Rating Rationale
December 03, 2020 | Mumbai
Tribhovandas Bhimji Zaveri Limited
Rating outlook revised to 'Stable', rating reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.735 Crore
Long Term Rating CRISIL BBB+/Stable (Outlook revised from 'Negative' and rating reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has revised its outlook on the bank loan facilities of Tribhovandas Bhimji Zaveri Limited (TBZ) to 'Stable' from 'Negative'; while reaffirming the ratings at 'CRISIL BBB+'.

The revision in outlook reflects better than expected improvement in operating performance which is driven by stronger demand recovery and substantial improvement in operating profitability. Demand is expected to be stronger in the second half of the fiscal on account of healthy demand in the festive season, resumption in weddings and higher allocation to jewellery in weddings due to increased wallet share.

For fiscal 2021, CRISL expects TBZ to report a top-line of Rs 1,200-1,300 crore and operating margin of 5-7% (excluding the impact of IndAS 116 accounting) against earlier expectations of 3-5%. The expected higher operating profitability is on account of sustained high gross margins due to high gold prices, healthy share of diamond jewellery in sales (22-25%) and substantial cost optimisation measures implemented by the company which includes lower manpower costs, rentals and promotional costs.

In the first half of fiscal 2021, though revenues were lower at Rs 353 crore (Rs 823 crore in the corresponding period last fiscal) largely on account of extended store closures in the first quarter of fiscal 2021 due to Covid-19 pandemic; operating margin was healthy at over 5% (excluding the impact of IndAS 116 accounting). Demand is expected to recover in the second half of the fiscal on account of resumption of weddings which were postponed in the first quarter of the fiscal due to the pandemic, reallocation of wedding budgets to gold jewellery on account of social distancing norms and limited travel, and the positive trend in the festive season. Wedding jewellery accounts for nearly 65% of the total sales of TBZ, which is expected to benefit the company going forward.

Over the medium term, TBZ is expected to maintain debt in the range of Rs 400-500 crore (excluding leases). TBZ has been focussing on rationalising its inventory which has resulted in reduction in total debt to Rs 448 crore in the first half of fiscal 2021 against Rs 549 crore in fiscal 2020 and Rs 606 crore in fiscal 2019. Higher profitability and lower debt is expected to result in improvement of debt protection metrics with interest cover of around 2 times and ratio of total outside liabilities to tangible networth (TOL/TNW) of under 1.6 times over the medium term.

In fiscal 2020, company reported revenue growth of 3% attributed to lower demand on account of surge in gold prices witnessed during the fiscal and further exacerbated by store closures towards the end of March 2020. Operating margin however was healthy at 4.9%.

The rating continues to reflect TBZ's established market position with a strong brand and experienced management, and its moderate financial risk profile driven by healthy net worth. These strengths are partially offset by exposure to intense competition in the jewellery industry and large working capital requirements on account of sizable inventory.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of TBZ and its subsidiaries, collectively referred to as the group, having common businesses and financial fungibility.

Key Rating Drivers & Detailed Description
Strengths:
* Established market position with a 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 36 stores in 27 cities by September 30, 2020, from 14 stores in 9 cities in fiscal 2012, thereby taking the 'TBZ'Â? brand name to newer geographies. As a result it has been able to reduce revenue concentration. The company follows a mix of owned and franchise model of expansion which will enable it to extend the operations to untapped geographies. CRISIL believes that TBZ will continue to benefit from its established market position backed by its increasing network of stores.
 
* Moderate financial risk profile: TBZ's financial risk profile is moderate supported by healthy networth, moderate TOL/TNW and gearing, but low interest cover. As of fiscal 2020, company's networth was healthy at around Rs 490 crore, while gearing, TOL/TNW and interest cover improved to 1.1 times, 1.8 times and 1.7 times respectively against 1.3 times, 2.0 times and 1.6 times respectively in fiscal 2019. The improvement in debt protection metrics in fiscal 2020 is largely driven by conscious efforts by the management to lower debt by rationalising inventory. Total debt has reduced to Rs 448 crore as on September 30, 2020 from Rs 549 crore as on March 31, 2020 and Rs 606 crore as on March 31, 2019. Over the medium term, company is expected to maintain debt at around Rs 400-500 crore.
 
Weaknesses:
* Intense competition in jewellery industry: Despite its long-standing presence in the business, TBZ faces intensifying competition from national players, such as Titan Company Limited (CRISIL AAA/Stable/CRISIL A1+), and regional players. Furthermore, the fragmented nature of the industry has resulted in strong competitive pressures thereby squeezing 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. The same is also reflected in TBZ's scale of operations and profitability. Revenues have remained in the range of Rs 1,700-1,800 crore since fiscal 2017, while operating margins have been in the range of 4-5%. CRISIL believes TBZ will continue to remain exposed to intense competition due to its entry into newer geographies and the competitors entering geographies dominated by TBZ.
 
* Large working capital requirements to fund its inventory: TBZ's business is working capital-intensive because of large inventory required to be maintained by the company. 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 an average, maintains an inventory of four to five months for gold and around a year for diamond. With the increase in the number of stores, inventory has increased to around 250 days as on March 31, 2020, from 232 days as on March 31, 2017. Most of the company's borrowings are short-term in nature to fund its inventory.
Liquidity Adequate

TBZ has adequate liquidity marked by expected cash accruals of Rs 20-30 crore per annum against debt repayment obligations of Rs 10-20 crore in fiscals 2021 and 2022. Bank limit utilisation averaged 82% over the 12 months through October 2020. The company has availed emergency Covid lines of nearly Rs 35 crore payable over fiscals 2021 to 2023.

Outlook: Stable

CRISIL believes that TBZ will continue to maintain its established market position over the medium term, supported by its 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 improving and sustaining at over 2.5 times
 
Downward factors:-
* Significant deterioration in operating performance
* Moderation in the financial risk profile reflected by weakening of interest cover to under 1.5 times on a 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 being a single showroom at Zaveri Bazaar in Mumbai to pan-India presence through its network of 36 retail showrooms in 27 cities across 13 states. Its promoters hold a 74 per cent stake in the company, with the rest being held by public and other shareholders.

Key Financial Indicators
As on / for the period ended March 31 Unit 2020 2019
Revenue Rs. Cr. 1810 1764
Profit after tax Rs. Cr. 21 16
PAT margins % 1.2 0.9
Adjusted debt/adjusted networth Times 1.1 1.3
Adjusted Interest coverage Times 1.7 1.6
CRISIL Adjusted

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL 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. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon rate (%) Maturity Date Issue size (Rs Cr) Complexity level Rating Assigned with Outlook
NA Cash Credit1 NA NA NA 180 NA CRISIL BBB+/Stable
NA Cash Credit2 NA NA NA 43.5 NA CRISIL BBB+/Stable
NA Cash Credit3 NA NA NA 75 NA CRISIL BBB+/Stable
NA Cash Credit4 NA NA NA 83 NA CRISIL BBB+/Stable
NA Cash Credit5 NA NA NA 183 NA CRISIL BBB+/Stable
NA Cash Credit6 NA NA NA 33 NA CRISIL BBB+/Stable
NA Proposed Cash Credit Limit NA NA NA 137.5 NA CRISIL BBB+/Stable
1. Includes sublimit of metal gold loan of Rs.150 crore, bank guarantee of Rs.10 crore and Rs. 15 crore of short term loan.
2. Fully interchangeable with working capital demand loan. Includes of Gold Loan 20 crore, and also includes sublimit of bank guarantee of Rs.10 crore
3. Includes sublimit of working capital demand loan of Rs.10 crore; Includes sublimit of bank guarantee & stand by letter of credit of Rs.60 crore for gold loan
4. Includes sublimit of bank guarantee of Rs.45 crore for gold loan, working capital demand loan of Rs. 70 crore
5. Includes sublimit of metal gold loan of Rs.183 crore, bank guarantee of Rs.183 crore for gold loan
6. Interchangeable with working capital demand loan, bank guarantee; stand by letter of credit and metal loan of Rs 33 crore
 
Annexure - List of entities consolidated
Name of Entities Extend of consolidation Rationale for consolidation
Tribhovandas Bhimji Zaveri (Bombay) Limited Full Strong managerial, operational, and financial linkages
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  735.00  CRISIL BBB+/Stable  16-04-20  CRISIL BBB+/Negative  21-11-19  CRISIL BBB+/Stable  06-08-18  CRISIL BBB+/Stable  20-06-17  CRISIL BBB+/Stable  CRISIL BBB+/Stable 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit1 180 CRISIL BBB+/Stable Cash Credit^ 180 CRISIL BBB+/Negative
Cash Credit2 43.5 CRISIL BBB+/Stable Cash Credit2 43.5 CRISIL BBB+/Negative
Cash Credit3 75 CRISIL BBB+/Stable Cash Credit* 70 CRISIL BBB+/Negative
Cash Credit4 83 CRISIL BBB+/Stable Cash Credit3 75 CRISIL BBB+/Negative
Cash Credit5 183 CRISIL BBB+/Stable Cash Credit4 83 CRISIL BBB+/Negative
Cash Credit6 33 CRISIL BBB+/Stable Cash Credit5 183 CRISIL BBB+/Negative
Proposed Cash Credit Limit 137.5 CRISIL BBB+/Stable Proposed Cash Credit Limit 67.5 CRISIL BBB+/Negative
Total 735 -- Total 735 --
^Includes sublimit of metal gold loan of Rs.130 crore, bank guarantee of Rs.10 crore and Rs. 15 crore of short term loan.
* Includes sublimit of gold loan of Rs.70 crore, working capital demand loan of Rs.50 crore; financial guarantee of Rs.5 crore
1. Includes sublimit of metal gold loan of Rs.150 crore, bank guarantee of Rs.10 crore and Rs. 15 crore of short term loan.
2. Fully interchangeable with working capital demand loan. Includes of Gold Loan 20 crore, and also includes sublimit of bank guarantee of Rs.10 crore
3. Includes sublimit of working capital demand loan of Rs.10 crore; Includes sublimit of bank guarantee & stand by letter of credit of Rs.60 crore for gold loan
4. Includes sublimit of bank guarantee of Rs.45 crore for gold loan, working capital demand loan of Rs. 70 crore
5. Includes sublimit of metal gold loan of Rs.183 crore, bank guarantee of Rs.183 crore for gold loan
6. Interchangeable with working capital demand loan, bank guarantee; stand by letter of credit and metal loan of Rs 33 crore
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 Retailing Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt
The Rating Process

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