| Tribhovandas Bhimji Zaveri Limited | ||||
| Rating Reaffirmed | ||||
| 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 |
CRISIL Ratings has reaffirmed its ‘CRISIL BBB+/Stable’ rating on the long-term bank facilities of Tribhovandas Bhimji Zaveri Limited (TBZ).
The rating continues to reflect TBZ’s established market position with a strong brand and experienced management, and its moderate but improving financial risk profile, which is driven by reduction in debt due to rationalisation of inventory. These strengths are partially offset by exposure to intense competition in the jewellery industry and large working capital requirement on account of sizable inventory.
For fiscal 2023, CRISL Ratings estimates TBZ to report a topline growth of ~30% and operating margin of 4-5% (against 3.3% in fiscal 2022, excluding the impact of IndAS 116 accounting). The improvement in topline is driven by pent-up demand from wedding and festive sales throughout the fiscal and higher realisation. The improvement in operating margin is driven by better scale of operations and value engineering done by TBZ to optimise its costs. In the first nine months of fiscal 2023, the company reported topline of over Rs 1,929 crore and operating margin of nearly 4%. In fiscal 2024, the revenue is expected to exhibit healthy growth with stable operating profitability due to the strong market position of the company and continued festive demand.
Over the medium term, TBZ is expected to maintain debt at Rs 600-700 crore (excluding leases). Though the company plans to add 3-5 stores in fiscal 2024, these will be mainly through franchise route, and hence, would not have a major impact on the debt protection metrics. Stable profitability and healthy accretion to reserves would lead to comfortable financial risk profile with gearing to remain below 1.2 times and interest coverage ratio to improve to over 2.2 times over the medium term. |
Analytical Approach For arriving at the rating, CRISIL Ratings has combined the business and financial risk profiles of TBZ and its subsidiaries, collectively referred to as the TBZ group, having common businesses and financial fungibility.
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: Established market position with strong brand and experienced management: TBZ is one of the oldest family-run jewellery businesses in India having been established over 150 years ago. The company enjoys a strong market position backed by its long track record and wide customer base associated with it over generations. Its promoters are among the pioneers of the concept of formal jewellery stores in India. The company expanded its presence to 32 stores in 25 cities by December 31, 2022, from 14 stores in 9 cities in fiscal 2012, thereby taking the TBZ brand name to newer geographies. As a result, it has been able to reduce revenue concentration. CRISIL Ratings believes that TBZ will continue to benefit from its established market position backed by increasing network of stores.
Moderate financial risk profile: TBZ's financial risk profile is moderate supported by healthy networth, comfortable total outside liabilities to tangible networth (TOLTNW) ratio and gearing, but low interest coverage ratio. The company's networth was healthy at around Rs 556 crore as on December 31, 2022. Gearing has improved to 0.9 time as on December 31, 2022, compared to 1.3 times in fiscal 2019 on account of healthy accretion to reserves and reduction in debt due to inventory rationalisation and closing of non-performing stores in recent fiscals. Similarly, the interest coverage ratio is estimated to improve to around 2 times in fiscal 2023, compared to 1.6 times in fiscal 2019, due to better operating profit. Total debt has reduced to Rs 488 crore as on December 31, 2022, compared to Rs 550-600 crore in fiscals 2019 and 2020. Over the medium term, the company is expected to maintain debt at around Rs 600 crore mainly to fund the working capital requirement.
Weaknesses: Intense competition in the jewellery industry: Despite its longstanding presence in the business, TBZ faces intense competition from national players, such as Titan Company Ltd (CRISIL AAA/Stable/CRISIL A1+), and regional players. Furthermore, the fragmented nature of the industry has resulted in strong competitive pressures which squeeze players’ margins. As the company expands its retail footprint, it will also face competition from established players in the respective local markets. The gold jewellery business is also susceptible to volatility in gold prices, and this can have adverse implications on the demand for jewellery and consequently on the operating margins. This is also reflected in TBZ’s scale of operations remaining stagnant, with profitability remaining range bound. Revenue has remained range-bound at Rs 1,700-1,800 crore for fiscals 2017-2022, barring the Covid-19 pandemic impacting operations in fiscal 2021, while operating margin has been 4-5%, excluding fiscal 2021. Consequently, return on capital employed remained subdued at 6-7.5% during the same period. CRISIL Ratings believes TBZ will continue to remain exposed to intense competition due to its entry into newer geographies and competitors entering geographies dominated by TBZ.
Large inventory holding to result in modest debt coverage indicators: TBZ’s business is working capital-intensive because of the large inventory required to be maintained by the company, as reflected in inventory of 220-260 days between fiscals 2017-2022; except for fiscal 2021 wherein inventory was higher at 296 days on account of lower scale. Jewellery retailers typically maintain large inventory of gold and other precious commodities on an ongoing basis, as they need to maintain a large variety of designs to meet customer requirements. The company, on average, maintains inventory of 4-5 months for gold and around a year for diamonds. Most of the company's borrowings are short-term in nature to fund its inventory. Large inventory level has led to high borrowings and modest debt coverage ratios (estimated interest coverage ratio of around 2 times in fiscal 2023).
Liquidity: Adequate TBZ has adequate liquidity, as indicated by expected cash accrual of Rs 40-55 crore per annum against negligible debt obligation. Bank limit utilisation averaged 81% over the 12 months through March 2023. |
Outlook: Stable CRISIL Ratings believes TBZ will continue to maintain its established market position over the medium term, supported by the promoters’ extensive industry experience and its strong brand equity. |
Rating Sensitivity factors Upward factors: * Sustenance of improvement in the operating performance, marked by growth in scale of operations and stable operating profitability * Sustained improvement in the financial risk profile with interest coverage ratio (excluding the impact of IndAS 116 accounting) improving to over 2.5 times driven by lower inventory levels
Downward factors: * Significant deterioration in operating performance * Moderation in the financial risk profile, as reflected by weakening of interest coverage ratio (excluding the impact of IndAS 116 accounting) to under 2 times on sustained basis * Increase in inventory levels resulting in sharp increase in borrowings impacting key credit metrics |
About the Company TBZ, promoted by Mr Shrikant Zaveri, was set up in 1864. The company is one of India’s oldest jewellery houses and was reconstituted as a public limited company from a private limited company on December 3, 2010. TBZ expanded its operations from a single showroom at Zaveri Bazaar in Mumbai to pan-India presence through its network of 32 retail showrooms in 25 cities across 12 states. Its promoters hold a 74% stake in the company, with the rest being held by public and other shareholders. |
Key Financial Indicators
CRISIL Ratings Adjusted |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Includes sublimit of metal gold loan of Rs.120 crore, bank guarantee of Rs.10 crore. @Fully interchangeable with cash credit & working capital demand loan and sublimit of Rs. 120 crore for Bank Guarantee #Includes sublimit of bank guarantee of Rs.45 crore for gold loan, working capital demand loan of Rs. 70 crore ^Interchangeable with working capital demand loan, bank guarantee; stand by letter of credit and metal loan of Rs 23 crore and cash credit of Rs. 13.20 crore **Includes sublimit of metal gold loan of Rs.183 crore, bank guarantee of Rs.183 crore for gold loan |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||
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Criteria Details
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