Rating Rationale
August 10, 2017 | Mumbai
PC Jeweller Limited
Long-term rating upgraded to 'CRISIL A+/Stable' ; short-term rating reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.3937 Crore
Long Term Rating CRISIL A+/Stable (Upgraded from 'CRISIL A/Stable')
Short Term Rating CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has upgraded its rating on the long-term bank facilities of PC Jeweller Limited (PCJ; part of the PCJ group) to 'CRISIL A+/Stable' from 'CRISIL A/Stable'. The short-term rating has been reaffirmed at 'CRISIL A1'.
 
The rating upgrade reflects improvement in PCJ's business performance, driven by healthy increase in revenue at a compounded annual growth rate (CAGR) of about 16.5% in the three years through fiscal 2017, while profitability remained stable in both the domestic and export businesses. The domestic business grew 9%, driven largely by adding new stores, while exports grew at a CAGR of 25%. With stabilization of new stores and additional stores, CRISIL expects company to continue to grow at above-average industry growth rate.
 
Backed by increasing scale of operations in the domestic business, prudent advertisement spend and in house manufacturing and designing, operating margins in the domestic business has been maintained at 12 per cent in the past couple of years. Despite stable domestic business margins, overall operating margins has declined by 110 basis point (bps) to 9.7 per cent in fiscal 2017.This was because of higher contribution of exports, where margin tends to be low (at 6-6.5%). Prudent ad spend and cost-control initiatives, however, should help domestic margin remain at 11.5-12%, while export margin may be under pressure due to rupee appreciation. Overall margin should remain comfortable at around 10%.
  
Healthy cash accrual, reduced inventory (by 16 days in fiscal 2017), and capital infusion of Rs 690 crore by DVI Fund (Mauritius) Ltd and arm of Fidelity Investment in May 2016 and September 2016, respectively, has led to minimal reliance on additional bank lines for expansion and additional working capital requirements for new stores.Total outside liabilities to tangible networth (TOLTNW) ratio, therefore, improved to 1.2 times as of March 2017, from 1.5 times a year earlier. Moderation in intake of external debt should help financial risk profile remain stable in the near term.

Analytical Approach

As part of the previous rating exercise, CRISIL had considered the business and financial risk profiles of PCJ as a standalone entity, as business operations at the subsidiaries were still in the nascent stages at the time. Now, however, CRISIL has combined the business and financial risk profiles of PCJ and those of its four wholly owned subsidiaries - PC Universal Pvt Ltd (PCUPL), Transforming Retail Pvt Ltd (TRPL), Luxury Products Trendsetter Pvt Ltd (LPTPL), and PC Global Jewellers DMCC (DMCC) and collectively called as PCJ group. That is because the subsidiaries have now begun operations. Moreover, PCJ has extended inter-corporate advances to these entities as they currently do not have sanctioned bank limits of their own.

Key Rating Drivers & Detailed Description
Strengths
* Established market position: PCJ has an established market position and a strong brand image in North India. As on March 31, 2017, it has 75 stores, of which 50 are in the northern region. The company has aggressively expanded from 3 stores in fiscal 2008, taking the PCJ brand to new geographies. The strong brand is backed by the experience, of more than 25 years, of the promoters, Mr. Padam Chand Gupta and Mr. Balram Garg. Addition of new stores has also helped maintain revenue growth at a CAGR of 16.5% in the past three years; 10-15 stores are to be added annually over the medium term.
 
* Healthy financial risk profile
Financial risk profile is healthy, backed by low TOLTNW ratio, which improved to 1.2 times in fiscal 2017 from 1.5 times in fiscal 2016. Debt protection metrics are healthy: interest coverage is 3.1 times while net cash accrual to adjusted debt (NCAAD) is 53%. Despite moderate capex of Rs 40-80 crore annually, financial risk profile should remain healthy over the medium term, underpinned by steady accrual.
 
Weakness    
* Large working capital requirement
PCJ's business is working-capital-intensive because of large inventory required to be maintained by the company across its stores. Jewellery retailers typically has to maintain large inventories of gold and other precious commodities in the form of variety of designs, so as to meet customer requirements. In Fiscal 17, the inventory days reflecting as on March 31, 2017 is showing improvement of 16 days to 200 days owing to prudent inventory management and hence in the medium term inventory days despite addition of new stores, inventory days are expected to be in the range of 200 to 210 days.
 
Further on account of large credit of up to 180 days offered to overseas buyers, receivables are expected at 50-60 days and gross current assets at 265-275 days over the medium term.
 
* Exposure to regulatory risk in jewellery industry: The jewellery sector depends a lot on imports of gold. Such imports form an important part of India's foreign exchange outgo and of the current account deficit (CAD). In the past, the government has undertaken regulatory measures to curb the import of gold to control the CAD by the way of increase of the import duty to 10% from 2%; introduction of 80:20 rule (scrapped in fiscal 2015); discontinuation of gold on loan scheme (restarted in fiscal 2015); modified the gold deposit scheme; introduction of excise duty of 1%, requirement of PAN card for purchases of over Rs 2 lakhs, introduction of sovereign gold bond scheme to shift consumer preference away from physical gold. The introduction of goods and service tax (GST) on the other hand, is expected to benefit organised jewellers including PCJ over the medium term. Nevertheless, performance of organised sector players, including PCJ, will continue to be exposed to regulatory risks.
Outlook: Stable

CRISIL believes PCJ will continue to benefit over the medium term from its established market position in the National Capital Region, while it increases the revenue contribution from stores in other Indian cities. The outlook may be revised to 'Positive' in case of substantial growth in revenue and profitability, leading to a considerable increase in cash accrual, while improving the working capital management. Conversely, the outlook may be revised to 'Negative' in case of a substantial slowdown in revenue growth and a decline in profitability. A significant increase in working capital requirement, leading to large working capital debt, and hence, to weak liquidity, may also result in a 'Negative' outlook.

About the Company

PCJ was established by Mr P C Gupta in 2005 in Karol Bagh (Delhi). The company manufactures, retails, and exports jewellery. Its product range includes gold, diamond, and other jewellery, and silver articles.
 
PCJ currently has four subsidiaries PC Universal Pvt Ltd, Transforming Retail Pvt Ltd, Luxury Products Trendsetter Pvt Ltd and PC Jeweller DMCC (incorporated in Dubai).
 
On a consolidated basis, PCJ's net profit was Rs 421.0 crore on net sales of Rs 8474 crore for fiscal 2017, against a net profit of Rs 400 crore on net sales of Rs 7330 crore for fiscal 2016. On a standalone basis, net profit for the three months through June 2017, was Rs 135.82 crore on net sales of Rs 2118.54 crore, vis-a-vis a net profit of Rs 106.59 crore on net sales of Rs 1674.60 crore, for the previous corresponding period.

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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 Cr)		 Rating Assigned with Outlook
NA Cash Credit NA NA NA 2289.72 CRISIL A+/Stable
NA Foreign Exchange Forward NA NA NA 50 CRISIL A1
NA Letter of Credit NA NA NA 1310.28 CRISIL A1
NA Long Term Loan NA 11.85 31-Mar-2021 87 CRISIL A+/Stable
NA Proposed Standby Line of Credit NA NA NA 91 CRISIL A+/Stable
NA Standby Line of Credit NA NA NA 109 CRISIL A+/Stable
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST    --    --    --  06-08-15  Withdrawal    No Rating Change  CRISIL A1 
Fund-based Bank Facilities  LT/ST  2626.72  CRISIL A+/Stable/ CRISIL A1    No Rating Change    No Rating Change  27-03-15  CRISIL A/Stable/ CRISIL A1  01-08-14  CRISIL A/Stable  CRISIL A/Stable/ CRISIL A1 
Non Fund-based Bank Facilities  LT/ST  1310.28  CRISIL A1    No Rating Change  23-12-16  CRISIL A1  27-03-15  CRISIL A1  01-08-14  CRISIL A/Stable/ CRISIL A1  CRISIL A1 
            12-10-16  CRISIL A/Stable/ CRISIL A1           
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 2289.72 CRISIL A+/Stable Cash Credit 2289.72 CRISIL A/Stable
Foreign Exchange Forward 50 CRISIL A1 Foreign Exchange Forward 50 CRISIL A1
Letter of Credit 1310.28 CRISIL A1 Letter of Credit 1310.28 CRISIL A1
Long Term Loan 87 CRISIL A+/Stable Long Term Loan 87 CRISIL A/Stable
Proposed Standby Line of Credit 91 CRISIL A+/Stable Proposed Standby Line of Credit 91 CRISIL A/Stable
Standby Line of Credit 109 CRISIL A+/Stable Standby Line of Credit 109 CRISIL A/Stable
Total 3937 -- Total 3937 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Fast Moving Consumer Goods Industry
CRISILs Approach to Recognising Default
CRISILs Bank Loan Ratings
CRISILs Criteria for Consolidation
The Rating Process

For further information contact:
Media Relations
 Analytical Contacts
 Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Tanuja Abhinandan
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
tanuja.abhinandan@crisil.com

Jyoti Parmar
Media Relations
CRISIL Limited
D: +91 22 3342 1835
B: +91 22 3342 3000
 jyoti.parmar@crisil.com
Aditya Sarda
Director - CRISIL Ratings
CRISIL Limited
B:+91 124 672 2000
aditya.sarda@crisil.com

Siddharth Maheshwari
Associate Director - CRISIL Ratings
CRISIL Limited
D:+91 124 672 2189
siddharth.maheshwari@crisil.com

Pankaj Jain
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 124 672 2159
Pankaj.Jain2@crisil.com 		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is a global, agile and innovative analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 100,000 customers.

We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com 

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK


About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.

CRISIL PRIVACY NOTICE

CRISIL respects your privacy. We use your contact information, such as your name, address, and email id, to fulfil your request and service your account and to provide you with additional information from CRISIL and other parts of S&P Global Inc. and its subsidiaries (collectively, the “Company) you may find of interest.

For further information, or to let us know your preferences with respect to receiving marketing materials, please visit www.crisil.com/privacy. You can view the Company’s Customer Privacy at https://www.spglobal.com/privacy

Last updated: April 2016

DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: http://www.crisil.com/ratings/highlightedpolicy.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL