Working capital loans of R4,300 crore given to Gitanjali Gems have been restructured under the joint lenders’ forum (JLF) mechanism, as per documents examined by FE and bankers privy to the discussions. Credit to the branded jewellery maker has also been enhanced by R1,000 crore.
A senior banker familiar with the development said the government had written to the consortium of lenders earlier this month, asking why some of them had delayed the disbursement of loans that had been sanctioned. The Gitanjali
exposure was classified as a special mention account-2 (SMA-2) last year after the company failed to fulfil its payment obligations for more than 60 days, triggering the formation of a JLF. The consortium comprises 21 lenders.
For the nine months ended December 31, 2014, the company’s net sales fell 17% to R7,994 crore, over the corresponding period in 2013, while finance costs rose 30% to R700 crore. Net profit for the period was flat at R125 crore.
Gitanjali’s consolidated sales fell 24% year-on-year (y-o-y) to R12,436 crore in FY14, driving down the Ebitda (earnings before interest tax, depreciation and amortisation) by 22% to R812 crore. Higher finance costs, which jumped 79% to R705 crore , saw net profit nearly halve to R34 crore. The net debt at the end of March 2014 rose 62% to R8,361 crore.
The company announced on April 21 that it is consolidating the business at group level to improve cash flows and reduce costs in various activities such as sourcing, manufacturing, distribution, exporting and retailing. It proposed the merger of three of its subsidiaries Asmi Jewellery India and Spectrum Jewellery with Nakshatra Brands and also the merger of Gitanjali Jewellery Retail and Gitanjali Lifestyle with GILI India.
In its Q3FY15 results posted in February 2015, the company’s auditors drew attention to five issues identified in Gitanjali’s books. They pointed to the “overdrawing and non-payment of interest and charges on bank facilities for nine month period ending December 31, 2014”.
The company’s response was that “the business of the group continues to be impacted due to regulatory restrictions on import of gold and unfavourable INR vs USD currency fluctuation. The consortium of bankers have assessed enhanced working capital requirements and the sanctions are awaited with modified terms.
The group’s overdrawn position in the working capital account as on December 31, 2014 amounted to around Rs 146.69 crore which is mainly on account of non-servicing of interest and charges.”
Auditors also noted that 13 of the company’s subsidiaries have a negative net worth, and Gitanjali replied saying that the subsidiaries are “strategic investments” and that the “holding company along with the management of respective subsidiaries are considering various options of reviving and making them viable”.
The company has not paid self-assessment tax for AY 2013-14 of around R58.23 crore and indirect taxes of about R9.57 crore at the end of Q3FY15. Gitanjali has also sought rescheduling its repayment of ECB loans with IDBI, with the RBI providing in-principle approval for the rescheduling, the company said.
The gems and jewellery sector has been under stress owing to a rise in customs duty, RBI-imposed restrictions on gold imports and a volatile rupee.
“Gitanjali being one of the largest players in the Indian jewellery space was also impacted by these regulations,” Gitanjali’s CMD Mehul Choksi said in the company’s FY14 annual report. “During (FY14), the company witnessed a decline in turnover due to the reduced gold jewellery sales. These regulatory changes also impacted margins of the company. Further, the company had to significantly rationalise its operational costs primarily the manpower and administration costs.” When approached for a response, the company said it was not in a position to respond immediately.