Rating Rationale
December 23, 2020 | Mumbai
Creative Peripherals And Distribution Limited
Rating outlook revised to 'Stable'; ratings reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.60 Crore (Enhanced from Rs.33.5 Crore)
Long Term Rating CRISIL BBB/Stable (Outlook revised from 'Negative' and rating reaffirmed)
Short Term Rating CRISIL A3+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has revised its outlook on the long-term bank facilities of Creative Peripherals And Distribution Limited (CPDL) to 'Stable' from 'Negative', while reaffirming the rating at 'CRISIL BBB'. The rating on the short-term facilities have been reaffirmed at 'CRISIL A3+'.
 
The revision in outlook is on account of restricted impact on the company's performance in fiscal 2021 due the pandemic. CPDL reported revenues of Rs. 176 crores in H1 of fiscal 2021, against Rs. 195 crores in H1 of fiscal 2020.  This is attributed to strong demand for its products in the IT segment. With controlled working capital, financial risk profile and liquidity continues to remain above-average.
 
The ratings continue to reflect extensive experience of the CPDL's promoters in the distribution of computer peripherals and consumer electronics products, its diversified product offerings coupled with established relationships with principals, moderate working capital requirements and above-average financial risk profile. These rating strengths are partially offset by exposure to intensely competitive industry and low operating margins.

Analytical Approach

Unsecured loans from promoters have been treated as debt.

Key Rating Drivers & Detailed Description
Strengths:
* Extensive industry experience of promoters:
The promoters of CPDL have more than 2 decades of experience in consumer electronic goods distribution industry helped to establish strong relationship with customers and suppliers. Its customers include small retailers, large format retailers and e-commerce players. Repeat order from its customers have led to steady growth in revenues over the years to Rs. 451.39 crores in fiscal 2020, from Rs. 210.95 crores in fiscal 2017.
 
* Diversified product offerings coupled with established relationships with principals:
CPDL is a distributor for diversified products of reputed brands such as Cooler Master, GoPro, Honeywell, Olympus, Philips, Samsung, Transcend and Viewsonic across IT, imaging, lifestyle and security segments. It is an exclusive distributor across India for most of its principals and long-standing relationships with them has helped CPDL to improve its scale of operations. Further, diversified nature of its product offerings reduces the risk of slowdown in demand of any particular product.
 
* Moderate working-capital-intensive operations:
CPDL's operations are moderately working capital intensive, as reflected in its gross current assets (GCAs) of 112 days as on March 31, 2020, with debtor of 30-60 days and inventory of 30-50 days. The quick cash conversion cycle and the strong relationship with vendors also ensures limited inventory-related risk. A diversified customer base, policy of limiting credit exposure to a single customer, and low credit period offered provide a safeguard against counterparty credit risks. Against this the company gets limited credit of 30'40 days. CPDL's working capital management with increase in scale of operations will remain a key monitorable over the medium term.
 
* Above-average financial risk profile:
Networth and total outside liabilities to adjusted networth were comfortable at Rs 42.11 crore and 2.63 time, respectively as on March 31, 2020. Debt protection metrics is adequate with interest coverage and net cash accrual to total debt ratios of 3.79 times and 0.30 times, respectively, for fiscal 2020. Financial risk profile is expected to remain at similar levels owing to healthy accretion to reserves and controlled reliance on external debt.
 
Weaknesses:
* Exposure to intensely competitive trading of consumer electronics:
CPDL's business risk profile is constrained by its moderate scale of operations in the intensely competitive distribution market for consumer electronics. Also, the consumer electronics distribution business is fragmented, given the low entry barriers and low capital requirements. This leads to stiff pricing competition and in order to garner higher volumes, principals incentivise bulk purchases by extending discounts, which may impact CPDL's revenue growth.
 
* Low operating margin
The margin in the distribution business is low due to limited value addition. The operating margin has been at 3-4% in the three fiscals through 2020. A very low net margin leaves cash accrual highly vulnerable to changes in operating cost. Any revision in terms with vendors or pressure to enhance margin sharing with the distribution network amid intensifying competition will remain a key monitorable.
Liquidity Adequate

Liquidity is adequate, marked by expected cash accrual of over Rs 8-10 crore annually in fiscal 2021 and fiscal 2022, against which it has annual repayment obligations of Rs 1 crore. Utilisation of fund-based limit of Rs 20 crore averaged 70% over the last 12 months ending October 2020. CPDL had availed COVID19 moratorium relief allowed by Reserve Bank of India. CRISIL expects internal accruals and unutilized bank lines to be sufficient to meet its incremental working capital requirements.

Outlook: Stable

CRISIL believes that CPDL will continue to benefit over the medium term from the extensive industry experience of its promoters and its established relationships with principals.

Rating Sensitivity factors
Upward factor
* Significant and sustained improvement in revenue and profitability leading to cash accruals of more than Rs 15 Cr
* Improvement in the working capital cycle, strengthening financial risk profile
 
Downward factor
* Substantial increase in working capital requirements with gross current assets of more than 200 days, impacting financial risk profile and liquidity
* Sharp decline in revenue or profitability margin, impacting accruals
About the Company

CPDL, set up in 1995 by Mr. Ketan Patel, 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 among others.
 
Initially incorporated as a proprietorship firm in the name of Creative Computers, it was reconstituted as a private limited company in 2004 and became a public limited company in 2017 and is headquartered in Mumbai. CPDL is listed on National Stock Exchange of India.

Key Financial Indicators
Particulars Unit 2020 2019
Revenue Rs. Cr. 451.39 367.70
Profit After Tax Rs. Cr. 9.05 5.65
PAT Margin % 2.00 1.54
Adjusted Debt/Adjusted Net worth Times 0.76 1.08
Interest coverage Times 3.79 2.95

Status of non cooperation with previous CRA:
CPDL has not cooperated with Brickwork Ratings India Pvt Ltd, which has classified it as 'non-cooperative' vide release dated March 18, 2020. The reason provided by the credit rating agency is non-furnishing of information and lack of management cooperation for monitoring of ratings.

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon
Rate (%) 		Maturity Date Complexity Levels Issue Size
(Rs. Cr)		 Rating Assigned 
with Outlook
NA Cash Credit NA NA NA NA 20 CRISIL BBB/Stable
NA Letter of Credit NA NA NA NA 16.5 CRISIL A3+
NA Working Capital Facility NA NA NA NA 20 CRISIL BBB/Stable
NA Proposed Working
Capital Facility		 NA NA NA NA 3.5 CRISIL BBB/Stable
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  43.50  CRISIL BBB/Stable  26-03-20  CRISIL BBB/Negative              CRISIL BB+/Stable 
        24-02-20  CRISIL BBB/Stable               
Non Fund-based Bank Facilities  LT/ST  16.50  CRISIL A3+  26-03-20  CRISIL A3+    --    --    --  -- 
        24-02-20  CRISIL A3+               
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 20 CRISIL BBB/Stable Cash Credit 20 CRISIL BBB/Negative
Letter of Credit 16.5 CRISIL A3+ Letter of Credit 13.5 CRISIL A3+
Working Capital Facility 20 CRISIL BBB/Stable -- 0 --
Proposed Working Capital Facility 3.5 CRISIL BBB/Stable -- 0 --
Total 60 -- Total 33.5 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for rating trading companies
Rating Criteria for Retailing Industry
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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