Press Release Swathi Traders
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Press Release Swathi Traders April 02, 2020 Ratings Amount Facilities Ratings1 Rating Action (Rs. crore) CARE BBB; Stable Long-term Bank Facilities 50 Reaffirmed [Triple B; Outlook: Stable] 50 Total Facilities (Rs. Fifty crore only) Detailed Rationale & Key Rating Drivers The rating assigned to the bank facilities of Swathi Traders (SWT) continues to derive strength from the vast experience of the promoter in the jewellery retailing business, strong brand image of ‘Sree Kumaran Thanga Maaligai’, established track record of operations and strategic location of the showrooms. The rating is, however, constrained by the moderate profitability on account of exposure to the volatility in gold prices, moderately leveraged capital structure, limited geographical presence and highly competitive nature of industry. Rating Sensitivities Positive Factors Scaling up of operations through geographical diversification Consistent improvement in capital structure below 1x Negative Factors Decline in operating margins on a consistent basis below 4% Detailed description of the key rating drivers Key Rating Strengths Vast experience of the promoter SWT originated from the promoters of the erstwhile Chennai Silks group of concerns. The Chennai Silks group went through the process of demerger among the family members, wherein existing business were distributed among the seven sons of Mr. A Kulandaivel Mudaliar, as part of the succession planning and settlement among the brothers. Resultantly, Mr N.K. Nandhagopal, one of the sons and partner of SWT, was vested with the Textile and Jewellery showroom in Trichy. Mr N. K. Nandhagopal has more than two decades of experience in this line of business. Post demerger, Mr N. K. Nandhagopal continued to expand the retailing operations under three entities M/s Swathi Traders (SWT), Shree Nandhi Silks Private Limited (SNSPL), Sathy Silks Private Limited (SSPL), collectively referred as Swathi Traders group (STG). Leveraging upon well-known brand image The Chennai silks group has been engaged in the jewellery retailing business under the brand ‘Sree Kumaran Thangamaligai’ for over two decades. Since, brand image is one of the deciding factors in terms of retail industry, individual entities under the Chennai Silks group enjoy brand loyalty and higher footfalls. Strategic location of the showrooms with established operational track-record SWT commenced its jewellery retailing business from 2010 onwards by taking over the existing retail showroom at Karur & Trichy with an operational track-record of around two decades. To increase its scale of operations and to diversify its geography, the group subsequently has opened five more showrooms at various locations in Tamil Nadu. The jewellery showrooms operate close to the premises of the sister concern (SSPL, which operates textile showroom), making these showrooms one-stop destination for customers looking to purchase jewellery and garments together, especially for marriages and festivals. Key Rating Weaknesses Moderate Financial profile marked by improved scale of operations & leveraged capital structure The operating income grew to Rs. 499 crore in FY19 against Rs. 449 crore in FY18. The PBILDT margins also witnessed a marginal improvement to 5.43% against 5.08% in FY18 with improved realisations. The leverage continued to be high at 1.46x as on March 31, 2019 (PY: 1.13x) due to increase in WC capital borrowings to fund the additional cost of inventory due to price increase. 1Complete definition of the ratings assigned are available at www.careratings.com and in other CARE publications 1 CARE Ratings Limited Press Release Thin profitability margins exposed to volatility in gold prices. SWT’s profit margins are exposed to the volatile gold prices. The company has to maintain sufficient inventory with wide variety of designs to meet the customer’s demand which exposes it to the risk of volatile gold prices. However, the company follows a policy of replenishing the day’s sale within a day or two with equivalent amount of stock which helps to some extent in mitigating the volatile gold price. Depending on the volatility in gold prices, the company also uses hedging to safeguard itself against the price movements on case to case basis. Immense competition from regional and larger multi-branded retail players in textiles and jewellery In the retailing business of gold jewellery, there are a number of regional players in the market, both organized as well as unorganised. SWT has benefited by operating under the established brands names of ‘Sree Kumaran Thanga Maligai’. In comparison to most of these regional players who are present in in the gold jewellery, SWT benefits by operating jewellery showrooms in the same building. However, ability of the company to maintain its competitive edge through the established brand image amongst increasing competition in the retail business will be critical to the company’s business prospects. Liquidity: Adequate The liquidity of the firm stood adequate with healthy cash accruals against nil repayment obligations and cash & bank balance of Rs.51.61 crore (unencumbered portion Rs. 4 crore).The firm operates on cash and carry basis. SWT operates with a high level of inventory to maintain sufficient level of gold inventory in the showrooms for display and sales. Apart from this, SWT purchases gold using gold loan contracts which are backed by 110% FD margin to fund the inventory. The average fund based working capital utilization stood at 95% for the past twelve months ended February 2020. Analytical approach: Combined CARE has taken a combined view of all three entities of SWT group, viz, SWT, Shree Nandhi Silks Private Limited (SNSPL), Sathy Silks Private Limited (SSPL) as all these entities are managed by the same promoter group and are engaged in the similar line of business with operational and financial linkage. CARE’s Policy on Default Recognition CARE’s Criteria on assigning Outlook and credit watch to Credit Ratings Financial ratios –Non-Financial Sector Criteria for Short-term Instruments Rating Methodology - Consolidation & Factoring Linkages in Ratings Rating Methodology - Organized Retail Companies About the Company Swathi Traders (SWT) originating from the promoters of erstwhile Chennai silks group of concerns is engaged in the business of jewellery retailing. As of March 2019, Swathi Traders operates six jewellery showrooms at various locations in and around Tamil Nadu. The textile segment of all these showrooms operate under the group concerns, SSPL and SNSPL. Mr N. K. Nandhagopal also manages Teemage Builders Private Limited (TBPL, rated CARE BBB-; Stable), which is engaged in manufacture and sale of precast construction materials. Brief Financials (Rs. crore) FY18 (A) FY19 (A) Total operating income 449.49 499.07 PBILDT 22.38 27.09 PAT 11.18 8.38 Overall gearing (times) 1.13 1.46 Interest coverage (times) 8.92 3.19 A: Audited Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History for last three years: Please refer Annexure-2 Annexure-1: Details of Instruments/Facilities Name of the Date of Coupon Maturity Size of the Rating assigned Instrument Issuance Rate Date Issue along with Rating (Rs. crore) Outlook Fund-based - LT-Working - - - 50.00 CARE BBB; Stable Capital Limits 2 CARE Ratings Limited Press Release Annexure-2: Rating History of last three years Sr. Name of the Current Ratings Rating history No. Instrument/Bank Type Amount Rating Date(s) & Date(s) & Date(s) & Date(s) & Facilities Outstanding Rating(s) Rating(s) Rating(s) Rating(s) (Rs. crore) assigned in assigned in assigned in assigned in 2019-2020 2018-2019 2017-2018 2016-2017 1. Fund-based - LT-Working LT 50.00 CARE - 1)CARE BBB; - - Capital Limits BBB; Stable Stable (25-Mar-19) Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications. Contact us Media Contact Name: Mradul Mishra Contact no. – +91-22-6837 4424 Email ID – [email protected] Analyst Contact Name - Ms. Swathi Subramanian Contact no.- 94442 34834 Email ID- [email protected] Business Development Contact Name: Mr. V. Pradeep Kumar Contact no. : 98407 54521 Email ID : [email protected] About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. 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