Rating Rationale
August 31, 2021 | Mumbai
J Thomas and Co Private Limited
Rating reaffirmed at 'CRISIL BBB+ '; outlook revised to 'Negative'
 
Rating Action
Total Bank Loan Facilities RatedRs.15 Crore
Long Term RatingCRISIL BBB+/Negative (Outlook revised from 'Stable'; Rating reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has revised the rating outlook on the long-term bank facilities of J Thomas and Co Pvt Ltd (J Thomas) to ‘Negative’ from ‘Stable’ while reaffirming the rating at ‘CRISIL BBB+’.

 

The revision in outlook reflects decreasing operating profitability and dividend impacting cash accruals generated by the company year on year. Employee cost which stood at around Rs 17 crore in fiscal 2018 has increased to around Rs 32 crore in fiscal 2021, whereas revenue has only increased by around Rs 18 crore in the said period. J Thomas as a company is structured in such a way that current employees become the owner of the company. Therefore, the increase in employee cost is basically distribution of surplus that the company generates every year. Also the company has policy of declaring healthy dividends as well. Except for fiscal 2020, the company has declared dividend every year. In fiscal 2021 they are estimated to have paid dividend of around Rs 2.5 crore leading to accruals of around 1.9 crore. Cash accruals have consistently remained at around 1.8-1.9 crore in last four years through fiscal 2021 which stood at around Rs 5.1 crore in fiscal 2017. Increase in employee expenses along with payment of dividends has led to decline in the liquid funds to around Rs 12.14 crore as on March 31, 2021 from average of around Rs 17-20 in last three years through fiscal 2020.

The rating continues to reflect the company’s established market position in the Indian tea brokerage segment, low-risk business model, and healthy financial risk profile. These strengths are partially offset by small scale of operations and modest networth.

Key Rating Drivers & Detailed Description

Strengths:

  • Market leader in the Indian tea broking business: J Thomas is the only registered tea auction broker that operates in all six centres in India: Kolkata, Guwahati, Siliguri, Kochi, Coimbatore, and Coonoor. Having been in the business for 160 years, the company enjoys high creditability with producers, and healthy relationships with buyers and sellers at auctions. Market share has remained stable at around 40% in the five fiscals through March 2021.

 

  • Low-risk business model for tea broking: Apart from J Thomas, other large players in the tea broking industry include Contemporary Brokers Pvt Ltd, Parcon India Pvt Ltd, Forbes Ewart, and Figgis Pvt Ltd. Though entry barriers are low, no new player has entered the business in the past five years; most of the transactions are now based on established relationships and comfort levels between customers and brokers. J Thomas, being the custodian of products sent by tea producers, also does not face any inventory risk. Payment received from buyers is remitted to tea producers after deducting selling costs, brokerage and inspection charges, advances, and interest on advances. As per the regulations of the Tea Board of India, the buyer needs to make the payment within 14 days of the auction to ensure a fixed net working capital cycle.

 

  • Healthy financial risk profile: Financial risk profile is healthy and should remain so over the medium term, supported by a conservative financial policy and the absence of any capital expenditure. Networth is estimated to be around Rs 22.91 crore and gearing nil as on March 31, 2021. Debt protection metrics estimated to remain robust in fiscal 2021 in line with historical trend.

 

Weakness:

  • Limited scale of operations and susceptibility to changes in tea prices: Despite an established market position, scale is small due to higher dependence on the tea industry. Nearly half the Indian tea produce is sold via auctions, of which J Thomas alone handles nearly 40%, and earns a commission of around 1%. Production of tea grows at a slower pace of around 2-3% per annum, along with similar growth in demand at both domestic and export market. This could result in a 5% year-on-year increase in auction tea prices, and also lead to commensurate growth in revenue. However, fiscal 2021, was an exception year where privces had increased due to shortage of tea in the market which has largely stabilized in fiscal 2022.

Liquidity: Adequate

Healthy liquidity marked by low bank limit utilisation averaged 35% in the 12 months through July 2021, and should remain low in the medium term on account of efficient working capital management. Current ratio is estimated to remain high above 1.5 times as on March 31, 2021. Cash accrual is expected at around Rs 1.6-1.8 crs over the medium term against no term debt obligations, over the medium term, and will act as a cushion to liquidity.

Outlook Negative

CRISIL Ratings believes that J Thomas will continue to pay higher employee salary year on year along with dividend, which could lead to lower than expected cash accruals.

Rating Sensitivity factors

Upward factor

  • Substantial revenue growth of more than 20% along with improved profitability resulting in higher cash accruals
  • Significant build up in liquid funds leading to negligible reliance on external funds

 

Downward factor

  • Liquid funds balance (cash, fixed deposit and mutual funds) declining below Rs 12 crore.
  • Continued high employee salary / bonus leading to decline in weakening of liquidity.
  • Material reduction in business scale of operation leading to decline in cash accruals

About the Company

Set up in 1861 by Mr R Thomas (based in the UK), J Thomas is a licensed tea broker in Kolkata, and operates through all six auction centres in India. The company also has a presence in the coffee-broking business, and acts as a rubber-purchasing agent for tyre companies.

Key Financial Indicators

Particulars

Unit

2020

2021

Revenue

Rs. Cr.

45.87

45.60

Profit After Tax

Rs. Cr.

0.63

4.94

PAT Margin

%

1.38

10.83

Adjusted Debt/Adjusted Net worth

Times

0.00

0.00

Interest coverage

Times

24.72

457.31

 

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)

ISIN

Name of instrument

Date of allotment

Coupon rate (%)

Maturity date

Issue size (Rs.Crore)

Complexity Levels

Rating assigned with outlook

NA

Cash Credit

NA

NA

NA

15

NA

CRISIL BBB+/Negative
Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 15.0 CRISIL BBB+/Negative   -- 19-05-20 CRISIL BBB+/Stable 21-02-19 CRISIL BBB+/Stable   -- CRISIL BBB+/Stable
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Cash Credit 15 CRISIL BBB+/Negative
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Retailing Industry

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