Rating Rationale
April 29, 2022 | Mumbai
Vasanth and Co
Rating outlook revised to 'Negative', Ratings reaffirmed; rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.150 Crore (Enhanced from Rs.100 Crore)
Long Term RatingCRISIL A-/Negative (Outlook revised from 'Stable'; Rating 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 Vasanth and Co (VC) to 'Negative' from 'Stable' and reaffirmed the rating at 'CRISIL A-'.

 

The revision in outlook reflects increasing utilization of bank lines owing to continuous expansion and the resultant increase in working capital requirement. The incremental working capital requirement also stems from additional inventory levels in existing showrooms. The inventory levels as on March 31, 2022 is estimated at around 70-75 against historical inventory holding of 50-60 days. As a result, the bank limit utilization in the last 8 months ending March 2022 have remained more than 90 percent. The management is in discussions with the lender for incremental working capital limits’ tie up. In the meantime, the firm has been availing need based adhoc from the lender. The enhancement in bank lines and correction in utilization levels would remain a key rating monitorable.

 

With addition of new showrooms, the revenues are expected to grow at a healthy CAGR over the medium term. The incremental cash accruals from the new showrooms would fund the incremental working capital requirements partly. However, velocity of addition of new showrooms, funding and stabilization of operations would remain key rating sensitivity factors.

 

The rating reflects its established position in the consumer electronics and home appliances retail business in Tamil Nadu. The rating also factors in the firm' healthy financial risk profile. These strengths are partially offset by geographical concentration in revenue profile and exposure to intense competition.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position: The firm has been retailing electronic products for more than three decades, resulting in 92 showrooms across besides one each in Puducherry and Bengaluru. Also, product portfolio is diverse and the firm has established relationship with 40 brands. Established market position is reflected in healthy turnover, estimated at over Rs.1200 crore for fiscal 2022.  CRISIL Ratings believes that the firm will continue to benefit over the medium term from its established market position.

 

  • Healthy financial risk profile:  The firm’s financial risk profile is healthy, as reflected in a strong capital structure and robust debt protection metrics. Total outside liabilities to tangible networth (TOLTNW) ratio was healthy at estimated 1.41 times as on 31st March 2022 (1.36 time as on March 31, 2021). Debt protection metrics were robust, with estimated interest coverage ratio and net cash accruals to adjusted ratio of 7.66 times and 0.34 times respectively for fiscal 2022 (6.12 times and 0.29 time respectively for fiscal 2021)

 

Weakness:

  • Geographical concentration in revenue profile and exposure to intense competition:  Majority of sales are from Tamil Nadu, which exposes VC to any unforeseen region-specific event. Further, intense competition from other retailers such as Viveks, Croma etc could restrict the firm's bargaining power with suppliers and customers.

Liquidity: Adequate

Bank limit utilisation is high at around 95 percent for the past six months ended 28th February 2022.  Cash accrual are expected to be in the range of Rs.26 to 31 crore against debt obligation of Rs.0.4 crore per annum over the medium term. The company has estimated cash and bank balance of around Rs.15 Crore as on 31st March 2022 which also supports liquidity.

Outlook: Negative

CRISIL Ratings believes VC's liquidity profile will remain under pressure over the medium term.

Rating Sensitivity factors

Upward factors

  • Sustained improvement in revenue and profitability leading to a higher cash accrual.
  • Geographic diversification in revenue profile
  • Improvement in the working capital cycle leading to bank limit utilisation of less than 85%

 

Downward Factors

  • Deterioration in TOLTNW to more than 2 times
  • Any large debt funded capital expenditure, impacting the financial risk profile.
  • Further increase in bank limit utilisation and delays in enhancement of bank lines

About the Firm

Established in 1978 by Mr. H Vasanthakumar as a proprietorship concern, Vasanth & Co (VC) is a dealer in consumer electronics, home appliances, and mobile phones, with showrooms across TN.   Post the demise of Mr. Vasanthakumar in August 2020, the proprietorship has been reconstituted as a partnership firm with Mr.Vasanthakumar’s wife, his daughter and two sons

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)

Complexity

Levels

Rating assigned

with outlook

NA

Cash Credit

NA

NA

NA

100

NA

CRISIL A-/Negative

NA

Proposed Long Term

Bank Loan Facility

NA

NA

NA

25

NA

CRISIL A-/Negative

NA

Proposed Long Term

Bank Loan Facility

NA

NA

NA

25

NA

CRISIL A-/Negative

 

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 150.0 CRISIL A-/Negative   -- 01-02-21 CRISIL A-/Stable 04-02-20 CRISIL A-/Stable 16-04-19 CRISIL A-/Stable CRISIL A-/Stable
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 100 Indian Bank CRISIL A-/Negative
Proposed Long Term Bank Loan Facility 25 Not Applicable CRISIL A-/Negative
Proposed Long Term Bank Loan Facility 25 Not Applicable CRISIL A-/Negative

This Annexure has been updated on 29-Apr-22 in line with the lender-wise facility details as on 28-Apr-22 received from the rated entity.

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
Rating Criteria for Retailing Industry
CRISILs Criteria for rating short term debt
Understanding CRISILs Ratings and Rating Scales

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