The upgrade reflects BC Sen's better-than-expected financial performance in Financial Year 2013 (year end March) with revenue growth of 27.2 percent Year Over Year (Y-O-Y) to Rs 2,284 millions (FY11: Rs.1,730 million) based on provisional financials.
Credit metrics also improved, despite a decline in Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margin to the historical levels of around 8 percennt in FY13 (FY12: 9percent, FY11: 7.9 percent).
Net financial leverage declined to 0.66x in FY13 (FY12: 0.94x, FY11: 0.86x) and interest coverage improved to 6.03x (5.73x, 7.17x).
The improvement in metrics is due to the reduction in working capital debt to Rs. 92.7 million in FY13 (FY12: Rs 133.2 million), Ind-Ra noted.
The ratings also reflect the improvement in BC Sen's financial liquidity as reflected by a decline in average maximum use of the fund-based limit to 70 percent in the six months ended July 2013 from above 90 percent in the past.
The liquidity has been supported by an increase in working capital limits and a reduction in inventory holding period to 182 days in FY13 (FY12: 224 days, FY11: 203 days).
The ratings are constrained by BC Sen's working capital intensity and intense competition in the retail gold jewellery market.
The ratings also reflect risk associated with the opening of new showrooms.
The agency noted that these are to be funded by internal accruals in FY14 and FY15 and might lead to an increase in inventory and stress liquidity.
Positive: Consistent revenue growth and operating margins and credit profile being maintained on a sustained basis would result in an upgrade of the ratings.
Negative: A decline in EBIDTA margins and/or debt-led capex resulting in net debt/EBIDTA sustained above 1.5x would result in a downgrade of the ratings.
BC Sen's ratings:
Long-Term Issuer Rating: upgraded to 'IND BBB+' from 'IND BBB'; Outlook Stable
Rs 165 millions fund-based limits (enhanced from Rs 154.5 million): upgraded to Long-Term 'IND BBB+' and Short-Term 'IND A2+' from 'IND BBB' and 'IND A2'
Rs 85 million non-fund-based limits (enhanced from Rs 60 million): upgraded to Short-Term 'IND A2+' from 'IND A2'
--IBNS (Posted on 27-08-2013)