Rationale

 The rating reaffirmation factors in the favourable financial risk profile of M/s. Purushottam Narayan Gadgil (PNG or the firm), as characterised by low gearing, healthy debt protection metrics as well as comfortable liquidity position. The rating also takes into account the established market position of PNG in its area of operations (primarily in Sangli and Kolhapur, Maharashtra), along with a track record of more than 190 years in the gold jewellery retail industry. ICRA expects the firm’s credit profile to remain comfortable, given the favourable long-term demand outlook for organised jewellery retailers in the country, underpinned by their growing penetration, evolving lifestyle and growing disposable incomes of consumers and cultural affinities. In FY2024, the firm’s sales volume moderated by around 15% due to very high prices of gold. However, the higher prices supported the increase of ~8% in revenues to Rs. 1,928.7 crore (as per provisional financials). In the current fiscal, elevated gold prices might impact sales volume to an extent. Nonetheless, the revenues are expected to increase, driven by higher realisations. The firm, however, remains exposed to geographical and product concentration risks as it generated over 68% of its revenues from the Sangli and Kolhapur markets and 95% of revenues from gold jewellery in FY2024. ICRA notes that the firm plans to open two new stores in FY2025 with total cost of around Rs. 27 crore, which is to be funded through internal accruals; however, they will require additional inventory and funding for the same. While efficient working capital management provides comfort to an extent, the earnings remain vulnerable to fluctuations in gold prices due to lack of formal hedging practices. PNG is also exposed to the risks inherent in partnership firms, including the risk of capital withdrawal. ICRA notes that the partners have been withdrawing ~5-8% of its annual profit after tax (PAT) and expects the trend to continue. The rating also factors in the intense competition in the industry, the fragmented industry structure, and inherent regulatory risks, that may have an impact on the business prospects. The Stable outlook on the rating reflects ICRA’s opinion that the firm will continue to benefit from the extensive experience of the promoters and established market position of the PNG brand in the gold retail business, particularly in south-western Maharashtra.