Rating Rationale
March 08, 2023 | Mumbai
Rashi Peripherals Limited
 
Rating Action
Total Bank Loan Facilities RatedRs.725 Crore
Long Term RatingCRISIL A/Positive
Short Term RatingCRISIL A1
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' ratings on the bank facilities of Rashi Peripherals Limited (RPL; Erstwhile Rashi Peripherals Private Limited) continues to reflect RPL's established position in IT hardware distribution business, longstanding relationships with principals & diversified geographical footprint, effective risk management policies and efficient working capital management leading to sound operating efficiencies and healthy debt protection metrics. These strengths are partially offset by susceptibility to the performance of principals, low operating margins due to intense competition and moderately aggressive capital structure.

Analytical Approach

CRISIL Ratings has treated unsecured loan of Rs 42.43 crore from Promoter family as on 31st March 2022 as neither debt nor equity since these are expected to remain in business in near term.

Key Rating Drivers & Detailed Description

Strengths:

Established position in IT hardware distribution business, long-standing relationships with principals & diversified geographical footprint: 

RPL ranks among the top five IT hardware distributors in India with significant market share. The company has a healthy network  of 50 branches, 50 service centers and 62 warehouses covering 730 locations in India through an ecosystem of 8,657 Channel Partners, as of September 30, 2022. RPL not only enjoys diversified and strong product profile but also principal profiles. RPL have a longstanding relationship with principals such as Lenovo, Asus, Hewlett-Packard, Sandisk, and Western Digital among others. RPL also has made significant vendor additions in the recent past, including brands such as Samsung and LG. CRISIL Ratings believes that RPL will further improve its business risk profile over the medium term, on the back of its established market position in the domestic IT hardware distribution business and continued healthy demand for its products.

 

Effective risk management policies and efficient working capital management leading to sound operating efficiencies:

RPL gets complete price protection from its principal vendors so that any price changes can be passed on to the customers without affecting RPL’s operating margins. Moreover, company hedges any net foreign currency exposures arising from import of products. Further, it adheres to stringent credit assessment norms and provisioning policies, such as selling products against post-dated cheques or on immediate-payment basis to dealers, which help minimize the credit risks. All these have ensured stable albeit thin operating margins. This coupled with efficient management of working capital cycle marked by gross current asset has remained in range of 80-100 days over last 3 years through March 31, 2022 while return on capital employed in range of 26-28%. Company’s debtors were at around 47 days while inventory of around 65 days as on September 30, 2022.

 

Healthy debt protection metrics:

RPL’s debt protection metrics have been at healthy level despite leverage and moderate profitability. The interest coverage and net cash accrual to total debt (NCATD) ratio are at 5.37 times and 0.23 times for fiscal 2022. RPL debt protection measures are expected to healthy over medium term. Interest coverage ratio was around 3.7 times for H1 of fiscal 2023.

 

Weaknesses:

Susceptibility to the performance of principals: 

Lenovo, Asus, Hewlett-Packard, SanDisk and Western Digital contribute around 70-71% to the sales of RPL. Deterioration in the performance of these suppliers especially drop in their market share could adversely impact the business of RPL. Similarly, product categories such as personal-computing devices, peripherals, and components contribute over 85% to sales. Although RPL continues to add principals and product categories, their contribution to revenue is not yet significant however they are on increasing trend. Any major disruptive change in technology and intense competition among principals may however impact the business risk profile materially.

 

Low operating margins due to intense competition:

The IT product distribution business although oligopolistic, it is a low operating margin business. Further, RPL faces stiff competition from larger and more established players in getting distributorship rights for lucrative geographies from principals. Moreover, products from newer, less-established brands could face price competition from the established principals that in turn can affect the profitability of their distributors. However, operating margin has remained around 3 % over last 2 years ended fiscal 2022 and was at 2.7% for H1 of fiscal 2023. 

 

Moderately aggressive capital structure:

RPL's financial risk profile is constrained by an aggressive total-outside-liabilities-to-tangible-net worth (TOLTNW) ratio. The IT hardware distribution business entails significant working capital requirements, and RPL uses short-term borrowings from banks for funding the same. Consequently, its TOLTNW ratio has been aggressive at 3.25 times as on March 31, 2022.

 

While the company has filed draft red herring prospectus with Securities and Exchange Board of India for fresh issue of Rs 750 crore; necessary regulatory clearances and successful completion of the initial public offering (IPO), would remain key monitorables.

Liquidity: Strong

RPL is expected to generate cash accruals of over Rs 150 crore against repayment obligations of Rs 16 crore per annum over the medium term. Further, RPLs fund based limit are moderately utilized averaging at around 87% for last 12 months through September 2022. Incremental cash accrual and existing working capital limits will be sufficient to meet incremental working capital requirement and ensuing debt repayment obligations over the medium term. Current ratio was 1.2 times as on March 31, 2022 and is expected to remain above 1.3 times over the medium term. There is no major dividend payout, or large capex/acquisition expected over medium term which will materially impact liquidity. The promoters are likely to extend timely need-based support in the form of unsecured loans to meet its working capital requirements and repayment obligations as seen during fiscal 2022. 

Outlook: Positive

CRISIL Ratings believes RPL will continue to maintain its healthy growth backed by strong market position in the technology products distribution business, strong financial risk profile and experienced management team.

Rating Sensitivity Factors

Upward factor

• Sustained revenue growth while maintaining its operating margin, leading to net cash accrual over Rs 200 crore

• Sustenance of working capital cycle

• Improvement in capital structure with TOLTNW around 3 times

 

Downward factors

• Significant fall in revenue and operating margin leading to decline in net cash accruals of below Rs 130 crore

• Significant deterioration in business performance of any key principle

• Stretch in the working capital cycle, significant debt-funded acquisition or capex, or any change in risk management policies, resulting in further increase in total outside liabilities to tangible net worth

About the Company

RPL was incorporated in 1989, by Mr. Krishna Choudhary (B. Com, FCA) and Mr. Suresh Pansari (B. Com FCA). RPL is one of the 5 largest IT Distributors in India engaged in the business of Information Technology Product Distribution and after sales services of information technology products. RPL has 50 branches, 50 service centers and 62 warehouses covering 730 locations in India through an ecosystem of 8,657 Channel Partners, as of September 30, 2022.

Key Financial Indicators

As on / for the period ended March 31

 

2022

2021

Operating income

Rs crore

9,161.63

5,864.26

Reported profit after tax

Rs crore

180.18

121.98

PAT margins

%

1.97

2.08

Adjusted Debt/Adjusted Net worth

Times

1.48

1.22

Interest coverage

Times

5.28

6.64

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
instrument
Date of
allotment
Coupon
rate (%)
Maturity
date
Issue size
(Rs crore)
Complexity 
levels
Rating assigned
with outlook
NA  Fund-Based Facilities NA  NA  NA  619.6 NA  CRISIL A/Positive 
NA  Non-Fund Based Limit NA  NA  NA  8 NA  CRISIL A1 
NA  Overdraft Facility NA  NA  NA  34.2 NA  CRISIL A/Positive 
NA  Working Capital Term Loan NA NA  Mar-26 63.2 NA  CRISIL A/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 LT 717.0 CRISIL A/Positive   -- 04-11-22 CRISIL A/Positive 23-09-21 CRISIL A/Stable   -- Withdrawn
      --   --   -- 31-08-21 CRISIL A/Stable   -- --
Non-Fund Based Facilities ST 8.0 CRISIL A1   -- 04-11-22 CRISIL A1 23-09-21 CRISIL A1   -- Withdrawn
      --   --   -- 31-08-21 CRISIL A1   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Fund-Based Facilities 127.5 Standard Chartered Bank Limited CRISIL A/Positive
Fund-Based Facilities 95 ICICI Bank Limited CRISIL A/Positive
Fund-Based Facilities 80 IndusInd Bank Limited CRISIL A/Positive
Fund-Based Facilities 80 Axis Bank Limited CRISIL A/Positive
Fund-Based Facilities 161 HDFC Bank Limited CRISIL A/Positive
Fund-Based Facilities 1.1 HDFC Bank Limited CRISIL A/Positive
Fund-Based Facilities 75 Citibank N. A. CRISIL A/Positive
Non-Fund Based Limit 8 HDFC Bank Limited CRISIL A1
Overdraft Facility 34.2 HDFC Bank Limited CRISIL A/Positive
Working Capital Term Loan 16.05 Standard Chartered Bank Limited CRISIL A/Positive
Working Capital Term Loan 10.93 Axis Bank Limited CRISIL A/Positive
Working Capital Term Loan 36.22 HDFC Bank Limited CRISIL A/Positive

This Annexure has been updated on 08-Mar-2023 in line with the lender-wise facility details as on 31-Aug-2021 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for rating trading companies
CRISILs Criteria for rating short term debt
Understanding CRISILs Ratings and Rating Scales

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