| KGK Creations Pvt. Ltd. | ||||
| Rating reaffirmed at 'CRISIL BBB-/Stable' | ||||
| Rating Action | ||||
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| 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-/Stable’ rating on the bank facilities of KGK Creations Pvt. Ltd. (KCPL; part of the KGK group).
The rating continues to reflect the KGK group’s established market position backed by the experience of the promoters in the diamond industry, diversified revenue profile. These strengths are partially offset by working capital intensive operations, moderate financial risk profile and susceptibility to volatility in diamond prices amidst intense competition. |
Analytical Approach: Consolidated CRISIL Ratings has consolidated the business and financial risk profiles of KGK Diamonds (I) Private Limited (KDIPL), KGK Creations (India) Private Limited (KCIPL), KGK Creations Private Limited (KCPL) and KGK Gems Private Limited (KGPL) together referred to as KGK Group (KGK). This is because all these entities, have common promoters, and there are operational and financial linkages between these entities.
Unsecured Loans: Unsecured loans to the tune of Rs 71.69 crores as on March 31, 2021 have been treated as 75% Equity and 25% debt as the same have exhibited a track record of non-withdrawal, are interest free, subordinated to bank borrowings and expected to remain in business over the medium term.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Promoters’ extensive industry experience along with established relationships with customers & diversified market reach: KGK group has established its position in the domestic and international markets for cut and polished diamond for over a century, with support of long vintage of the promoters. The business is closely held within the Kothari family; four generations of the promoter family have managed the business and scaled up operations. Operations are fully integrated across the gems and jewellery value chain. The company draws strength from KGK Group’s integrated supply chain from mining to rough diamond procurement to diamond manufacturing and its geographically diversified business globally. The promoters have built longstanding relationships with customers while successfully navigating several business cycles over the years. The group has presence in 17+ countries, including Australia, Angola, Belgium, Botswana, China, Hong Kong, India, Indonesia, Japan, Namibia, Russia, Singapore, South Africa, Taiwan, Thailand, the UAE and the US. The group has also been continuously expanding its market reach through JV/Associates in America, Belgium & Switzerland in recent times.
Demonstrated Operational efficiencies along with long term relationship with suppliers: The KGK group is association with major diamond mining companies which helps in consistent sourcing and distribution of diamonds in terms of volume and variet The KGK group derives significant operational efficiency from its established market presence and the established relationships it enjoys with its suppliers and customers. The KGK group’s sightholder status from De Beers ensures healthy operational efficiency. Apart from De Beers, it also secures supplies from ALROSA & Rio Tinto, thus leading to a steady stream of rough diamonds and ease of inventory management. Proximity to the diamond producing regions has enabled the group to receive its required supply of high-quality rough diamonds even during times of supply disruption, leading to production efficiency. The group has a diversified revenue profile as seen by its wide geographical reach and product profile. The group is expected to maintain its healthy operational efficiency over the medium term, supported by the sight holder status and its established presence across key diamond markets.
Weaknesses: Working capital intensive operations: Operations have been working capital intensive, as indicated by gross current assets (GCAs), inventory and receivables estimated at around 231 days, 91 days and 128 days, respectively, as on March 31, 2022. Working capital cycle is expected to remain at large levels over medium term.
Moderate financial risk profile: Group networth estimated at healthy levels of more than Rs. 1,000 crores as on March 31, 2022, the total outside liabilities to tangible networth ratio (TOLTNW) is moderate at 2.9 times. Debt protection metrices were average with interest coverage and net cash accrual to adjusted debt ratios is average at 1.89 times and 0.05 time, respectively, in fiscal 2022. Reduction in TOLANW levels remains a key monitorable over medium term.
Exposure to intense competition along with susceptibility to volatile diamond prices: The entry barriers in the diamond industry is low because of relatively low capital and technology requirements led to numerous unorganized players in the industry. The KGK group is also susceptible to volatility in diamond prices. The group maintains inventory of rough and polished diamonds. It procures rough diamonds from the international market, and hence, is vulnerable to fluctuations in foreign exchange rates accordingly operating profit margin has been average in the range of 3.1-6.8% over the past five fiscals through 2022. |
Liquidity: Adequate Liquidity is adequate indicated by cash accrual expected to be over Rs 55 crores in fiscal 2023 and fiscal 2024, which are sufficient against term debt obligation of ~Rs 9.5-12.7 crores. In addition, it will provide support to fund incremental working capital requirements. While, bank limit utilisation is high at ~87 percent for the past twelve months ended April 2022. Further, promoters are likely to extend support in the form of equity and unsecured loans to meet its working capital requirements and repayment obligations, in case of any exigencies. |
Outlook: Stable CRISIL Ratings believes the KGK group will continue to benefit over the medium term, on account of established market position and improved demand scenario in domestic and international market. Group’s business and financial risk profiles, especially debt protection metrics, are expected to improve over medium term |
Rating Sensitivity factors Upward factors
Downward factors
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About the Group KGK Diajewels group, owned by the Kothari family, was set up in 1905 by the late Mr. Keshrimal Kothari. The group is engaged in cutting and polishing of diamonds, and manufactures diamond-studded jewellery.
KDIPL was originally set up as a partnership firm, KGK Enterprises, in 1981; the firm was reconstituted as a private limited company with the current name in 2009. The company is engaged in cutting and polishing of diamonds. KDIPL has been a De Beers sightholder since 1997, and has a long-term procurement contract with ALROSA since 2012. The company has also signed long term procurement contract with Rio Tinto in 2014. Hence, the company gets assured supply of rough diamonds from major mining companies.
KCIPL, set up in 2003, manufactures diamond-studded jewellery; it caters to both domestic & international markets.
KCPL, set up in 1997, manufactures and exports diamonds; the company is an export-oriented unit.
KGPL, trades in smaller carat diamonds and majorly supplies to the group’s jewellery divisions.
The KGK Diajewels Group derives around ~80 per cent of its revenue from its diamond business, and the balance ~20 per cent from its jewellery business. The chairman of the group is Mr. Navrattan Kothari. |
Key Financial Indicators: (Cons.)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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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 | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Proposed Long Term Bank Loan Facility | 75 | Not Applicable | CRISIL BBB-/Stable |
This Annexure has been updated on 02-Mar-23 in line with the lender-wise facility details as on 21-Jan-23 received from the rated entity.
Criteria Details
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