Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL BBB+/Stable’ rating on the long-term bank facilities of Tribhovandas Bhimji Zaveri Limited (TBZ).

 

The rating continues to reflect TBZ’s established market position with a strong brand and experienced management, and its moderate but improving financial risk profile which is driven by reduction in debt due to rationalisation of inventory. These strengths are partially offset by exposure to intense competition in the jewellery industry and large working capital requirements on account of sizable inventory.

 

For fiscal 2022, CRISL Ratings expects TBZ to report a topline of Rs 1,750-1,800 crore (against Rs 1,342 crore in fiscal 2021) and operating margin of 3-4% (against 7.6% in fiscal 2021, excluding the impact of IndAS 116 accounting). The improvement in topline is driven by a low base of the previous fiscal coupled with pent-up demand from wedding and festive sales witnessed in the second and the third quarter of the current fiscal. While the moderation in operating margins is on account of modest performance in the first quarter of the current fiscal due to disruptions caused by the second wave of the pandemic and a higher base of the previous fiscal. In fiscal 2021, operating margin was higher on account of windfall gains on inventory due to surge in gold prices coupled with cost optimisation measures undertaken by the company. In the first nine months of fiscal 2022, company reported topline of over Rs 1,400 crore and operating margin of nearly 3%.

 

In fiscal 2021, TBZ’s topline de-grew by 26% on account of disruptions caused by the pandemic. While operating margins improved by 270 basis points to 7.6%.

 

Over the medium term, TBZ is expected to maintain debt in the range of Rs 450-550 crore (excluding leases). Its debt reduced from over Rs 600 crore in fiscal 2019 to Rs 375 core in fiscal 2021 and stands at around Rs 408 crore as on December 31, 2021, led by rationalisation of store inventory and closure of non-performing stores. Though the company plans to add 5-8 stores in fiscal 2023, these will be phased and the increase in debt will correspond to new store openings. Stable profitability coupled with disciplined inventory management is expected to improve the financial risk profile with interest cover improving to over 2.4 times and total outside liabilities to tangible networth (TOL/TNW) ratio sustaining at 1.3 times over the medium term.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of TBZ and its subsidiaries, collectively referred to as the group, having common businesses and financial fungibility.

 

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 position with a strong brand and experienced management: TBZ is one of the oldest family-run jewellery businesses in India having been established over 150 years ago. The company enjoys a strong market position backed by its long track record and wide customer base associated with it over generations. Its promoters are among the pioneers of the concept of formal jewellery stores in India. The company expanded its presence to 31 stores in 25 cities by December 31, 2021, from 14 stores in 9 cities in fiscal 2012, thereby taking the “TBZ” brand name to newer geographies. As a result, it has been able to reduce revenue concentration. CRISIL Ratings believes that TBZ will continue to benefit from its established market position backed by increasing network of stores.

 

• Moderate but improving financial risk profile: TBZ’s financial risk profile improved significantly in fiscal 2021 supported by healthy operating margins due to windfall gains from low priced inventory, resulting in interest cover improving to 2.6 times against 1.6-1.7 times in fiscals 2019 and 2020. Furthermore, the company had also focussed on reducing its debt from over Rs 600 crore in fiscal 2019 to Rs 375 core in fiscal 2021 and around Rs 408 crore as on December 31, 2021, led by rationalisation of store inventory and closure of non-performing stores, reducing the total store count from 43 stores in fiscal 2019 to 31 stores in fiscal 2021. This resulted in improvement in TOL/TNW ratio to 1.2 times in fiscal 2021 against 1.8-2.0 times in fiscals 2019 and 2020. Though the company plans to add 5-8 stores in fiscal 2023, these will be phased and the increase in debt will correspond to new store openings. Stable profitability coupled with disciplined inventory management will lead to sustained improvement in the financial risk profile with interest cover improving to over 2.4 times and TOL/TNW ratio sustaining at 1.3 times over the medium term.

 

Weaknesses:

• Stagnant scale of operations on account of intense competition in the jewellery industry: Despite its long-standing presence in the business, TBZ faces intense competition from national players, such as Titan Company Limited (CRISIL AAA/Stable/CRISIL A1+), and regional players. Furthermore, the fragmented nature of the industry has resulted in strong competitive pressures thereby squeezing players’ margins. As the company expands its retail footprint, it will also face competition from established players in the respective local markets. The gold jewellery business is also susceptible to volatility in gold prices and this can have adverse implications on the demand for jewellery and consequently on the operating margins. This is also reflected in TBZ’s scale of operations remaining stagnant while profitability remaining range bound. Revenue has remained in the range of Rs 1,700-1,800 crore since fiscal 2017, while operating margin has been in the range of 4-5%, excluding the pandemic impacted fiscal 2021. Consequently, return on capital employed remained subdued in the range of 6.6-7.5% during fiscals 2017-2020. CRISIL Ratings believes TBZ will continue to remain exposed to intense competition due to its entry into newer geographies and competitors entering geographies dominated by TBZ.

 

• Large working capital requirements to fund its inventory: TBZ’s business is working capital-intensive because of the large inventory required to be maintained by the company reflected in inventory of 220 - 260 days between fiscals 2017-2020; inventory days were higher at 289 days in fiscal 2021 owing to lower scale. Jewellery retailers typically maintain large inventory of gold and other precious commodities on an ongoing basis, as they need to maintain a large variety of designs to meet customer requirements. The company, on average, maintains inventory of four to five months for gold and around a year for diamond.  Most of the company's borrowings are short-term in nature to fund its inventory.

Liquidity: Adequate

TBZ has adequate liquidity marked by expected cash accruals of Rs 30-45 crore per annum against negligible debt repayment obligations. Bank limit utilisation averaged 63% over the 12 months through December 2021.

Outlook: Stable

CRISIL Ratings believes that TBZ will continue to maintain its established market position over the medium term, supported by the promoters’ extensive industry experience and its strong brand equity.

Rating Sensitivity factors

Upward factors:

• Sustenance of improvement in the operating performance, marked by growth in scale of operations and stable operating profitability
• Sustained improvement in the financial risk profile with interest coverage improving to over 2.5 times

 

Downward factors:

• Significant deterioration in operating performance
• Moderation in the financial risk profile reflected by weakening of interest cover to under 2 times on a sustained basis
• Increase in inventory levels resulting in sharp increase in borrowings impacting key credit metrics.

About the Company

TBZ, promoted by Mr. Shrikant Zaveri, was set up in 1864; the company is one of India’s oldest jewellery houses and was reconstituted as a public limited company from a private limited company on December 3, 2010. TBZ expanded its operations from a single showroom at Zaveri Bazaar in Mumbai to pan-India presence through its network of 31 retail showrooms in 25 cities across 12 states. Its promoters hold a 74% in the company, with the rest being held by public and other shareholders.

Key Financial Indicators

As on / for the period ended March 31	Unit	2021	2020
Revenue	Rs. Cr.	1342	1810
Profit after tax	Rs. Cr.	43	21
PAT margins	%	3.2	1.2
Adjusted debt/adjusted networth	Times	0.7	1.1
Adjusted Interest coverage	Times	2.6	1.7

CRISIL Ratings Adjusted

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of Instrument	Date of Allotment	Coupon rate (%)	Maturity Date	Issue size (Rs Cr)	Complexity level	Rating Assigned with Outlook
NA	Cash Credit1	NA	NA	NA	165	NA	CRISIL BBB+/Stable
NA	Cash Credit2	NA	NA	NA	10	NA	CRISIL BBB+/Stable
NA	Cash Credit4	NA	NA	NA	41	NA	CRISIL BBB+/Stable
NA	Cash Credit5	NA	NA	NA	83	NA	CRISIL BBB+/Stable
NA	Cash Credit6	NA	NA	NA	183	NA	CRISIL BBB+/Stable
NA	Cash Credit7	NA	NA	NA	23	NA	CRISIL BBB+/Stable
NA	Cash Credit8	NA	NA	NA	120	NA	CRISIL BBB+/Stable

1Includes sublimit of metal gold loan of Rs.130 crore, bank guarantee of Rs.10 crore.

2 Fully interchangeable with working capital demand loan.
4 Includes sublimit of working capital demand loan of Rs.41 crore; Includes sublimit of bank guarantee & stand by letter of credit of Rs.41 crore for gold loan and includes sublimit of Gold Metal Loan of Rs. 30 crore
5 Includes sublimit of bank guarantee of Rs.45 crore for gold loan, working capital demand loan of Rs. 70 crore
6 Includes sublimit of metal gold loan of Rs.183 crore, bank guarantee of Rs.183 crore for gold loan
7 Interchangeable with working capital demand loan, bank guarantee; stand by letter of credit and metal loan of Rs 23 crore and cash credit of Rs. 13.20 crore

8 Fully interchangeable with cash credit & working capital demand loan and sublimit of Rs. 120 crore for Bank Guarantee

Annexure – List of entities consolidated

Name of Entities	Extend of consolidation	Rationale for consolidation
Tribhovandas Bhimji Zaveri (Bombay) Limited	Full	Strong managerial, operational, and financial linkages