| Rashi Peripherals Limited | ||||||
| Ratings reaffirmed at 'CRISIL A/Positive/CRISIL A1'; rated amount enhanced for Bank Debt | ||||||
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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' ratings on the bank facilities of Rashi Peripherals Limited (RPL; Erstwhile Rashi Peripherals Private Limited) continues to reflect RPL's established position in IT hardware distribution business, longstanding relationships with principals & diversified geographical footprint, effective risk management policies and efficient working capital management leading to sound operating efficiencies and healthy debt protection metrics. These strengths are partially offset by susceptibility to the performance of principals, low operating margins due to intense competition and moderately aggressive capital structure. |
Analytical Approach CRISIL Ratings has treated unsecured loan of Rs 42.43 crore from Promoter family as on 31st March 2022 as neither debt nor equity since these are expected to remain in business in near term. |
Key Rating Drivers & Detailed Description Strengths:
RPL ranks among the top five IT hardware distributors in India with significant market share. The company has a healthy network of 50 branches, 50 service centers and 62 warehouses covering 730 locations in India through an ecosystem of 8,657 Channel Partners, as of September 30, 2022. RPL not only enjoys diversified and strong product profile but also principal profiles. RPL have a longstanding relationship with principals such as Lenovo, Asus, Hewlett-Packard, Sandisk, and Western Digital among others. RPL also has made significant vendor additions in the recent past, including brands such as Samsung and LG. CRISIL Ratings believes that RPL will further improve its business risk profile over the medium term, on the back of its established market position in the domestic IT hardware distribution business and continued healthy demand for its products.
RPL gets complete price protection from its principal vendors so that any price changes can be passed on to the customers without affecting RPL’s operating margins. Moreover, company hedges any net foreign currency exposures arising from import of products. Further, it adheres to stringent credit assessment norms and provisioning policies, such as selling products against post-dated cheques or on immediate-payment basis to dealers, which help minimize the credit risks. All these have ensured stable albeit thin operating margins. This coupled with efficient management of working capital cycle marked by gross current asset has remained in range of 80-100 days over last 3 years through March 31, 2022 while return on capital employed in range of 26-28%. Company’s debtors were at around 47 days while inventory of around 65 days as on September 30, 2022.
RPL’s debt protection metrics have been at healthy level despite leverage and moderate profitability. The interest coverage and net cash accrual to total debt (NCATD) ratio are at 5.37 times and 0.23 times for fiscal 2022. RPL debt protection measures are expected to healthy over medium term. Interest coverage ratio was around 3.7 times for H1 of fiscal 2023.
Weaknesses:
Lenovo, Asus, Hewlett-Packard, SanDisk and Western Digital contribute around 70-71% to the sales of RPL. Deterioration in the performance of these suppliers especially drop in their market share could adversely impact the business of RPL. Similarly, product categories such as personal-computing devices, peripherals, and components contribute over 85% to sales. Although RPL continues to add principals and product categories, their contribution to revenue is not yet significant however they are on increasing trend. Any major disruptive change in technology and intense competition among principals may however impact the business risk profile materially.
The IT product distribution business although oligopolistic, it is a low operating margin business. Further, RPL faces stiff competition from larger and more established players in getting distributorship rights for lucrative geographies from principals. Moreover, products from newer, less-established brands could face price competition from the established principals that in turn can affect the profitability of their distributors. However, operating margin has remained around 3 % over last 2 years ended fiscal 2022 and was at 2.7% for H1 of fiscal 2023.
RPL's financial risk profile is constrained by an aggressive total-outside-liabilities-to-tangible-net worth (TOLTNW) ratio. The IT hardware distribution business entails significant working capital requirements, and RPL uses short-term borrowings from banks for funding the same. Consequently, its TOLTNW ratio has been aggressive at 3.25 times as on March 31, 2022.
While the company has filed draft red herring prospectus with Securities and Exchange Board of India for fresh issue of Rs 750 crore; necessary regulatory clearances and successful completion of the initial public offering (IPO), would remain key monitorables. |
Liquidity: Strong RPL is expected to generate cash accruals of over Rs 150 crore against repayment obligations of Rs 16 crore per annum over the medium term. Further, RPLs fund based limit are moderately utilized averaging at around 87% for last 12 months through September 2022. Incremental cash accrual and existing working capital limits will be sufficient to meet incremental working capital requirement and ensuing debt repayment obligations over the medium term. Current ratio was 1.2 times as on March 31, 2022 and is expected to remain above 1.3 times over the medium term. There is no major dividend payout, or large capex/acquisition expected over medium term which will materially impact liquidity. The promoters are likely to extend timely need-based support in the form of unsecured loans to meet its working capital requirements and repayment obligations as seen during fiscal 2022. |
Outlook: Positive CRISIL Ratings believes RPL will continue to maintain its healthy growth backed by strong market position in the technology products distribution business, strong financial risk profile and experienced management team. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company RPL was incorporated in 1989, by Mr. Krishna Choudhary (B. Com, FCA) and Mr. Suresh Pansari (B. Com FCA). RPL is one of the 5 largest IT Distributors in India engaged in the business of Information Technology Product Distribution and after sales services of information technology products. RPL has 50 branches, 50 service centers and 62 warehouses covering 730 locations in India through an ecosystem of 8,657 Channel Partners, as of September 30, 2022. |
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 - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 31-Mar-23 in line with the lender-wise facility details as on 31-Aug-21 received from the rated entity.
Criteria Details
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