By Brazil Gonsalves

India Ratings and Research (Ind-Ra) has downgraded Firestar Diamond International Private Limited’s (FDIPL) bank facilities while resolving the Rating Watch Negative (RWN) as follows:

Instrument Type

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (million)

Rating

Rating Action

Fund-based working capital facilities

-

-

-

INR3,824

IND C(SO)/IND A4(SO)

Downgraded; Off RWN

Non-fund-based working capital facilities

-

-

-

INR1,059

IND A4(SO)

Downgraded; Off RWN

Proposed working capital facilities

-

-

-

INR3,367

WD

Withdrawn (the company did not proceed with the instrument as envisaged)

KEY RATING DRIVERS

The rating action reflects a similar rating action on FDIPL’s parent company, Firestar International Private Limited (FIPL; ‘IND C’), which has extended an unconditional, absolute and irrevocable guarantee towards the rated bank facilities. FIPL’s ratings are based on a consolidated view of its businesses and financials.


FIPL’s rating action follows the determination that the ongoing investigation into the financial irregularities at common promoter companies would lead to a substantial disruption in FIPL’s operations. Freezing of FIPL’s accounts by banks and seizing of inventories by enforcement agencies, as well as absence of key management personnel have impacted the operations of FIPL and its subsidiaries.

On 14 February 2018, Punjab National Bank (PNB;
‘IND AAA’/RWN) reported fraudulent transactions worth USD1,771.7 million (about INR114 billion). This amount included the alleged fraud of INR2,807 million reported by PNB, for which an FIR was registered by the Central Bureau of Investigation on behalf of PNB against Solar Exports, Stellar Diamonds and Diamonds R US, all companies of the Nirav Modi group, and referred the matter to the enforcement agencies. Subsequently, Ind-Ra placed FIPL’s ratings on RWN on 15 February 2018.


RATING SENSITIVITIES

FDIPL’s ratings will move in tandem with that of FIPL. An improvement in the operating environment of FIPL and its subsidiaries through smooth functioning of operations with banks could result in a positive rating action.


COMPANY PROFILE

FDIPL was incorporated in 2006 as a jewellery manufacturing company for exports. It became a wholly-owned subsidiary of FIPL in March 2016 (FY15: 67% held by FIPL). FDIPL’s export jewellery manufacturing facility caters to the wholesale diamond jewellery business and is located in Surat Special Economic Zone and Jaipur, whereas its retail jewellery designing and manufacturing unit is based in Mumbai. FDIPL operates FIPL’s domestic retail business, which functions under the Nirav Modi brand. FDIPL is strategically important as FIPL maintains focus on expanding its retail presence.


FINANCIAL SUMMARY


Particulars

FY17

FY16

Revenue (INR million)

147,004

125,109

EBITDA (INR million)

7,883

7,302

EBITDA margin (%)

5.4

5.8

Interest coverage (x)

3.2

3.3

Net leverage (x)

3.8

4.3

Source: FIPL, Ind-Ra


RATING HISTORY

Instrument Type

Current Rating

Historical Rating/Outlook/Rating Watch

Rating Type

Rated Limits (million)

Rating

15 February 2018

17 March 2017

 

Fund-based working capital facilities

Long-term/Short-term

INR3,824

IND C(SO)/IND A4(SO)

IND A-(SO)/RWN/IND A2+(SO)/RWN

IND A-(SO)/Stable/IND A2+(SO)

 

 

Non-fund-based working capital facility

Short-term

INR1,059

IND A4(SO)

IND A2+(SO)/RWN

IND A2+(SO)

 

 

Proposed working capital facility

Long-term/Short-term

INR3,367

WD

Provisional IND A-(SO)/RWN/Provisional IND A2+(SO)/RWN

Provisional IND A-(SO)/Stable/Provisional IND A2+(SO)

 


COMPLEXITY LEVEL OF INSTRUMENTS

For details on complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies, structured finance and project finance companies. 

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For more information, visit www.indiaratings.co.in.

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Applicable Criteria

Analyst Names

  • Primary Analyst

    Brazil Gonsalves

    Senior Analyst
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th Floor, West Wing, Bandra Kurla Complex, Bandra East,Mumbai - 400051
    +91 22 40001764

    Media Relation

    Mihir Mukherjee

    Manager Corporate Communications and Investor Relations
    +91 22 40356121