| Creative Newtech Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the long-term bank facilities of Creative Newtech Limited (CNL, Formerly known as Creative Peripherals And Distribution Limited) to ‘Positive’ from 'Stable’ while reaffirming the rating at ‘CRISIL BBB’ and reaffirmed its ‘CRISIL A3+' rating on the short-term bank facilities.
The outlook revision reflects expected improvement in CNL’s business risk profile, with revenues expected to increase by more than 50% year-on-year in fiscal 2022, driven by continuous addition of products and principal suppliers to the portfolio. With stable operating margins and working capital cycle, the financial and liquidity profile will also improve. Hence, sustenance of the revenue growth and operating margin will remain key rating sensitivity factor.
The ratings continue to reflect the extensive experience of the promoter in the distribution of computer peripherals and consumer electronics, diversified product portfolio, established relationships with principal suppliers, efficient working capital management and above-average financial risk profile. These strengths are partially offset by exposure to intense competition and low operating margin. |
Analytical Approach Unsecured loan of Rs 1.42 crore as on March 31, 2021, from the promoter has been treated as debt. |
Key Rating Drivers & Detailed Description Strengths:
The promoter has more than two decades of experience in the consumer electronics business which has helped establish customer base across multiple channels including small retailers, large format retailers and e-commerce players. Extensive experience helps anticipate stocking decisions and add new products to increase sales. This has led to steady growth in revenue to Rs 509 crore in fiscal 2021 from Rs 367 crore in fiscal 2019. It reported revenues of Rs. 373 crore in first half of fiscal 2022.
The company is an exclusive distributor across India for various products for reputed brands such as Cooler Master, GoPro, Honeywell, Olympus, Philips, Samsung, Transcend and Viewsonic across information technology (IT), imaging, lifestyle and security segments. The company has established relations with the suppliers and is a exclusive distributor for many of its suppliers which has helped them to improve its scale of operations. The company also receives support from principal in case of price revision or obsolesce of products, thus helping the company managing inventory. The diversified product offerings reduce the risk of slowdown in demand of a single product.
The working capital cycle is efficiently managed, as reflected in gross current assets (GCAs) of 123 days as on March 31, 2021, with receivables of 30-60 days and inventory of 30-50 days. The quick cash conversion cycle and the strong relationships with vendors ensure limited inventory risk. Diversified clientele, limited credit exposure to a single customer and low credit period safeguard against counterparty credit risk. The working capital cycle is partly supported by payables of 30-40 days. The working capital cycle is expected to improve and will remain a key monitorable over the medium term.
Networth and total outside liabilities to adjusted networth were comfortable at Rs 52.46 crore and 2.58 times, respectively, as on March 31, 2021. Debt protection metrics were adequate, reflected in interest coverage and net cash accrual to total debt ratios of 4.32 times and 0.27 time, respectively, in fiscal 2021. The financial risk profile will remain healthy over the medium term owing to steady accretion to reserve and limited reliance on external borrowing.
Weaknesses:
CNL’s business risk profile is constrained by its scale of operations in the intensely competitive distribution market for consumer electronics. Also the consumer electronics market is intensely competitive because of low entry barriers and minimal capital requirement. This leads to stiff pricing competition among the players, impacting the scalability of the company.
In the distribution business, operating margin is low owing to limited value addition. Operating margin was 2.5-4% in the three fiscals through 2021. A low operating margin leaves cash accrual highly vulnerable to changes in operating cost. Revisions in terms with vendors or pressure to enhance margin sharing with the distribution network amid intense competition will remain key monitorable. |
Liquidity: Adequate Cash accrual, expected at Rs 18.5-19.5 crore per fiscal over the medium term, will sufficiently cover term debt obligation of Rs 0.37 crore and Rs 1.12 crore in fiscals 2022 and 2023, respectively. The surplus will cushion the liquidity of the company. Bank limit utilisation was moderate at 80% on average for the 12 months through November 2021. Cash and bank balance was Rs 4.15 crore as on March 31, 2021. Moderate capital structure and healthy net worth support its financial flexibility and provides the financial cushion available in case of any adverse conditions or downturn in the business. |
Outlook: Positive CRISIL Ratings expects the business risk profile of CNL to improve driven by increasing scale of operations while sustaining operating margins. |
Rating Sensitivity Factors Upward factors:
Downward factors:
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About the Company Set up in 1995 by Mr Ketan Patel, CNL (erstwhile known as Creative Peripherals and Distribution Ltd) is a distributor of consumer electronic goods in IT, imaging, lifestyle and security segments for brands such as GoPro, Honeywell, Olympus, Philips, Samsung, Transcend and Viewsonic. The company is based in Mumbai, Maharashtra. It is listed on the National Stock Exchange. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 28-Jan-2022 in line with the lender-wise facility details as on 29-Dec-2021 received from the rated entity.
Criteria Details
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