CARE downgrades PC Jeweller deposits to 'B' on stressed liquidity

Significant erosion in m-cap since 2018 had a weakening effect on PCJ's financial flexibility and its liquidity

CARE Ratings has downgraded rating for PC Jeweller Ltd’s (PCJ) fixed deposits from “BB+” to “B” on stressed liquidity position and deterioration in the financial flexibility of the company.

There have been instances of overutilization of its fund based and non-fund based limits in the past few months. There has been a continuous decline in market capitalization along with declining cash and bank balance of the Delhi-based Jeweller.

The rating, however, continues to derive strength from experienced promoters of the company having a long track record of operations in the G&J industry. 
 

PCJ has an established brand name for its in-house Jewellery designing and manufacturing capabilities.

The average fund- and non-fund-based limits of the company have remained almost fully utilized. The average month-end utilisation for the past 12 months ending May 2019 stood at 91.13 per cent.

The operations of PCJ are working capital intensive. Being in the retail business, the company has to maintain high levels of inventory, both in the form of raw gold and also as stock at each of its outlets of various designs to cater the taste and requirement of various customers.

Inventories of the company stood at Rs 5310 crore on September 30, 2019 as against inventory of Rs 5092 crore as on June 30, 2019 and Rs 4988.11 crore as on March 31, 2019. Increase in inventory as on Sep 30, 2019 is on account of festive seasons.

The significant erosion in its market capitalization since the beginning of 2018 had a weakening effect on PCJ’s financial flexibility and its liquidity. The market capitalization reduced significantly from Rs 12,606 crore as on March 31, 2018 to Rs 3,256 crore as on March 31, 2019 and further to Rs 1,270 crore as on November 15, 2019.

Its liquidity position has also moderated in last few quarters.  There is a decline in Cash and Bank Balance from Rs 1,491.47 crore as on March 31, 2018 to Rs 318.88 crore as on March 31, 2019 and further to Rs 159.02 crore as on September 30, 2019.