| Creative Newtech Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL BBB/Positive/CRISIL A3+’ ratings on the bank facilities of Creative Newtech Limited (CNL, formerly known as Creative Peripherals And Distribution Ltd).
The ratings continue to reflect the extensive experience of the promoter in the distribution of computer peripherals and consumer electronics, the company’s 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, low operating margin and customer concentration in revenue. |
Analytical Approach Unsecured loan of Rs 1.42 crore as on March 31, 2022, 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 a clientele across multiple channels including small retailers, large format retailers and e-commerce players. The extensive experience helps in stocking decisions and addition of products to increase sales. This has led to steady growth in revenue to Rs 933.1 crore in fiscal 2022 from Rs 451 crore in fiscal 2020. Further the company has reported revenues of Rs. 233 crore in Q1 FY23 and the revenues are further expected to improve over the medium term.
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 suppliers and is an exclusive distributor for many of its suppliers which has helped scale up operations. The company also receives compensation for any price revision or obsolesce of products, helping it manage inventory. The diversified product offerings reduce the risk of slowdown in demand for a single product.
The working capital cycle is efficiently managed, as reflected in gross current assets (GCAs) of 89 days as on March 31, 2022, with receivables of 32 days and inventory of 39 days. The quick cash conversion cycle and strong relationships with vendors ensure limited inventory risk. The working capital cycle is partly supported by payables of 27 days. Diversified clientele, limited credit exposure to a single customer and low credit period safeguard against counterparty credit risk. 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 ratio were comfortable at Rs 75.18 crore and 2.29 times, respectively, as on March 31, 2022. Debt protection metrics were adequate, reflected in interest coverage and net cash accrual to total debt ratios of 5.08 times and 0.28 time, respectively, in fiscal 2022. The financial risk profile will remain healthy over the medium term owing to steady accretion to reserve and limited reliance on external borrowing.
Weaknesses:
Though the revenue increased significantly to Rs 933 crore, around 49% comes from a single overseas customer in fiscal 2022 which continues to contribute around 45-50% of revenues in Q1 FY23. Any loss of business or change in strategy in key commercial terms of the principal customer can adversely impact the credit risk profile of CNL.
Intense competition in the consumer electronics distribution business because of low entry barriers, as indicated by negligible capital requirement, leads to stiff pricing competition among players, impacting scalability.
Operating margin is typically low in the distribution business because of limited value addition. CNL had an operating margin of 2.5-4.0% in the three fiscals through 2022. The 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 19-20 crore per fiscal over the medium term, will sufficiently cover term debt obligation of Rs 1.1 crore and Rs 1.8 crore in fiscals 2023 and 2024, respectively. The surplus will cushion liquidity. Bank limit utilisation was moderate at 79% on average for the 12 months through May 2022. Cash and bank balance was Rs 5.9 crore as on March 31, 2022. Moderate capital structure and healthy networth support financial flexibility to withstand 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:
|
About the Company Set up in 1995 by Mr Ketan Patel, CNL is a distributor of consumer electronic goods in the information technology, imaging, lifestyle and security segments for brands such as GoPro, Honeywell, Olympus, Philips, Samsung, Transcend and Viewsonic. The company is based in Mumbai and is listed on the National Stock Exchange. |
Key Financial Indicators
|
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||
|
This Annexure has been updated on 04-Nov-22 in line with the lender-wise facility details as on 29-Dec-21 received from the rated entity.
Criteria Details
|