Rating Rationale
April 20, 2020 | Mumbai
Renaissance Global Limited
Rating outlook revised to 'Negative'; ratings reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.280.35 Crore
Long Term Rating CRISIL BBB+/Negative (Outlook revised from 'Stable' and rating reaffirmed)
Short Term Rating CRISIL A2 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has revised its outlook on the bank facilities of Renaissance Global Limited (RGL), part of Renaissance Group (RG) to 'Negative' from 'Stable' while reaffirming the ratings at 'CRISIL BBB+/CRISIL A2'.
 
The revision in outlook reflects expectation of significant deterioration in the business risk profile and accordingly, financial risk profile of the group. Revenue is expected to see pronounced decline in fiscal 2021, significantly lower than CRISIL's earlier expectations, amidst disruptions in the overall economic activity in the key global diamond markets, owing to restrictions and lockdown both in India and in the key global diamond markets to contain the spread of Novel Coronavirus (COVID-19). The group's operations are working capital intensive. A large portion of the receivables for the group are from US and Middle East, which are expected to see substantial elongation. Further group also has sizeable inventory level due to globally spread operations. This is expected to impact the financial risk profile especially debt protection metrics, return on capital employed (ROCE) and inventory risk cover over the medium term.
 
CRISIL has also taken into cognizance, extensions being granted by the bankers in the export credit facilities for a period between 2-3 months, as permitted by the Reserve Bank of India (RBI), which should significantly contain the risk of default. CRISIL believes although elongated, the group would see a steady inflow of receivables from its customers, over the medium term and would also be able to partially revive its export operations over the next two-three months.
 
CRISIL has taken cognizance of the restrictions on economic activity, including closure of all non-essential manufacturing plants in India as well as lock down and disruptions in key global diamond markets, to contain the spread of Novel Coronavirus (COVID-19). Impact of COVID-19 related restrictions applicable post May 03, 2020 will remain a key monitorable.
 
Nevertheless, a sustained long period of lockdown can result in significant deterioration in credit profile of the group. On the other hand a faster reversal to normalcy may contain the extent of deterioration likely in credit quality of the group. Also any further relief measures given by the lenders towards export credit facilities will also be a key monitorable.
 
The ratings continue to reflect the RG's well established market presence backed by experience of promoters along with moderate financial risk profile. These rating strengths are partially offset by large working capital requirements along with susceptibility to intense competition leading to moderate operating profit margins.

Analytical Approach

* Consolidated
CRISIL has consolidated the business and financial risk profile of entities in the Renaissance Global Group (RG) on a consolidated basis as there are strong business, operational and financial linkages amongst these entities along with operational and commercial synergies arising out of transactions between these entities.
 
* Unsecured Loans
Unsecured loans from the related entities outstanding to the tune of Rs. 3 crore as on March 31, 2019 have been treated as debt due to tendency of withdrawal of such loans infused by them.

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 experience of promoters
Supported by extensive experience of the promoters, RG has established its position in international diamond studded jewellery segment for more than two decades. RG is one of the largest exporters of studded jewellery from India, with manufacturing facilities in India and in the UAE. The promoters have maintained longstanding relations with customers while successfully navigating through several business cycles over the years. Further, RG recently acquired US-based Jay Gems, which has a licensing agreement for 'Enchanted by Disney Fine Jewelery' in the US and Canada. This has enabled RG to enter the branded jewellery segment.
 
* Moderate financial risk profile
Networth has been adequate at Rs 634 crore as on March 31, 2019, with moderate total outside liabilities to adjusted net worth ratio of 1.51 times. Also, interest coverage and net cash accrual to adjusted debt ratios were moderate at 5.68 times and 0.16 time, respectively, in fiscal 2019. Financial risk profile should remain moderate over the medium term.
 
Weaknesses:
* Large working capital requirement
Operations have been working capital intensive, with gross current assets, inventory, and receivables at around 209 days, 151 days, and 53 days, respectively, as on March 31, 2019. Working capital intensity is expected to increase over the medium term.
 
* Susceptibility to intense competition resulting in moderate operating profit margins
The gems and jewellery industry is highly fragmented because of low entry barriers on account of relatively low capital and technology requirements, attracting numerous un-organised players across the country resulting in moderate operating profitability at around 5% to 6% over the last three fiscals through 2019.
Liquidity Adequate

RG has adequate liquidity driven by unencumbered cash and cash equivalents of around Rs. 15 crore as on April 03, 2020. The group has access to bank limits of Rs. 232.5 crore which were utilized to the tune of 70% as on March 31, 2020.  The group has repayment obligations of around Rs. 1 crore per annum during the same period.  Apart from debt repayments, the company has to make payments to promoters of Jay Gems USA of around Rs. 26 crore per annum. The capex plans are expected to be funded through internal accruals. CRISIL believes that going forward RG's net cash accruals and unutilized bank limits will be sufficient to fund its fixed costs, capex plans and incremental working capital requirements.

Outlook: Negative

CRISIL believes RG's business and financial risk profile especially debt protection metrics and inventory risk cover will be under pressure owing to lock down imposed in key export geographies to contain the outbreak of Covid-19 and the recent shutdown announced by the Government of India along the similar lines.

Rating Sensitivity factors
Upward factors
* Improvement in debt protection metrics with TOLANW sustaining below 1.1 time
* Significant improvement in capital structure through an incremental fund infusion
* Improved profitability resulting in higher cash accruals and RoCE levels
* Improvement in working capital management
 
Downward factors
* Significant decline in the scale of operations or weaker operating profitability, resulting in pressure on debt protection metrics
* Sustained stretch in GCA beyond 250 days
* Unexpected dividend pay-outs or large debt funded capital expenditure or acquisitions
About the Company

Renaissance Group, is involved in manufacturing, trading and selling of diamond studded Jewelry. The group is involved in manufacturing generic as well as licensed branded jewelry.
 
RGL, the parent 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. In 2005, RJL was reconstituted as a public limited company and acquired its present name. 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
Particulars Unit 2019 2018
Revenue Rs crore 2601 1843
Profit after tax (PAT) Rs crore 84 64
PAT margin % 3.2 3.5
Adjusted debt/Adjusted networth Times 1.04 0.64
Interest coverage Times 5.68 7.07

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 Cr)		 Rating Assigned
with Outlook
NA Standby Line of Credit NA NA NA 33 CRISIL BBB+/Negative
NA Proposed Short Term
Bank Loan Facility		 NA NA NA 8 CRISIL A2
NA Export Packing Credit NA NA NA 85.75 CRISIL BBB+/Negative
NA Post Shipment Credit NA NA NA 153.6 CRISIL A2
 
Annexure - List of entities consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
Renaissance Global Limited 100% Holding company of the Renaissance Group and has operational and financial linkages with other entities in the Renaissance Group
Renaissance Jewelry, N. Y. Inc. 100% Wholly Owned subsidiary of Renaissance Global Limited and there are operational and financial linkages between these entities along with operational and commercial synergies arising out of transactions between these entities.
Verigold Jewellery (UK) Limited 100%
Renaissance Jewellery Bangladesh Private Limited 100%
Verigold Jewellery DMCC 100%
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  280.35  CRISIL BBB+/Negative/ CRISIL A2  01-04-20  CRISIL BBB+/Stable/ CRISIL A2  23-12-19  CRISIL BBB+/Stable/ CRISIL A2  13-12-18  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
Export Packing Credit 85.75 CRISIL BBB+/Negative Export Packing Credit 85.75 CRISIL BBB+/Stable
Post Shipment Credit 153.6 CRISIL A2 Post Shipment Credit 153.6 CRISIL A2
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
Total 280.35 -- Total 280.35 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings
CRISILs Criteria for Consolidation
The Rating Process

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