About the Company
Lalchand commenced operations as a small proprietorship firm retailing gold in Bhubaneshwar in 1960. The firm was reconstituted as a private limited company in 1995. The company is currently managed by Mr. Sanjay Hans, son of the founder, Mr. Lalchand Hans. Mr. Sanjay Hans joined the firm in the early 1990s and has about two decades of experience in the retail jewellery business. Lalchand is a retailer for gold, diamond, and third-party branded jewellery (such as Dia, Nakshatra, ARY), high-end watches (diamond studded, gold-plated brands such as Rado and Citizen), and pens. Lalchand has been in the jewellery business for over the past five decades and is a well-known brand in Bhubaneshwar. The company owns one of the biggest gold jewellery showrooms in Orissa.