Rating Rationale
June 21, 2021 | Mumbai
Renaissance Global Limited
Rating outlook revised to 'Stable'; Ratings reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.287.35 Crore (Enhanced from Rs.280.35 Crore)
Long Term RatingCRISIL BBB+/Stable (Outlook revised from 'Negative' and rating reaffirmed)
Short Term RatingCRISIL A2 (Reaffirmed)
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 Renaissance Global Limited (RGL) to ‘Stable’ from ‘Negative’ while reaffirming the rating at ‘CRISIL BBB+‘. The short term rating has been reaffirmed at ‘CRISIL A2’.

 

The revision in outlook reflects restoration in the business risk profile of the group on the back of better than expected revenue and operating margin which is expected to sustain over the medium term. The group reported revenue of Rs.2037.45 crore in fiscal 2021, much higher than CRISIL’s earlier expectations, despite the economic disruptions following the COVID-19 induced lockdown in Q1 of fiscal 2021. Operating margin of the group sustained at 5.2% for fiscal 2021, post decline operating loss in Q1 of fiscal 2021 caused by reduced scale of operation in Q1 of fiscal 2021. Revival in operating margin was majorly driven by increased scale of operation in Q3 and Q4 of fiscal 2021 and higher contribution from direct to customer segment. With group’s focus on increasing exposure in the direct to customer sales supported by the launch of websites, operating margin will sustain over the medium term.

 

The upsurge in spending on diamonds jewellery, especially post September 2020, riding on a combination of pent-up demand and recovery in retail offtake in key markets such as the US and China has helped players in gems and jewellery exports to contain the decline in fiscal 2021. Further, uptick in demand is expected to sustain over the medium term with improvement in economic outlook of key geographies. Additionally, restrictions on overseas travel and lower spending on hospitality mean celebrations are largely restricted to spending on gifting, including diamond jewellery. That augurs well for India’s diamond jewellery exports and accordingly for players such as RGL.

 

The ratings continue to reflect the group’s established market presence backed by the experience of the promoters, focus on increasing presence in the branded jewellery segment and comfortable capital structure. These strengths are partially offset by large working capital requirement and susceptibility to intense competition leading to modest operating profit margin.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of RGL and its subsidiaries, collectively referred to as the Renaissance group, because of their strong business, operational and financial linkages.

 

Unsecured loan of Rs 3.7 crore as on March 31, 2021, from related entities has been treated as debt due to tendency of withdrawal of such loans.

 

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths

* Established market presence backed by the experience of the promoters

The extensive experience of the promoters of more than two decades has helped the group establish its position in the international diamond studded jewellery segment. The group is one of the largest exporters of studded jewellery from India, with manufacturing facilities in India and in the UAE. The promoters have longstanding relations with customers and have successfully navigated through several business cycles over the years.

 

* Focus on increasing presence in the branded jewellery segment

Renaissance group has acquired US-based Jay Gems, which has a licensing agreement for 'Enchanted by Disney Fine Jewelry' in the US and Canada. The group has entered the Indian retail segment through its IRASVA brand. It recently signed a contract to launch Enchanted Disney Fine Jewelry with Lao Feng Xiang (LFX), the second largest retailer in China. These factors should improve contribution from the branded jewelry segment over the medium term.

 

* Comfortable capital structure

Networth was adequate at Rs.833.13 crore as on March 31, 2021, and total outside liabilities to adjusted networth ratio was moderate at 0.93 times. Healthy accretion to reserves will maintain comfortable capital structure over the medium term.

 

Weaknesses

* Large working capital requirement

Operations have been working capital intensive, with gross current assets (GCA), inventory and receivables estimated at 260 days, 160 days and 68 days, respectively, as on March 31, 2021. Improvement in GCA days with reduction in inventory over the medium term will be key rating sensitivity factor.

 

* Susceptibility to intense competition resulting in modest operating profit margin

The gems and jewellery industry is highly fragmented because of low entry barriers on account of relatively low capital and technology requirements, attracting numerous unorganised players across the country. The resultant competition resulted in moderate operating profitability of 5.4-6.5% for the Renaissance group over the five fiscals through 2021.

Liquidity: Adequate

Group has adequate liquidity driven by unencumbered cash and cash equivalents of around Rs. 180 crore as on March 31, 2021. RGL has access to fund based bank lines of Rs. 256.5 crore which were utilized to the tune of 76% as on April 30, 2021. RGL has also availed additional bank lines outstanding at Rs 32.27 crore as on March 31, 2021 under Covid-19 government emergency credit scheme which has supported the liquidity profile of the group. The group has repayment obligations of around Rs. 6-7 crore per annum for fiscal 2022 and fiscal 2023.  Apart from debt repayments, the group has to make payments to promoters of Jay Gems USA of around Rs 24 crore in fiscal 2022 and around Rs 56 crore in fiscal 2023. The capex plans are expected to be funded through internal accruals. CRISIL Ratings believes that going forward RGL's net cash accruals and unutilized bank limits will be sufficient to fund its fixed costs, repayment obligations, capex plans and incremental working capital requirements.

Outlook: Stable

CRISIL Ratings believes RGL will continue to benefit from the extensive experience of its promoters and established presence in exports market.

Rating Sensitivity Factors

Upward factors

  • Sustained growth of over 25% in revenue along with improved operating margins leading to significantly better than expected cash accruals
  • Improvement in working capital cycle driven by improvement in inventory days
  • Improvement in financial risk profile

 

Downward factors

  • Decline in revenue or significant drop in operating margins leading to much lower cash accruals
  • Stretch in inventory levels to beyond 180 days
  • More than expected dividend payout, debt funded capex weakening the financial risk profile especially liquidity

About the Group

The Renaissance group manufactures and trades in diamond studded jewellery. It manufactures generic as well as licensed branded jewellery. RGL, the holding company of the group, was incorporated in 1989 as Mayur Gems & Jewellery Exports Pvt Ltd. It was acquired by Mr Niranjan Shah and his family in 1995. It was reconstituted as a public limited company and acquired its present name in 2005. The company is engaged in wholesale manufacturing of jewellery in gold, silver, platinum, studded with polished diamonds, semi-precious and precious stones. RGL has sales subsidiaries in the US, the UK, and the UAE. Facilities are in Mumbai, Bhavnagar (Gujarat), and the UAE.

Key Financial Indicators (Consolidated)

Particulars

Unit

2021*

2020

Revenue

Rs.Crore

2037

2503

Profit After Tax (PAT)

Rs.Crore

42.27

92

PAT Margin

%

2.07

3.68

Adjusted debt/Adjusted networth

Times

0.70

0.90

Interest coverage

Times

4.21

5.65

*Provisional

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)

ISIN

Name of instrument

Date of allotment

Coupon rate (%)

Maturity date

Issue size

(Rs.Crore)

Complexity Level

Rating assigned

with outlook

NA

Export Packing Credit

NA

NA

NA

85.75

NA

CRISIL BBB+/Stable

NA

Post Shipment Credit

NA

NA

NA

153.6

NA

CRISIL A2

NA

Proposed Short Term Bank Loan Facility

NA

NA

NA

8

NA

CRISIL A2

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

7

NA

CRISIL BBB+/Stable

NA

Standby Line of Credit

NA

NA

NA

33

NA

CRISIL BBB+/Stable

Annexure – List of entities consolidated

 Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Renaissance Global Ltd

100%

Holding company of the Renaissance group and operational and financial linkages with other group entities

Renaissance Jewelry, NY Inc

100%

Wholly owned subsidiary of Renaissance Global Ltd and operational and financial linkages between the group entities

Verigold Jewellery (UK) Ltd

100%

Renaissance Jewellery Bangladesh Pvt Ltd

100%

Verigold Jewellery DMCC

65%

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 287.35 CRISIL BBB+/Stable / CRISIL A2   -- 08-12-20 CRISIL BBB+/Negative / CRISIL A2 23-12-19 CRISIL BBB+/Stable / CRISIL A2 13-12-18 CRISIL BBB+/Stable / CRISIL A2 --
      --   -- 20-04-20 CRISIL BBB+/Negative / CRISIL A2   --   -- --
      --   -- 01-04-20 CRISIL BBB+/Stable / CRISIL A2   --   -- --
      --   -- 07-01-20 CRISIL BBB+/Stable / CRISIL A2   --   -- --
All amounts are in Rs.Cr.
 
 
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Post Shipment Credit 153.6 CRISIL A2 Post Shipment Credit 153.6 CRISIL A2
Proposed Long Term Bank Loan Facility 7 CRISIL BBB+/Stable Proposed Short Term Bank Loan Facility 8 CRISIL A2
Proposed Short Term Bank Loan Facility 8 CRISIL A2 Standby Line of Credit 33 CRISIL BBB+/Negative
Standby Line of Credit 33 CRISIL BBB+/Stable Export Packing Credit 85.75 CRISIL BBB+/Negative
Export Packing Credit 85.75 CRISIL BBB+/Stable - - -
Total 287.35 - Total 280.35 -
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for rating trading companies
CRISILs Criteria for Consolidation
The Rating Process
CRISILs Bank Loan Ratings

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