| Creative Newtech Limited | ||||||
| Rating outlook revised to 'Stable'; Ratings Reaffirmed; Rated amount enhanced for Bank Debt | ||||||
| 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 |
Detailed Rationale CRISIL Ratings has revised its outlook on the long term bank facilities of Creative Newtech Limited (CNL, formerly known as Creative Peripherals And Distribution Ltd).to ‘Stable’ from 'Positive' while reaffirming the rating at ‘CRISIL BBB'. The short term rating has been reaffirmed at 'CRISIL A3+’.
The outlook revision reflects the continued dependence of the company on few key customers limiting the business risk profile of the company. While CNL is taking steps to dilute the concentration in terms of new customer additions in the export markets and continued focus on increasing sale of Honeywell products, sustenance of the same resulting in reduced customer concentration while maintaining healthy scale will remain a key rating sensitivity factor. However, revenues are estimated to have increased to Rs 1348 crores in fiscal 2023 from Rs 933 crores in fiscal 2022 supported by repeat orders and addition of products. Financial risk profile remains strong with comfortable capital structure and healthy liquidity.
The ratings continue to reflect the extensive experience of the promoter in the distribution of computer peripherals and consumer electronics, the company’s diversified product portfolio, established relationships with principal suppliers, efficient working capital management and above-average financial risk profile. These strengths are partially offset by exposure to intense competition, low operating margin and customer concentration in revenue. |
Analytical Approach Unsecured loan of Rs 1.96 crore as on March 31, 2022 (estimated at Rs 0.86 crores as on March 31,2023) from the promoter has been treated as debt. |
Key Rating Drivers & Detailed Description Strengths: Extensive experience of the promoter: The promoter has more than two decades of experience in the consumer electronics business which has helped establish a clientele across multiple channels including small retailers, large format retailers and e-commerce players. The extensive experience helps in stocking decisions and addition of products to increase sales. This has led to steady growth in revenue to Rs 932.59 crore in fiscal 2022 (estimated at Rs 1348 crores in fiscal 2023).
Diversified product offerings and established relationships with principal suppliers: The company is an exclusive distributor across India for various products for reputed brands such as Cooler Master, Honeywell, Olympus, Philips, Samsung, Transcend and Viewsonic across information technology (IT), imaging, lifestyle and security segments. The company also has a distribution agreement with Fujifilm and recently have signed distribution agreement with Lexar. They have also won the distribution agreement from Cricut and Razor Inc. The company has established relations with suppliers and is an exclusive distributor for many of its suppliers which has helped scale up operations. They receive compensation for any price revision or obsolesce of products, helping it manage inventory. The diversified product offerings reduce the risk of slowdown in demand for a single product.
Efficient working capital requirement: The working capital cycle is efficiently managed, as reflected in gross current assets (GCAs) of 90 days as on March 31, 2022 (estimated at around 65-70 days as on March, 31,2023), with receivables of 32 days and inventory of 39 days for fiscal 2022 (19 days and 21 days respectively for fiscal 2023). The quick cash conversion cycle and strong relationships with vendors ensure limited inventory risk. The working capital cycle is partly supported by payables of 27 days. Diversified clientele, limited credit exposure to a single customer and low credit period safeguard against counterparty credit risk. The working capital cycle is expected to improve and will remain a key monitorable over the medium term.
Above-average financial risk profile: Net worth and total outside liabilities to adjusted net worth ratio were comfortable and estimated to be around Rs 75.18 crore and 2.27 times, respectively, as on March 31, 2022 (Rs 100.40 crore and 1.53 times respectively as on March 31, 2023) . Debt protection metrics were adequate, reflected in interest coverage and net cash accrual to total debt ratios of 4.89 times and 0.28 time, respectively, in fiscal 2022 and is estimated to remain at 4.15 times and 0.25 times respectively in fiscal 2023. The financial risk profile will remain healthy over the medium term owing to steady accretion to reserve and limited reliance on external borrowing.
Weakness: Customer concentration in revenue: Though the revenue increased significantly to Rs 1348 crores in fiscal 2023, around 60% comes from a single overseas customer against 49% in fiscal 2022 which continues to contribute around 60% of revenues in Q1 of fiscal 2024. Any loss of business or change in strategy in key commercial terms of the principal customer can adversely impact the credit risk profile of CNL.
Exposure to intense competition: Intense competition in the consumer electronics distribution business because of low entry barriers, as indicated by negligible capital requirement, leads to stiff pricing competition among players, impacting scalability.
Low operating margin: Operating margin is typically low in the distribution business because of limited value addition. CNL had an operating margin of 2.5-4.0% in the three fiscals through 2023. The low operating margin leaves cash accrual highly vulnerable to changes in operating cost. Revisions in terms with vendors or pressure to enhance margin sharing with the distribution network amid intense competition will remain key monitorable |
Liquidity: Adequate Bank limit utilization is moderate at around 84 percent for the past twelve months ended June 2023. Cash accruals are expected to be over Rs 16 to 19 crores which are sufficient against term debt obligation of Rs 1.38 to 2.27 crore over the medium term. Current ratio are healthy at 1.45 times on March 31, 2022. Cash and cash equivalents are estimated at about Rs 0.60 crore as on March 31, 2023. The promoters are likely to extend support in the form of equity and unsecured loans to meet its working capital requirements and repayment obligations. |
Outlook: Stable CRISIL Ratings believes that CNL will continue to benefit over the medium term from the extensive industry experience of its promoters and its established relationships with principals. |
Rating Sensitivity Factors Upward factors:
Downward factors:
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About the Company Set up in 1995 by Mr Ketan Patel, CNL is a distributor of consumer electronic goods in the information technology, imaging, lifestyle and security segments for brands such as GoPro, Honeywell, Olympus, Philips, Samsung, Transcend and Viewsonic. The company is based in Mumbai and is listed on the National Stock Exchange. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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