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Sangeetha Mobiles Private Limited
April 05, 2018
Summary of rated instruments
Instrument*
Previous Rated Amount
(Rs. crore)
Current Rated Amount
(Rs. crore)
Rating Action
Fund Based- Overdraft
-
1.0
[ICRA]BBB+ (Stable); upgraded
from [ICRA]BBB (Stable)
Fund based-Working Capital
Limits
30.0
21.0
[ICRA]A2; Upgraded from
[ICRA]A3+
Fund Based/Non-Fund Based
Interchangeable Limits
38.0
38.0
[ICRA]A2; Upgraded from
[ICRA]A3+
Unallocated Limits
-
40.0
[ICRA]BBB+ (Stable)/[ICRA]A2;
upgraded from [ICRA]BBB (Stable)/
[ICRA]A3+
Fund Based/Non-Fund Based
Interchangeable Limits
2.0
-
-
Total
70.00
100.00
Rating action
ICRA has upgraded the long-term rating to [ICRA]BBB+ (pronounce ICRA triple B plus) from [ICRA]BBB (Stable) for the
Rs.1.0-crore
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overdraft facility of Sangeetha Mobiles Private Limited (SMPL). ICRA has upgraded the short-term assigned
to the Rs.21.0-crore (reduced from Rs.30.0-crore) working capital limits and Rs.38.0-crore interchangeable limits of SMPL
from [ICRA]A3+ (pronounced ICRA A three plus) to [ICRA]A2 (pronounced ICRA A two). ICRA has upgraded the long-term
and short-term ratings to [ICRA]BBB+ and [ICRA]A2 for the Rs.40.0-crore (enhanced from nil) unallocated limits SMPL.
The outlook on the long-term rating is ‘Stable’.
Rationale
The rating upgrade takes into account the healthy revenue growth during FY2017 and 9MFY2018 in SMPL’s operating
income with inclusion of Xiaomi in its product portfolio, coupled with the addition of new stores and increase in average
selling price of mobile phones. The rating also factors in SMPL’s strong financial profile characterised by conservative
capital structure and comfortable coverage indicators with steady accruals supporting the net worth and the absence of
any major debt funded capital expenditure plans. The ratings also draw comfort from the company’s established
presence and long-standing experience of the promoters in the mobile phone retailing business, SMPL’s status as one of
the key mobile hand-set retailers in South India and its long-term association with top mobile phone brands and national
distributors which is expected to aid business growth.
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100 lakh = 1 crore = 10 million
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The rating, however, remains constrained by the thin margins inherent in the retail business on account of the trading
nature of operations and intense competition across markets. The rating also considers high revenue dependence of the
company on the South Indian market (particularly Karnataka) exposing it to geographical concentration risk and high
product concentration risk with top-3 brands accounting for 69% of the total sales of the company during 9MFY2018.
With the ongoing expansion plan, increasing scale of operations and the seasonal nature of business, the company’s
ability to manage its cash flows as well as the working capital requirements will be key rating sensitivities. In addition, the
company’s ability to execute its planned capex in a timely manner, and its ability to generate commensurate returns
from the new stores remains to be seen.
Outlook: Stable
The stable outlook reflects ICRA’s expectation that the group will continue to benefit for its established presence in the
market and promoters’ experience in the industry. The outlook may be revised to ‘Positive’ if the company maintains the
healthy revenue growth trend while maintaining its profitability and coverage indicators and efficiently managing its
working capital requirements. Conversely, the outlook may be revised to 'Negative' with any significant debt-funded
capital expenditure or higher-than-expected increase in short-term borrowings for managing temporary cash flow
mismatches, leading to weakening in the liquidity position of the company.
Key rating drivers
Credit strengths
Established presence and long-standing experience of the promoters in the mobile phone retailing business- SMPL
commenced operations in 2008 as a mobile retailer and has been adding stores year on year, primarily into the South
India mobile retail market. The company enjoys credible working relationships with all marquee names in the mobile
handset industry and has won many accolades from all the Original Direct Manufacturers (ODM’s).
Healthy increase in sale driven primarily by increase in ASP (Average Selling Price) and rise in volumes coupled with
increase in number of stores - SMPL has witnessed a healthy increase in sales from Rs. 660.8 crore in FY2016 to Rs. 1145
crore in 9MFY2018. This increase in sales can be primarily attributed to inclusion of Xiaomi to its product portfolio which
contributed to ~32% of its sales during 9MFY2018 and increase in ASP of phones from Rs. 7657 in FY2016 to Rs. 9269
during 9MFY2018, a healthy 21% increase. The ASPs of all the products of the company have increased due to rollout of
4G and data networks which is pushing up the average selling price of smartphones.
Strong market position in the region – SMPL is one of the largest retailer of mobile phones in South India with a total of
434 stores spread across the states of Karnataka, Tamil Nadu, Andhra Pradesh, Telangana and Gujarat. The number of
stores increased from 315 in FY2017 to 434 in 9M FY2018. The company is expected to expand further by opening ~200
more stores in FY2019, thereby substantially increasing its scale of operations.
Financial profile characterized by healthy capital structure and coverage indicators - The company has comfortable
capital structure owing to low reliance on external debt as indicated by a gearing of 0.5 times as on March 31, 2017. The
coverage indicators also remain healthy as indicated by interest coverage of 4.2 times and Total debt/OPBITDA of 0.8
times during FY2017.
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Credit challenges
Low profitability owing to trading nature of operations - The profitability levels of the company has remained low due
to trading nature of the business, albeit the same witnessed improvement during FY2017 with operating margins
improving from 3.1% in FY2016 to 5.3% in FY2017 with direct procurement from ODM’s. However, the same is expected
to moderate going forward with decline in margins from Chinese manufacturers which contributed to ~61% of sales of
SMPL during 9MFY2018.
Aggressive capex plans in the near term to expand footprint - The company has incurred capex of Rs. 26.1 crore in
FY2017 towards opening of new stores (110 stores) during the period and purchase of land bank for shifting the head
office. ICRA notes that SMPL continues to remain in the growth phase with the management indicating addition of 200-
245 stores on an annual basis in the next two fiscals. The company’s plans to undertake significant capital expenditure
every year renders it dependent on good performance of its stores, given the significant funding for the capex is
envisaged through internal accruals.
High product concentration - High product concentration risk as top three brands contributed to more than two-third of
revenues during 9MFY2018. The company has high dependence on vendor’s strategy for the Indian markets, the success
of their products and pace of new launches in a highly competitive industry scenario.
High geographic concentration risk - SMPL’s operations are geographically concentrated with almost 99% of its stores
confined to the states of South India thereby exposing it to high geographic concentration risks.
Intense competition across product categories limits pricing flexibility and margins; strong brand presence and
focussed marketing initiatives support footfalls - The mobile retail industry is characterized by high competitive
intensity due to its fragmented nature with a considerable volume share enjoyed by many small unorganized players,
continuous expansion undertaken by a few large regional players, presence of e-commerce players and relatively low
brand loyalty existing among consumers. However, due to its strong brand presence and its focused marketing
initiatives, SMPL has been able to maintain a healthy market position leading to stable volumes and earnings over years,
despite limited pricing flexibility.
Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below.
Links to applicable criteria:
Corporate Credit Rating Methodology
Rating Methodology for retail entities
About the company:
Incorporated in 2008, Sangeetha Mobiles Private Limited (“SMPL”/the company) is engaged in multi-brand retail
business of mobile handset sales in the state of Karnataka, Tamil Nadu, Andhra Pradesh and Telangana. SMPL deals with
all leading mobile handset manufacturers such as Apple, Samsung, Xiaomi, Sony, LG, HTC, Vivo, Gionee and Lava among
others through its retail network of ~434 stores across South India. Mr. Subhash Chandra, the Managing Director along
with his family and Group company, holds 100.0% equity stake in SMPL as on March 31, 2017. The company has two
wholly owned subsidiaries, Anu Distributors India Private limited and Wham Infocom Private Limited, which are engaged
in mobile distribution business.
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In FY2017, the company reported a net profit of Rs. 1.2 crore on an operating income of Rs. 63.7 crore compared to a net
profit of Rs. 1.0 crore on an operating income of Rs. 64.2 crore in the previous year.
Key Financial Indicators (Audited)
FY 2016
FY 2017
Operating Income (Rs. crore)
660.8
880.2
PAT (Rs. crore)
3.4
16.8
OPBDIT/ OI (%)
3.1%
5.3%
RoCE (%)
16.6%
37.4%
Total Debt/ TNW (times)
0.6
0.5
Total Debt/ OPBDIT (times)
1.6
0.8
Interest coverage (times)
2.0
4.2
NWC/ OI (%)
7.7%
8.4%
Status of non-cooperation with previous CRA: Not applicable
Any other information: None
Rating history for last three years:
Instrument
Current Rating (FY2019)
Chronology of Rating History for the
past 3 years
Type
Amount
Rated
(Rs.
crore)
Date & Rating
Date &
Rating
in
FY2018
Date &
Rating in
FY2017
Date &
Rating in
FY2016
Apr 2018
-
Dec, 2016
Jun, 2015
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Fund Based/Non-Fund
Based
Interchangeable
Limits
Long/Short
Term
-
-
-
-
[ICRA]BBB
(Stable)/
[ICRA]A3+
-
2
Fund Based- Overdraft
Long Term
1.0
-
[ICRA]BBB+
(Stable)
-
-
[ICRA]BBB
(Stable)
3
Fund based-Working
Capital Limits
Short
Term
21.0
20.8
[ICRA]A2
-
[ICRA]A3+
-
4
Fund Based/Non-Fund
Based
Interchangeable
Limits
Short
Term
38.0
-
[ICRA]A2
-
[ICRA]A3+
-
5
Unallocated Limits
Long/Short
Term
40.0
-
[ICRA]BBB+
(Stable)/
[ICRA]A2
-
-
-
Complexity level of the rated instrument:
ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The
classification of instruments according to their complexity levels is available on the website www.icra.in
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Annexure-1: Instrument Details
ISIN No
Instrument Name
Date of
Sanction
Coupon
Rate
Maturity
Date
Amount
Rated
(Rs. crore)
Current Rating and
Outlook
NA
Fund Based- Overdraft
-
-
-
1.0
[ICRA]BBB+
(Stable)
NA
Fund based-Working
Capital Limits
-
-
-
21.0
[ICRA]A2
NA
Fund Based/Non-Fund
Based Interchangeable
Limits
-
-
-
38.0
[ICRA]A2
NA
Unallocated Limits
-
-
-
40.0
[ICRA]BBB+
(Stable)/ [ICRA]A2
Source: SMPL
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ANALYST CONTACTS
Ritika Periwal
+91 80 49225562
ritika.mundhra@icraindia.com
Spreeha Aishwarya
+91 80 49225568
spreeha.aishwarya@icraindia.com
RELATIONSHIP CONTACT
MEDIA AND PUBLIC RELATIONS CONTACT
Helpline for business queries:
+91-124-2866928 (open Monday to Friday, from 9:30 am to 6 pm)
About ICRA Limited:
ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
companies as an independent and professional investment Information and Credit Rating Agency.
Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit
Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.
For more information, visit www.icra.in
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ICRA Limited
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ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to a process of
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