Rating Rationale
November 21, 2019 | Mumbai
Tribhovandas Bhimji Zaveri Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.735 Crore
Long Term Rating CRISIL BBB+/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its rating on the bank loan facilities of Tribhovandas Bhimji Zaveri Limited (TBZ) at 'CRISIL BBB+/Stable'.

The rating continues to reflect TBZ's established market position with a strong brand, experienced management, and moderate financial risk profile marked by healthy net worth. These strengths are partially offset by TBZ's exposure to intense competition in the jewellery industry and large working capital requirements to fund its 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.
 
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 a strong brand, 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 in the business 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 has expanded its presence to 41 stores in 29 cities by September 30, 2019 from 14 stores in 9 cities in fiscal 2012, thereby taking the 'TBZ'? brand name to newer cities and geographies. As a result of the expansion, the company has been able to reduce its revenue concentration while increasing its geographic diversity. Currently, the company is following mix of owned and franchise model of expansion which would enable it to extend the operations to untapped geographies. CRISIL believes that TBZ will continue to benefit from its established market position over the medium term backed by its increasing network of stores.

* Moderate financial risk profile: TBZ's financial risk profile is moderate marked by healthy networth, moderate gearing and low interest coverage and net cash accruals to adjusted debt (NCATD). The company's networth has increased significantly from around Rs 104 crore in fiscal 2011 to Rs 481 crore in fiscal 2019 mainly driven by healthy accretions to reserves on the back of revenue growth, moderate profitability margins and proceeds from initial public offering (IPO) of Rs 200 crore in April 2012. Gearing and total outside liabilities to total networth (TOL/TNW) stood at 1.3 times and 2 times respectively in fiscal 2019 against 1.2 times and 1.6 times respectively in fiscal 2018 on account of opening of 5 new owned stores in the second half of fiscal 2019. This has also resulted in lower interest coverage and NCATD of 1.6 times and 3% respectively in fiscal 2019 against 1.9 times and 5% respectively in fiscal 2018. However total debt has come down to Rs 556 crore as on September 30, 2019 from Rs 606 crore in March 31, 2019.

Weakness
* Intense competition in jewellery industry: Despite its long-standing presence in the business, TBZ faces challenges of intensifying competition from national players, such as Titan Company Limited ('CRISIL AA+/Positive/CRISIL A1+'), and regional players. Further, 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 reflected in the decline in operating margin from 9.10% in fiscal 2013 to 4.7% in fiscal 2019. 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 inventories of gold and other precious commodities on an ongoing basis, as retail outlets 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 inventory and around a year for diamond inventory. With the increase in the number of stores, the company's inventory has increased to around 256 days as on March 31, 2019, from 145 days as on March 31, 2012. Most of the company's borrowings are short-term in nature to fund its inventory.

Liquidity: Adequate
The company's liquidity is adequate with expected net cash accruals of Rs 24-34 crore per annum over fiscals 2020-2021 and cash and equivalents of Rs 45 crore as of September 30, 2019. The company also has fund based limits of Rs 735 crore, utilised to the tune of ~90% on an average for 12 months ended October 2019.
Outlook: Stable

CRISIL believes TBZ will 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 business performance
* Sustained improvement in interest coverage to over 3 times
* Inventory rationalization by either reduction in inventory per store or improvement in inventory turns leading to improvement in its key credit metrics

Downward Factors
* Decline in business performance
* Sustained deterioration in TOL/TNW to over 2.3 times
* Increase in inventory levels thereby resulting in sharp increase in borrowings further impacting its 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 41 retail showrooms in 29 cities across 14 states. Its promoters hold a 74 per cent stake in the company, with the rest being held by public and other shareholders.
 
For the six month period ended September 2019, consolidated profit after tax was Rs 4 crore (Rs 3 crore for the corresponding period of previous fiscal) on consolidated revenue from operations of Rs 823 crore (Rs 757 crore for the corresponding period of previous fiscal).

Key Financial Indicators
As on/for the period ended March 31 Unit 2019 2018
Revenue Rs. Cr. 1764 1753
Profit after tax Rs. Cr. 16 21
PAT margins % 0.9 1.2
Adjusted debt/adjusted networth Times 1.3 1.2
Adjusted Interest coverage Times 1.6 1.9

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 Credit1 NA NA NA 165 CRISIL BBB+/Stable
NA Cash Credit2 NA NA NA 43.5 CRISIL BBB+/Stable
NA Cash Credit3 NA NA NA 70 CRISIL BBB+/Stable
NA Cash Credit4 NA NA NA 75 CRISIL BBB+/Stable
NA Cash Credit5 NA NA NA 83 CRISIL BBB+/Stable
NA Cash Credit6 NA NA NA 183 CRISIL BBB+/Stable
NA Cash Credit7 NA NA NA 33 CRISIL BBB+/Stable
NA Proposed Cash Credit Limit NA NA NA 82.5 CRISIL BBB+/Stable
1 Includes sublimit of metal gold loan of Rs.130 crore, bank guarantee of Rs.10 crore.
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 gold loan of Rs.70 crore, working capital demand loan of Rs.50 crore; financial guarantee
of Rs.5 crore
4 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
5 Includes sublimit of bank guarantee of Rs.45 crore for gold loan, working capital demand loan of Rs. 70 crore
6 Includes sublimit of metal gold loan of Rs.183 crore, bank guarantee of Rs.183 crore for gold loan
7 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 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST    --    --    --    --  22-07-16  Withdrawal  CRISIL A2 
Fund-based Bank Facilities  LT/ST  735.00  CRISIL BBB+/Stable      06-08-18  CRISIL BBB+/Stable  20-06-17  CRISIL BBB+/Stable  22-07-16  CRISIL BBB+/Stable  CRISIL A-/Negative 
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 165 CRISIL BBB+/Stable Cash Credit* 183 CRISIL BBB+/Stable
Cash Credit2 43.5 CRISIL BBB+/Stable Cash Credit2 43.5 CRISIL BBB+/Stable
Cash Credit3 70 CRISIL BBB+/Stable Cash Credit3 70 CRISIL BBB+/Stable
Cash Credit4 75 CRISIL BBB+/Stable Cash Credit** 75 CRISIL BBB+/Stable
Cash Credit5 83 CRISIL BBB+/Stable Cash Credit5 83 CRISIL BBB+/Stable
Cash Credit6 183 CRISIL BBB+/Stable Cash Credit6 183 CRISIL BBB+/Stable
Cash Credit7 33 CRISIL BBB+/Stable Cash Credit7 33 CRISIL BBB+/Stable
Proposed Cash Credit Limit 82.5 CRISIL BBB+/Stable Proposed Cash Credit Limit 64.5 CRISIL BBB+/Stable
Total 735 -- Total 735 --
1 Includes sublimit of metal gold loan of Rs.130 crore, bank guarantee of Rs.10 crore.
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 gold loan of Rs.70 crore, working capital demand loan of Rs.50 crore; financial guarantee
of Rs.5 crore
4 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
5 Includes sublimit of bank guarantee of Rs.45 crore for gold loan, working capital demand loan of Rs. 70 crore
6 Includes sublimit of metal gold loan of Rs.183 crore, bank guarantee of Rs.183 crore for gold loan
7 Interchangeable with working capital demand loan, bank guarantee; stand by letter of credit and metal loan
of Rs 33 crore
* Includes sublimit of metal gold loan of Rs.150.0 crore, bank guarantee of Rs.10.0 crore.
**Includes sublimit of gold loan of Rs.15 crore, 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
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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