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CARE Ratings Ltd.
Press Release
Khazana Jewellery Private Limited
March 08, 2024
Facilities/Instruments
Amount (₹ crore)
Rating
1
Rating Action
Long-term / Short-term bank
facilities
1,500.00
CARE A+; Stable / CARE
A1+
Revised from CARE A; Positive /
CARE A1
Details of instruments/facilities in Annexure-1.
Rationale and key rating drivers
The revision in ratings assigned to bank facilities of Khazana Jewellery Private Limited (KJPL) takes into account sharp growth in
scale of operations in FY23 on the back of a consistent growth over the last three years in volume and value terms. The company
is consolidating its operations in the Andhra Pradesh (AP) and Telangana (TL) markets, which have exhibited strong growth while
there has also been a moderate growth in the other markets in FY23. Profitability has been range-bound and with healthy cash
generation being ploughed back in the business, the capital structure has been improving with leverage levels marked by overall
gearing around unity.
However, ratings remain constrained by working capital intensive nature of operations with higher inventory holding, leading to
a negative cashflow from operations, presence in highly competitive and fragmented industry, margins susceptible to volatile gold
prices and exposure to regulatory risks.
Rating sensitivities: Factors likely to lead to rating actions
Positive factors
• Consistent growth in scale of operations beyond ₹ 12,000 crore with improvement in geographical spread
• Improvement in the product diversification with increasing trend on value added jewellery leading to better margins
• Improvement in Total Debt to GCA below 3.5x
Negative factors
• Any elongation in working capital cycle leading to deterioration of liquidity profile and low cash surplus
• Slower than envisaged sales ramp up leading to inventory build up and higher working capital borrowing
Analytical approach: Standalone
Outlook: Stable
CARE Ratings Limited (CARE Ratings) expects that the company would continue to maintain healthy debt coverage indicators
over the medium term, aided by growth in revenue and accruals.
Detailed description of the key rating drivers:
Key Strengths
Long track record of promoter and established brand name in South India
The promoter, Kishore Kumar Jain, is engaged in the business of gold jewellery for about five decades and the jewellery business
under the Khazana brand for more than three decades. There is a strong brand image for ‘Khazana’, known for its unique designs
of majorly handmade jewellery designed by a wide network of goldsmiths, as opposed to machine-made jewellery purchased
from wholesalers. KJPL provides gold and other raw materials to a set of exclusive artisans, who work solely for KJPL on a job-
work basis. The company’s brand image and reach has enabled them to expand their footprint throughout South India, especially
in AP and TL in the past few years, where KJPL has a well-established presence.
Strong network of goldsmiths
Procurement of gold is centralised, while jewellery is majorly hand-made by goldsmiths present across the country. The company
has a separate product team that comes up with designs based on market trends. Gold bar requirement is estimated in the
corporate office and bullion bars purchased are issued to the goldsmiths across the country. With a wide network of goldsmiths
across the country, the company can cater to the changing customer requirements quickly. Since major part of the sales include
handmade jewellery, strong relationship with goldsmiths aids the company in bringing value-added designs and maintain margins.
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Complete definition of the ratings assigned are available at www.careedge.in and other CARE Ratings Ltd.’s publications.
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CARE Ratings Ltd.
Press Release
Consistent improvement in performance over the last few years
The company’s Total Operating Income (TOI) has been consistently growing at a compounded annual growth rate (CAGR) of
12% over the past five years, aided by increasing trend in gold prices, growth in the sales volumes and strong presence in AP
and TL. In FY23, TOI has grown by about 34% and volumes grew substantially by about 25%.
Over the years, the company has strong hold in TL and AP, leading to significant y-o-y improvement in these states while in other
states there has been moderate growth in FY23. The company is in the process of expanding or optimising retail space in its
existing stores. Performance is expected to grow in the coming years on the back of expansion of existing stores and upcoming
stores. Margins continue to be range bound at about 6-8%. The company’s ability to improve value-added jewellery share and
increase margins is key to prospects of the company.
Gradual improvement in financial risk profile:
Jewellery retailing business is inherently working capital intensive due to the higher-level inventory holding in retail stores. KJPL
had maintained an aggressive inventory policy of maintaining higher variety inventory at stores, leading to higher working capital
borrowings for funding it. However, with improvement in sales and accruals, reliance on working capital borrowings gradually
reduced in FY23 and in 9MFY24.
Overall gearing (including customer advances and lease liabilities) has shown improvement and was at 1.14x as on March 31,
2023, and 0.91x as on December 31, 2023, as against 1.21x as on March 31, 2022. The company has negligible term-loan from
banks and unsecured loans of ₹56 crore from promoters, which do not have repayment schedule. The company primarily uses
gold metal loans to fund its working capital which come at lower interest rate.
The debt taken for computing overall gearing includes customer advances collected as part of jewellery schemes. Against these
advances collected as part of the scheme, the company also blocks inventory for the customer.
Debt coverage metrics remained comfortable with interest coverage ratio of 12.35x (PY: 9.51x) and TDGCA of 5.16x (PY: 6.60x)
for FY23.
KJPL had equity investment amounting to ₹65.09 crore as on March 31, 2022, in its Dubai-based wholly owned subsidiary,
Khazana Gold & Diamond DMCC (KGD). The company discontinued this business and brought back majority of capital in FY23.
As on March 31, 2023, equity investment stood at ₹ 1.56 crore.
Key Weaknesses
Highly working capital-intensive operations
KJPL’s business is working capital intensive because large inventory is required to be maintained by the company across its
stores. As the company operates retail showrooms, it maintains optimal inventory across showrooms in terms of quantity and
designs at the stores to attract more customers. Gold inventory accounts for around 80% of the company’s total current assets
reflected in high inventory days at 162 days in FY23. However, being a cash and carry nature of business provides cushion in
terms of nil collection period. KJPL’s modest inventory turnover of around 2.25x and aggressive increase in inventory over FY22
and FY23 to support growth, resulted in higher working capital intensity and negative cash flow from operations. KJPL’s ability to
improve the inventory turnover is critical for the credit profile of the company.
Exposure to high competition and regulatory risks
The gems and jewellery sector is highly fragmented. The retail segment has a high dominance of unorganised players, more so
in case of manufacturers. There is a pressure on pricing flexibility of the organized players, which impacts margins of companies.
However, there is a shift to more organized retailers in the industry over the past decade, which has given way to more pan-
Indian players in the retail segment.
The jewellery sector has seen high regulatory interventions in the past with recent developments including increase in import
duty on gold. On the investment side, the government is promoting gold bonds and schemes as an alternative to physical gold.
These interventions have affected demand and supply in the past and also impacted funds flowing to this sector. Intense
competition in a segment with price volatility and frequent regulatory interventions would continue to impact companies in the
segment.
Liquidity: Strong
The company’s liquidity is strong, marked by healthy cash accruals against negligible debt repayments. The company also has
sufficient free cash and bank balances of ₹198 crore as on March 31, 2023, and ₹60 crore in FD provided as security against gold
metal loans. Working capital utilisation has also reduced over the year and stands at around 67% for 12-months ended December
2023.
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CARE Ratings Ltd.
Press Release
Applicable criteria
About the company and industry
Industry classification
Macro-economic
indicator
Sector
Industry
Basic industry
Consumer discretionary
Consumer durables
Consumer durables
Gems, jewellery and watches
Khazana Jewellery Private Limited (KJPL) was incorporated on March 30, 1992, as Khazana Jewellery (Madras) Private Limited
with a retail outlet at NSC Bose Road, Chennai. The company was promoted by Kishore Kumar Jain, who has been engaged in
the gold jewellery business as wholesaler since 1975. KJPL is primarily engaged in retailing gold jewellery, diamonds, silverware,
and platinum jewellery through its 38 retail showrooms across Andhra Pradesh (20 showrooms), Telangana (6), Tamil Nadu (7),
Karnataka (3), Pondicherry (1), Orissa (1).
Brief Financials (₹ crore)
March 31, 2022 (A)
March 31, 2023 (A)
9MFY24 (UA)
Total operating income
5,860.07
7,864.93
6,679.53
PBILDT
406.91
579.40
516.53
PAT
248.17
390.45
338.18
Overall gearing (times)
1.21
1.14
0.91
Interest coverage (times)
9.99
12.35
14.51
A: Audited UA: Unaudited; Note: ‘these are latest available financial results available’
Status of non-cooperation with previous CRA: Not applicable
Any other information: Not applicable
Rating history for last three years: Please refer to Annexure-2
Covenants of rated instrument / facility: Detailed explanation of covenants of rated instruments/facilities is given in
Annexure-3
Complexity level of instruments rated: Annexure-4
Lender details: Annexure-5
Annexure-1: Details of instruments/facilities
Name of the
Instrument
ISIN
Date of
Issuance
(DD-MM-
YYYY)
Coupon
Rate (%)
Maturity
Date (DD-
MM-YYYY)
Size of the
Issue
(₹ crore)
Rating
Assigned
along with
Rating
Outlook
Fund-based - LT/
ST-Cash Credit
-
-
-
985.00
CARE A+;
Stable / CARE
A1+
Fund-based - LT/
ST-Working Capital
Limits
-
-
-
172.50
CARE A+;
Stable / CARE
A1+
LT/ST Fund-
based/Non-fund-
based-
CC/WCDL/OD/LC/BG
-
-
-
342.50
CARE A+;
Stable / CARE
A1+
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CARE Ratings Ltd.
Press Release
Annexure-2: Rating history for the last three years
Sr. No.
Name of the
Instrument/Bank
Facilities
Current Ratings
Rating History
Type
Amount
Outstanding
(₹ crore)
Rating
Date(s)
and
Rating(s)
assigned
in 2023-
2024
Date(s)
and
Rating(s)
assigned
in 2022-
2023
Date(s)
and
Rating(s)
assigned
in 2021-
2022
Date(s)
and
Rating(s)
assigned
in 2020-
2021
1
Fund-based - LT/
ST-Cash Credit
LT/ST*
985.00
CARE
A+;
Stable /
CARE
A1+
-
1)CARE A;
Positive /
CARE A1
(06-Jan-
23)
1)CARE A;
Stable /
CARE A1
(16-Dec-
21)
-
2
LT/ST Fund-
based/Non-fund-
based-
CC/WCDL/OD/LC/BG
LT/ST*
342.50
CARE
A+;
Stable /
CARE
A1+
-
1)CARE A;
Positive /
CARE A1
(06-Jan-
23)
1)CARE A;
Stable /
CARE A1
(16-Dec-
21)
-
3
Fund-based - LT/
ST-Working Capital
Limits
LT/ST*
172.50
CARE
A+;
Stable /
CARE
A1+
-
1)CARE A;
Positive /
CARE A1
(06-Jan-
23)
1)CARE A;
Stable /
CARE A1
(16-Dec-
21)
-
*Long term/Short term.
Annexure-3: Detailed explanation of covenants of rated instruments/facilities - Not applicable
Annexure-4: Complexity level of instruments rated
Sr. No.
Name of the Instrument
Complexity Level
1
Fund-based - LT/ ST-Cash Credit
Simple
2
Fund-based - LT/ ST-Working Capital Limits
Simple
3
LT/ST Fund-based/Non-fund-based-CC/WCDL/OD/LC/BG
Simple
Annexure-5: Lender details
To view the lender wise details of bank facilities please click here
Note on complexity levels of rated instruments: CARE Ratings has classified instruments rated by it based on complexity.
Investors/market intermediaries/regulators or others are welcome to write to [email protected] for clarifications.
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CARE Ratings Ltd.
Press Release
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Director
CARE Ratings Limited
Phone: +91-22-6754 3596
E-mail: [email protected]
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CARE Ratings Limited
Phone: 91 22 6754 3404
E-mail: [email protected]
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Director
CARE Ratings Limited
Phone: 914428501002
E-mail: [email protected]
Ratheesh Kumar
Associate Director
CARE Ratings Limited
Phone: 914428501002
E-mail: [email protected]
Bhargavi R
Lead Analyst
CARE Ratings Limited
E-mail: [email protected]
About us:
Established in 1993, CARE Ratings is one of the leading credit rating agencies in India. Registered under the Securities and
Exchange Board of India, it has been acknowledged as an External Credit Assessment Institution by the RBI. With an equitable
position in the Indian capital market, CARE Ratings provides a wide array of credit rating services that help corporates raise capital
and enable investors to make informed decisions. With an established track record of rating companies over almost three decades,
CARE Ratings follows a robust and transparent rating process that leverages its domain and analytical expertise, backed by the
methodologies congruent with the international best practices. CARE Ratings has played a pivotal role in developing bank debt
and capital market instruments, including commercial papers, corporate bonds and debentures, and structured credit.
Disclaimer:
The ratings issued by CARE Ratings are opinions on the likelihood of timely payment of the obligations under the rated instrument and are not recommendations to
sanction, renew, disburse, or recall the concerned bank facilities or to buy, sell, or hold any security. These ratings do not convey suitability or price for the investor.
The agency does not constitute an audit on the rated entity. CARE Ratings has based its ratings/outlook based on information obtained from reliable and credible
sources. CARE Ratings does not, however, guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions
and the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE Ratings have paid a credit rating fee,
based on the amount and type of bank facilities/instruments. CARE Ratings or its subsidiaries/associates may also be involved with other commercial transactions with
the entity. In case of partnership/proprietary concerns, the rating/outlook assigned by CARE Ratings is, inter-alia, based on the capital deployed by the
partners/proprietors and the current financial strength of the firm. The ratings/outlook may change in case of withdrawal of capital, or the unsecured loans brought
in by the partners/proprietors in addition to the financial performance and other relevant factors. CARE Ratings is not responsible for any errors and states that it has
no financial liability whatsoever to the users of the ratings of CARE Ratings. The ratings of CARE Ratings do not factor in any rating-related trigger clauses as per the
terms of the facilities/instruments, which may involve acceleration of payments in case of rating downgrades. However, if any such clauses are introduced and
triggered, the ratings may see volatility and sharp downgrades.
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