RATING RATIONALE

06 Mar 2020
Derewala Industries Ltd

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 159 Crs of
Derewala Industries Ltd.

Particulars

Previously
Amount rated Previous Rating
Facility** Rated Amount Tenure Rating Assigned*
(Rs. in Crs) (Feb 2020)
(Rs. in Crs)
Fund 33 159 Long BWR BBB- BWR BBB-
Based Term Stable Stable
Reaffirmation

Total 33 159* INR One Hundred Fifty Nine Crores Only

*Please refer to BWR website ​www.brickworkratings.com/​ for definition of the ratings

**​ Details of Bank facilities is provided in Annexure-I

RATING ACTION / OUTLOOK

Brickwork ratings has reaffirmed the Long term rating of BWR BBB- with a stable outlook.

The ratings draw comfort from the exclusive experience of the promoters in jewellery business,
moderate debt protection metrics and comfortable gearing ratio, presence of a natural hedge
against price volatility, favourable receivable level and competitive edge from integrated
production setup. The rating is, however, constrained by working capital intensive operations
due to high level of inventory, exposure to raw material price volatility, competition from
various players and inherent risk associated with nature of business.

The outlook of the company is stable as the company has been able to sustain the revenues and
profitability in FY 19.

KEY RATING DRIVERS

Credit Strengths:
● Exclusive experience of the Promoters – The Derewala Group, promoted by Mr.
Pramod Agrawal, started its business in 1986 through a proprietorship firm called
Derewala Jewellery Manufacturing Company. He is the Chairman of Indian Institute of

www.brickworkratings.com Page ​1​of ​6

 Gem and Jewellery, Jaipur (a project of GJEPC). He is also a Chairman of Gem and
Jewellery Export Promotion Council (GJEPC) at all India level, Board of Director of All
India Gems and Jewellery Trade Federation (GJF) and Executive Member of Jewellers
Association, Jaipur. Also, Mr. Pramod Agrawal has a total experience of more than 30
years. Mr. Yoginder Garg, Director of company, looking after sales and marketing
distribution networks across India offering new and exciting jewelry at incredible prices
having experience of 26 years.
● Moderate Debt protection metrics ​- The entity has comfortable debt protection metrics
as ISCR and DSCR stood at 1.38x and 1.37x respectively in FY19 which reflects the
ability of the company for timely repayment of debt. The entity ​does not have long term
borrowings from Banks and financial institutions.
● Comfortable Gearing Ratio - ​ The Gearing Ratio (i.e TOL:TNW) of the company was
recorded at a comfortable level of 2.28x in FY19 improved from 2.47x in FY18. Overall
debt of the company has declined from Rs. 211 Crs in FY 18 to Rs. 159 Crs as on date.
Further, company has provided declaration stating that before the end of March 2020,
company will further reduce the loan by another Rs. 6 Crs
● Natural Hedge for Gold prices - ​The funding of gold is through Gold Loan facility from
State Bank of India which provides natural hedge against price and forex volatilities.
Company purchases the Gold from the State Bank of India and manufactures the product
as per requirements of customers. On the date of sale to customers, the same rate is
charged by the Bank for its purchases. SBI Gold loan is to be repaid within 180 days
from the date of purchase.
● Comfortable conversion cycle - ​The company has been able to maintain a receivable of
19 days which is adequate for the jewellery industry.

Credit Risks:
● Highly fragmented nature of Industry: ​The gems and jewellery industry is highly
fragmented and unorganised. The larger domestic players and export oriented units are
entering the organised domestic retail segment at the cost of the unorganised segment.
Over the last couple of years, the share of organised players has been expanding, with
major growth being observed in metropolitan areas.
● Inherent risk associated with business - ​There are inherent risks associated with the
jewellery industry like governmental regulations such as hallmarking, imposition of
custom duty and demonetisation in FY17, and the Goods and Services Tax in FY18.
Also, the major risk associated with business is the ever changing taste and preference of
customers relating to the designs of jewellery.
● High working capital requirements- ​The Company has highly
working-capital-intensive operations and maintains large inventory which may impact the
profitability in case of price volatility.

www.brickworkratings.com Page ​2​of ​6

ANALYTICAL APPROACH AND APPLICABLE RATING CRITERIA
For arriving at its ratings, BWR has applied its rating methodology as debited in the Rating
Criteria detailed below ( hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES
Going forward, the ability of the firm to improve its scale of operations by improving its
profitability margins and efficiently manage its liquidity would remain the key rating
sensitivities.
Positive: The rating outlook may be revised to 'Positive' in case the revenues and profit show
sustained improvement backed by healthy liquidity.
Negative​: The rating outlook may be revised to 'Negative' in case revenues of the company
substantially deteriorates from current level. Rating may also be adversely affected in case of
adequate deterioration in gearing and coverage ratios.

LIQUIDITY POSITION (ADEQUATE)

Company has a Fund Based facility of Rs. 159 crs and its average utilisation of the fund-based
limits is 80% over the 6 months ended Feb 2020. Company has cash accruals(PAT +DEP) of Rs
5.96 Cr in FY19 improved from Rs. 5.07 Crs in FY18 whereas CPLTD in FY19 was almost
negligible. Company has free cash and cash equivalents of Rs. 7.93 Crs as on 31 Dec 2019.

COMPANY PROFILE
Derewala Group has been promoted by Mr. Pramod Agrawal who started the jewellery business
in 1986 as a proprietorship concern. In 2003, this was converted into a partnership concern in the
name of Derewala Jewellery Industries. They converted the partnership concern to a company
renamed as Derewala Industries Ltd. in 2014 having its worldwide distribution from its base in
Jaipur, the jewellery hub of India. Derewala creates jewellery that is both exquisite and
exclusive, employs passionate designers, brilliant engineers, master craftsmen, and uses state of
the art technology. Derewala’s expertise caters to retailers, manufacturers and wholesalers
worldwide. Its silver jewellery portfolio includes rings, pendants, bracelets and beaded
jewellery, among others. These are supplied to wholesalers and direct marketing companies in
the US, the UK, Sweden, Germany and France. The gold jewellery includes chains, mesh,
stamped and gold flick products that are supplied to wholesalers as well as reputed retailers in
India.

www.brickworkratings.com Page ​3​of ​6

KEY FINANCIAL INDICATORS ​(in INR Cr)

Key Parameters Units FY18 FY19 9MFY20

Result Type Audited Audited Provisional
Total Operating Income Cr 378.37 380.24 272.56
OPBDIT Cr 23.39 20.73 18.31
PAT Cr 0.71 1.62 3.90
TNW Cr 85.64 87.66 92.97
TOL/TNW Times 2.47 2.28 2.07
Current Ratio Times 1.22 1.24 1.28

KEY COVENANTS OF THE INSTRUMENT/FACILITY RATED: NA

NON-COOPERATION WITH PREVIOUS RATING AGENCY, IF ANY : NA

RATING HISTORY

Current Rating (2020)

Facility Rating History

Tenu Amount 2020

Rating 2019 2018 2017
re (Rs. Crs) ( Feb)

BWR BBB- BWR BBB-

Fund Based - Long - - -
159 (Stable)
Cash Credit Term (Stable)
Reaffirmation

Total 159 INR One Hundred Fifty Nine Crores Only

COMPLEXITY LEVELS OF THE INSTRUMENTS

For more information, visit ​www.brickworkratings.com/download/ComplexityLevels.pdf

www.brickworkratings.com Page ​4​of ​6

Hyperlink/Reference to applicable Criteria

● General Criteria

● Approach to Financial Ratios

● Manufacturing ​Sector

● Short Term Deb​t

Analytical Contacts Investor and Media Relations

Neha Wahi
Primary Analyst
+011-23412232 Extn 114
nehawahi@brickworkratings.com Liena Thakur
Assistant Vice President - Corporate Communications
R K Sharma +91 84339 94686
Senior Director – Ratings liena.t@brickworkratings.com
+011-23412232 Extn 104
rksharma@brickworkratings.com

Derewala Industries Ltd

ANNEXURE I
Details of Bank Facilities rated by BWR

Sl. No. Name of the Type of Facilities Long Term Short Term Total
Bank (₹ Cr) (₹ Cr) (₹ Cr)

1 Kotak Export Packing -

25 25
MahindraBank Credit

2. State Bank of -
Cash Credit 14.50 14.50
India

3. State Bank of Cash Credit (Gold -

119.50 119.50
India Metal Loan)

TOTAL 159
INR One Hundred Fifty Nine Crores Only

www.brickworkratings.com Page ​5​of ​6

For print and digital media The Rating Rationale is sent to you for the sole purpose of dissemination
through your print, digital or electronic media. While it may be used by you acknowledging credit to
BWR, please do not change the wordings in the rationale to avoid conveying a meaning different from
what was intended by BWR. BWR alone has the sole right of sharing (both direct and indirect) its
rationales for consideration or otherwise through any print or electronic or digital media.
About Brickwork Ratings ​:Brickwork Ratings (BWR), a SEBI registered Credit Rating Agency,
accredited by RBI and empaneled by NSIC, offers Bank Loan, NCD, Commercial Paper, MSME ratings
and grading services. NABARD has empaneled Brickwork for MFI and NGO grading. BWR is accredited
by IREDA & the Ministry of New and Renewable Energy (MNRE), Government of India. Brickwork
Ratings has Canara Bank, a leading public sector bank, as its promoter and strategic partner. BWR has its
corporate office in Bengaluru and a country-wide presence with its offices in Ahmedabad, Chandigarh,
Chennai, Hyderabad, Kolkata, Mumbai and New Delhi along with representatives in 150+ locations.
DISCLAIMER Brickwork Ratings (BWR) has assigned the rating based on the information obtained
from the issuer and other reliable sources, which are deemed to be accurate. BWR has taken considerable
steps to avoid any data distortion; however, it does not examine the precision or completeness of the
information obtained. And hence, the information in this report is presented “as is” without any express or
implied warranty of any kind. BWR does not make any representation in respect to the truth or accuracy
of any such information. The rating assigned by BWR should be treated as an opinion rather than a
recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses
incurred by users from any use of this report or its contents. BWR has the right to change, suspend or
withdraw the ratings at any time for any reasons

www.brickworkratings.com Page ​6​of ​6