Rating Rationale
June 20, 2023 | Mumbai
Metro Cash and Carry India Private Limited
Rating continues on 'Watch Positive'
 
Rating Action
Total Bank Loan Facilities RatedRs.780 Crore
Short Term RatingCRISIL A1/Watch Positive (Continues on ‘Rating Watch with Positive Implications’)
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 continued its rating on the short-term bank facilities of Metro Cash and Carry India Private Limited (MCCIPL) on ‘Rating Watch with Positive implications’. 

 

CRISIL Ratings had placed its rating on MCCIPL on Watch with positive implications following announcement by Reliance Retail Ventures Ltd (RRVL; (CRISIL AAA/Stable/CRISIL A1+), a 100% owned subsidiary of Reliance Industries Ltd (CRISIL AAA/Stable/CRISIL A1+), on 22nd Dec 2022, that it has signed definitive agreement to acquire 100% equity stake in MCCIPL for a total cash consideration of Rs 2,850 crore. The company has received the CCI approval for the acquisition on 14th March 2023 and same got completed on 11th May 2023. CRISIL Ratings believes that the superior credit profile of RRVL will have a positive impact on the overall credit profile of MCCIPL. CRISIL Ratings is monitoring the progress post the acquisition and will take necessary rating action once discussion with RRVL has been concluded.

 

The ratings also reflect steady business profile of MCCIPL. These strengths are partly offset by a weak albeit improving financial risk profile. In fiscal 2022, MCCIPL’s revenue grew to ~Rs.6989 crores (PY: Rs.6503Crs) with EBITDA margin remaining at similar levels of ~0.6% as compared to 0.3% in FY 21. The loss of sales in the HORECA segment was partially compensated by the increase in sales from the traders and the new ecommerce app. An improvement in operating performance is expected over the medium term with estimated revenue growth of 8-10%. The growth will be supported by healthy demand from traders, new ecommerce app, maturity of existing stores and opening of new smaller format stores. Operating profitability is expected to improve and remain at over ~1% due to better scale of operations, higher proportion of stores that have achieved break-even, lower overhead costs due to opening of smaller format stores and focus on private label.

 

Financial risk profile remained healthy as the debt (excluding lease liabilities) ~Rs. 120 crore has been repaid in June 2021 and the company has nil debt as on 31Mar2022.  MCCIPL’s business risk profile is characterized by being an early entrant in the domestic cash and carry business and shall benefit from RRVL’s experience in the retail segment. Financial risk profile is expected to improve with better estimated cash accruals and repayment of long term debt.

Analytical Approach

CRISIL Ratings has applied its parent notch-up criteria to factor in the expected financial and business support from Reliance Retail Ventures Limited due to its 100% ownership. Further, the team expects need based funding support from Reliance Retail Ventures Limited.

Key Rating Drivers & Detailed Description

Strengths:

  • Continued strong operational and financial support from current parent, RRVL: MCCIPL is expected to benefit from the strong operational, managerial and financial support from RRVL. While the cash losses of the company have been decreasing and company is expected to report profits at net levels in next 1-2 fiscals, MCCIPL is expected to receive strong parent support in case of exigencies.

 

  • Improving business profile of MCCIPL: MCCIPL continues to enjoy first-mover advantage in tier I cities; 16 out of its 31 stores are in Tier I cities. CRISIL Ratings believes MCCIPL's first-mover advantage in Tier I cites will enable it to withstand intensifying competition over the medium term. Further, the company is expected to improve its operating profitability supported by strong scale up in operation and increasing share of private label. Furthermore, MCCIPL is pursuing a cautious growth strategy focused on deepening of their existing geographical clusters, which shall be achieved by expanding the stores serviced through their existing distribution centres, leading to better utilization of supply chain infrastructure. Improving scale and store productivity are likely to result in operating margin improving in the medium term.

 

Weakness:

  • Weak albeit improving financial risk profile: The financial risk profile remains subdued because of an estimated accumulated loss of over Rs 1,600 crore and with weak debt protection metrics. Debt protection metrics are expected to improve gradually with sustained improvement in operating profitability. Interest cover is estimated to improve to around 5 times and above over the medium term.  Furthermore, improving profitability is expected to result in increase in cash generation and support incremental funding requirement of the company

Liquidity: Adequate

Liquidity profile is adequate with cash accruals sufficient to take care of capex requirement and nil term repayment obligations. Liquidity is also bolstered by the presence of adequate working capital limits in which sufficient headroom is always maintained. Further, liquidity benefits from expectations of need based parent support.

Rating Sensitivity factors

Upward factors:

  • Significant improvement in operating performance such as operating margin (pre Ind-AS 116) improving above 2% leading to increase in cash accruals on a sustained basis
  • Articulation of explicit support from new parent

 

Downward factors:

  • Weakening of capital structure due to higher debt funded capex such as gearing ratio increases above 1 times or decline in profitability
  • Downward movement of parent’s rating

About the Company

MCCIPL is a wholly owned subsidiary of Reliance Retail Ventures Ltd. MCCIPL was established in 2001 and commenced commercial operations in 2003. The registered office and headquarters are in Bengaluru. Its cash-and-carry business is based on the business-to-business (B2B) model that meets the needs of customers such as hotels, restaurants, caterers, traders, and institutions. It caters to both food and non-food segments, including general grocery, dairy products, home electrics, household items, and garments for women, men, and children.

 

MCCIPL operates 31 cash-and-carry distribution centres (DCs) in India. There are six DCs in Bengaluru, four in Hyderabad and two each in Mumbai and New Delhi. Other DCs are located in Kolkata, Jalandhar, Jaipur, Indore, Amritsar, Vijayawada, Surat, Ahmedabad, Lucknow, Ghaziabad, Nashik, Meerut, Zirakpur (Punjab) and Tumakuru (Karnataka).

Key Financial Indicators

As on/for the period ended March 31

2022

2021

Operating Income

Rs.Crore

6989

6,503

Adjusted profit after tax (PAT)

Rs.Crore

-50

-67

PAT margin

%

-0.7

-1.0

Adjusted debt/adjusted networth

Times

0.76

0.39

Interest coverage

Times

0.82

1.07

*Financials adjusted for INDAS 116 lease accounting

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the instrument Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Working Capital Demand Loan NA NA NA NA 780 CRISIL A1/Watch Positive
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities ST 780.0 CRISIL A1/Watch Positive 22-03-23 CRISIL A1/Watch Positive 30-12-22 CRISIL A1/Watch Positive / CRISIL A/Watch Positive 09-06-21 CRISIL A1 / CRISIL A/Stable 27-05-20 CRISIL A1 / CRISIL A/Stable CRISIL A1 / CRISIL A/Stable
      -- 09-02-23 CRISIL A1/Watch Positive / CRISIL A/Watch Positive 29-06-22 CRISIL A1 / CRISIL A/Stable   --   -- --
      --   -- 24-02-22 CRISIL A1 / CRISIL A/Stable   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Working Capital Demand Loan 200 BNP Paribas Bank CRISIL A1/Watch Positive
Working Capital Demand Loan 150 HDFC Bank Limited CRISIL A1/Watch Positive
Working Capital Demand Loan 130 ICICI Bank Limited CRISIL A1/Watch Positive
Working Capital Demand Loan 300 Barclays Bank Plc. CRISIL A1/Watch Positive
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
Mapping global scale ratings onto CRISIL scale
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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