There has been a skirmish around Nathella Sampath Jewellery repaying the customers of its gold saving schemes.
One way in which investors in the gold scheme could have skirted trouble was by looking at the company’s credit rating. Most banks insist that companies get a credit rating before they lend to them.
In October 2016, Nathella Sampath had been rated by CARE at BBB, one step above least investment grade. The rating agency had then indicated that the company’s average utilisation of funds was almost full, implying that the liquidity position was tight.
Dearth of information
Subsequently, the company did not share any information for reviewing the ratings. In line with SEBI regulations, CARE moved the rating to “Issuer not co-operating” category in August 2017. This move indicates that the ratings already assigned by the rating agency can no longer be used by the company.
More recently, immediately after a customer filed a complaint against Nathella Sampath over a delay in the repayment of his dues, CARE moved the company to “Default” rating, based on publicly available information.
Had they kept track of these rating changes, existing and potential investors may have been suitably warned about impending trouble.
Nathella Sampath is more than seven decades old, and has seven retail showrooms — five in Chennai and one each in Hosur and Vellore. While its revenue growth had been flat, its operating margins had been falling.
As per the FY16 audited numbers, it reported operating revenue of ₹1,428 crore (₹1,415 crore in FY15), EBITDA margin of 4.93 per cent (5.25 per cent) and PAT of ₹16 crore (₹18 crore). The company had debt of ₹355 crore on its books as of October 2016. Its repayment capacity was deteriorating with interest cover moving down to 1.64 in FY16 from 1.78 in FY15. The operating cycle was also getting stretched. These numbers are available on the rating agency’s website and can be viewed by all.
There are many jewellery retailers in all regions offering gold saving schemes not regulated by either the RBI or SEBI. In such cases, investors can check the rating of the company before making investments. Ratings above BBB- are investment grade and ratings below that are non-investment grade. ‘Investment grade’ indicates investors can consider putting in their funds. ‘Non-investment grade’ rating is where the investment is unsafe and there is a high likelihood of default.
SourCe:-.thehindubusinessline