Press Release

Vijay Sales (India) Private Limited February 03, 2021 Ratings Amount Facilities Rating1 Rating Action (Rs. crore) CARE A+; Stable / CARE A1+ Long Term / Short Term Bank 100.00 (Single A Plus ; Outlook: Stable / Reaffirmed Facilities A One Plus) 100.00 Total Facilities (Rs. One hundred crore only) Details of instruments/facilities in Annexure-1

Detailed Rationale & Key Rating Drivers The reaffirmation of rating assigned to long term/short-term facilities of Vijay Sales (India) Private Limited (VSIPL) derives strength from the experienced promoters, brand’s established track record in consumer electronic retail industry along with key presence in Maharashtra, Gujarat, Delhi, Haryana and Uttar Pradesh, ownership model of operation for majority of stores, increase in revenue & profitability during FY20 (April 1 to March 31), comfortable financial risk profile, de-risked inventory holding model and efficient working capital management. The above ratings are constrained by stiff competition from online and offline channels in consumer electronic retail industry and susceptibility of operating margins on performance of new stores.

Rating Sensitivities Positive Factors -  Maintaining the capital structure with overall gearing (including guaranteed debt) less than 0.5x  PBILDT margin of more than 8% on a sustained basis  Significant diversification of geographical presence

Negative Factors-  Increase in operating cycle to over 50 days due to stretched inventory cycle.  Increase in overall gearing above 1.00x on sustained basis on account of higher working capital requirement or capex funded through term loans  Significant Increase in support to OVOT Pvt. Ltd.

Detailed description of the key rating drivers Experienced Promoters VSIPL is established by Mr. Nanu Gupta, he is having more than four decades of experience in electronic goods industry. VSIPL is managed by Mr. Nanu Gupta and his two sons Mr. Ashish Gupta and Nilesh Gupta. Mr. Nanu Gupta is in charge of finance department and sales of LCD/LED TVs; Mr. Nilesh Gupta is in charge of sales of digital devices, Human Resource and Marketing and Mr. Ashish Gupta is in charge of sales of large appliances. VSIPL has experienced team of professional for managing sales and inventory.

Established brand with key presence in Maharashtra, Gujarat, Delhi, Haryana and Uttar Pradesh VSIPL is the one of the largest electronic appliance retailer in the country operating of multi-brand electronic stores under the brand name ‘Vijay Sales’. VSIPL is an established brand having its key presence in Maharashtra, Gujarat, Delhi, Haryana and Uttar Pradesh. Commencing its operations in October 1971, VS has 99 stores as on March 31, 2020. VSIPL derive its major share of revenue i.e about 57.98% in FY20 from Maharashtra followed by Delhi (16.86%) & Gujarat (14.74%)

Increase in revenue and profitability aided by addition of new store VSIPL revenue has increased during FY20, from Rs.3459.34 crore to Rs.3987.25 crore, an improvement of 15.26% the increase in revenue is due to a combination of both increase in volumes sold & increasing number of stores. Similarly, PBILDT & PAT levels have also increased on a y-o-y basis, with company having reduced its cost of materials during FY20, with favourable pricing.

Comfortable financial risk profile VSIPL has comfortable financial risk profile as characterised by comfortable overall gearing 0.12x as on March 31, 2020 vis-à- vis 0.19x as on March 31, 2019. VSIPL does not have any term debt. VSIPL debt utilizations are lower due to efficient working

1Complete definition of the ratings assigned are available at www.careratings.com and other CARE publications 1 CARE Ratings Limited

Press Release capital cycle. VSIPL business model enables VSIPL to collect cash from customers immediately whereas creditors extends credit period ranging from 7-40 days. VSIPL has comfortable interest coverage ratio at 6.34x in FY20 (32.03x during FY19), Further VSIPL’s other debt coverage ratio like TD/GCA has improved to 0.45x during FY20 vis-à-vis 1.42x during FY19.

Constitution of firm converted from Partnership to Private Company As on May 07, 2020, the partnership firm “Vijay Sales” has been reconstituted as a private company “Vijay Sales (India) Private Limited with paid up capital of Rs.1 crore. All the existing Fixed Capital of Partnership Firm have been termed as Paid up Capital & floating capital / profits of partnership Firm have been termed as Reserves & Surplus. The partners of the firm are the first directors of the company with shareholding as follows: Name of Directors (Earlier Partners) Shareholding in the company (%) Profit sharing ratio (in the earlier partnership firm) Mr. Nanu Gupta 35.00 35.00 Mr. Nilesh Gupta 27.50 27.50 Mr. Ashish Gupta 27.50 27.50 Mr. Karan Gupta 10.00 10.00 The partners of the firm had not withdrawn any amounts from the business.

Key Rating Weaknesses Threat from online and offline channels VS derives majority of its revenue from Maharashtra, however, it has been expanding in other states and is exposed to unforeseen region specific risk and competition from local players, online vendors like Flipkart, Amazon etc. who have been resorting to heavy discounting.

Industry Outlook Consumer durables index saw a y-o-y fall of 39.1% for the period of H1FY21 in comparison with a fall of 5.1% in H1FY19. This decline in first half of FY21 reflects the impact of nationwide lockdown and consequent fall in consumer demand. Surrounded by uncertainties due to Covid-19 and with reduced income in their hands, consumers became prudent in terms of spending their money for discretionary items. Interestingly, some of the products reported nil sales during the month of April 2020.

Air Conditioners (ACs) ACs, essentially a seasonal product and heavily dependent on summer season for sales, witnessed a sharp decrease in production by 79% in H1FY21 to 3.4 lakh units from 16.2 lakh units in H1FY20. Television sets The production of television sets fell from 13.2 lakh units in H1FY20 to 9.5 lakh units in H1FY21, a fall of 28%. However, the production gradually started increasing from May. This rise in demand could be driven by increase in screen time as people spent more time at home during lockdown. Also, absence of theatrical experience due to closure of theatres may have led to rise in demand for large screen TV sets.

Washing/laundry machines, refrigerators & electric cooking appliances The production of items that enhance personal home convenience such as refrigerators, washing/laundry machines and electric cooking appliances like toasters, food processors etc witnessed a decline in H1FY21 but increased sequentially on a month-on-month basis from May onwards as can be seen from the charts below. This growth was particularly driven by change in consumer behaviour during lockdown as people focussed on making their lives at home easier and simpler.

Covid-19 induced lockdown affected the sale of varied consumer durables during H1FY21. A lot of consumer durable products that are essentially discretionary in nature witnessed a decline as consumers began spending cautiously with reduced income in their hands and their need to preserve money. With the exception of computers, the production of most of the products such as TV sets, washing machines, refrigerators etc fell but started increasing from the month of May. It is expected that as Covid-19 induced restrictions are being eased gradually and retail stores and malls are allowed to operate, consumer demand will continue to gain traction albeit at a slow pace and will take time to reach pre-Covid levels. It depends on the containment of the spread of the virus domestically as well as globally.

Liquidity : Adequate Liquidity is marked by strong accruals against nil repayment obligations and cash and cash equivalents to the tune of Rs.11.72 crore & Fixed Deposits amounting to Rs.110 crore as on December 16, 2020. Firm has gearing of 0.12 times as of March 31, 2020. Current ratio for the company is at 1.62x as on March 31, 2020. The company’s capex going ahead are to be funded by internal accruals and/or equity infusion.

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Analytical approach: Standalone after factoring corporate guarantee extended to OVOT Pvt. Ltd.

Applicable Criteria Criteria on assigning ‘outlook’ and ‘credit watch’ to Credit Ratings CARE’s Policy on Default Recognition Financial ratios – Non-Financial Sector Rating Criteria for Short Term Instruments Rating Methodology: Consolidation and Factoring Linkages in Ratings Retail Methodology-Organized Retail Companies

About the Company Established in 1967 by Mr. Nanu Gupta, M/s Vijay Sales (VS) is chain of multi brand electronic stores. On May 07, 2020, the firm was re-constituted as a private company with name as “Vijay Sales (India) Private Limited (VSIPL). VSIPL is currently managed by Mr. Nanu Gupta and his two sons Mr. Nilesh Gupta and Mr. Ashish Gupta. VSIPL was earlier established in 1967 as a Small Television showroom by Mr. Nanu Gupta, later in 2001 Vijay Sales was incorporated as partnership firm. As on March 31, 2020, VSIPL had 99 operational stores. VSIPL operates majorly in Maharashtra, Gujarat, Delhi, Haryana and Uttar Pradesh. VSIPL also has its in-house brand “Vise”; Vise offers wide range of Televisions, Washing Machines and Air Conditioners which are exclusively available at VSIPL.

Brief Financials (Rs. crore) FY19 (A) FY20 (A) Total operating income 3459.34 3987.25 PBILDT 132.62 333.06 PAT 40.35 139.79 Overall gearing (times) 0.19 0.12 Interest coverage (times) 32.03 6.34 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 Covenants of rated instrument / facility: Detailed explanation of covenants of the rated instruments/facilities is given in Annexure-3 - NA Complexity level of various instruments rated for this company: Annexure 4

Annexure-1: Details of Instruments/Facilities Size of the Rating assigned Name of the Date of Coupon Maturity Issue along with Rating Instrument Issuance Rate Date (Rs. crore) Outlook Fund-based/Non-fund- CARE A+; Stable / - - - 100.00 based-LT/ST CARE A1+

Annexure-2: Rating History of last three years Current Ratings Rating history Name of the Type Rating Date(s) & Date(s) & Date(s) & Date(s) & Sr. Amount Instrument/Bank Rating(s) Rating(s) Rating(s) Rating(s) No. Outstanding Facilities assigned in assigned in assigned in assigned in (Rs. crore) 2020-2021 2019-2020 2018-2019 2017-2018 CARE A+; 1)CARE A+; 1)CARE A+; 1)CARE A+; Fund-based/Non-fund- Stable / Stable / Stable / Stable / 1. LT/ST 100.00 - based-LT/ST CARE CARE A1+ CARE A1+ CARE A1+ A1+ (03-Apr-20) (24-Sep-19) (29-Mar-19)

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Annexure-3: Detailed explanation of covenants of the rated instrument / facilities

Annexure 4: Complexity level of various instruments rated for this company Sr. No. Name of instrument Complexity level 1 Fund-based/Non-fund-based-LT/ST Simple

Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications.

Contact us Media Contact Mradul Mishra Contact no. – +91-22-6754 3573 Email ID – [email protected]

Analyst Contact Soumya Dasgupta Contact no.- 9004691428 Email ID- [email protected]

Relationship Contact Ankur Sachdeva Contact no.- +91-22-67543495 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. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices.

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