| Metro Cash and Carry India Private Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ratings on the bank facilities of Metro Cash and Carry India Private Limited (MCC-IN) at 'CRISIL A/Stable/CRISIL A1'.
The ratings continue to reflect the strong financial and operational support received from the parent, Metro AG, Germany (rated 'BBB-/Negative/A-3' by S&P Global Ratings). The ratings also reflect improving business profile of MCC-IN. These strengths are partly offset by a weak albeit improving financial risk profile.
In fiscal 2021, the revenue was marginally impacted and de-grew by 6% mainly owing to pandemic impact in first quarter of the fiscal which impacted the demand from HoReCa (hotels, restaurants and caterers) segment as well as the demand for non-food products. The revenues recovered in second half and grew year-on-year (y-o-y). Over the medium term, the revenue is expected to grow by 8-10% due to opening of new stores, maturity of existing stores and healthy demand from the traders. The operating margin too is expected to improve owing to better cost efficiencies.
Financial risk profile remained healthy as the debt (excluding lease liabilities) reduced to Rs 245 crore during fiscal 2021 from Rs 418 crore in the earlier fiscal owing to lower dependence on working capital borrowings as well as pre-payment of term loan. The company had repayments of Rs 170 crore due in June 2021, of which Rs 50 crore has been prepaid before March 2021, and the balance will be paid out of internal accrual, existing cash balances and unused bank limits. Liquidity remained comfortable with cash & equivalents of Rs 100 crore as at 31st March 2021 and unutilized fund based limits of around Rs 190 crore. The financial risk profile is expected to improve over medium term with repayment of debt, moderate debt funded capital expenditure and improvement in networth as the company is expected to achieve breakeven at net profit level in the next couple of fiscals. |
Analytical Approach CRISIL Ratings has applied its parent notch-up criteria to factor in the financial and business support from Metro AG due to its 100% ownership. |
Key Rating Drivers & Detailed Description Strengths:
MCC-IN benefits immensely from the strong operational, managerial and financial support from Metro AG, the world's largest cash and carry retailer, which operates through the METRO and MAKRO brands worldwide. While the cash losses of the company have been decreasing and company is expected to report profits at net levels in next 1-2 fiscals, MCC-IN is expected to receive strong parent support in case of exigencies. The bank facilities of MCC-IN are guaranteed by parent, Metro AG.
MCC-IN continues to enjoy first-mover advantage in tier I cities; 16 out of its 28 stores are in Tier I cities. CRISIL Ratings believes MCC-IN's first-mover advantage in Tier I cites will enable it to withstand intensifying competition over the medium term. Further, the company is expected to improve its operating profitability supported by strong scale up in operation and increasing share of private label. Furthermore, MCC-IN is pursuing a cautious growth strategy focused on deepening of their existing geographical clusters, which shall be achieved by expanding the stores serviced through their existing distribution centres, leading to better utilization of supply chain infrastructure. Improving scale and store productivity are likely to result in operating margin improving in the medium term.
Weakness
The financial risk profile remains subdued because of an estimated accumulated loss of over Rs 1,600 crore as of fiscal 2020 and with weak debt protection metrics. Debt protection metrics are expected to improve gradually with sustained improvement in operating profitability. Interest cover is estimated to improve to around 1.5 times and above over medium term. Furthermore, improving profitability is expected to result in increase in cash generation and support incremental funding requirement of the company. |
Liquidity: Adequate MCC-IN’s liquidity profile is adequate with cash balances of Rs 100 cr as at March 31, 2021. The liquidity would be sufficient to service the upcoming repayment of Rs 120 crore due in June 2021. The bank limits of Rs 190 crore of the company were modestly utilised with average fund based utilisation of 16% for 12 months ended December 2020. Further, liquidity is supported by parent support. |
Outlook: Stable CRISIL Ratings believes MCC-IN will continue to benefit from its established market position. Further, MCC-IN will continue to benefit from strong operational and financial support from the parent. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company MCC-IN is a wholly-owned subsidiary of Metro Cash & Carry International GmbH, Germany, which is wholly-owned by Metro AG. MCC-IN was established in 2001, and commenced commercial operations in 2003. The registered office and headquarters are in Bengaluru. Its cash-and-carry business is based on the business-to-business (B2B) model that meets the needs of customers such as hotels, restaurants, caterers, traders, and institutions. It caters to both food and non-food segments, including general grocery, dairy products, home electrics, household items, and garments for women, men, and children.
MCC-IN operates 28 cash-and-carry distribution centres (DCs) in India. There are six DCs in Bengaluru, four in Hyderabad and two each in Mumbai and New Delhi. Other DCs are located in Kolkata, Jalandhar, Jaipur, Indore, Amritsar, Vijayawada, Surat, Ahmedabad, Lucknow, Ghaziabad, Nashik, Meerut, Zirakpur (Punjab) and Tumakuru (Karnataka). |
Key Financial Indicators
*Financials adjusted for INDAS 116 lease accounting | ||||||||||||||||||||||||
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)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||
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Criteria Details
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