Rationale

 To arrive at the ratings, ICRA has considered the consolidated business risk profile of Contemporary Brokers Pvt Ltd (CBPL) and its group entity - Contemporary Targett Private Limited (CTPL), henceforth referred to as the Group, given the close managerial and financial linkage among these companies and the extension of corporate guarantee (CG) to CBPL by CTPL. CTPL is also the parent entity of CBPL under Section 2(87)(i) of Companies Act 2013. The reaffirmation of the ratings factors in CBPL’s favourable business risk profile, considering the regulated nature of the tea auction process under the purview of the Tea Board of India, and the established market position of the Group in the tea broking and oral care industries. In tea operations (under CBPL), the presence of an escrow mechanism supports the collection of commission income as well as the trade advances extended to some of the tea producers against a custody of saleable tea through auction. In the oral care business (under CTPL), the back-to-back sales favourably support the credit risk profile of the entity. The performance of CBPL improved in the last fiscal on the back of healthy realisations of tea sold in the auction process. However, in the current fiscal, subdued realisations are expected to moderate CBPL’s topline even as the higher volume of tea auctioned in this current fiscal is expected to offset the impact to an extent. ICRA also notes that the performance of CTPL moderated in the last and current fiscal on account of subdued volume due to low demand of toothbrushes by the offtaker. Nonetheless, the ratings continue to take comfort from the favourable financial risk profile of the Group, reflected in a conservative capital structure and nil term debt. Further, CBPL’s business of extending trade advances generates a net interest income for the entity, reducing pressure on the profits. The ratings, however, are constrained by the modest scale of operations. The ratings also remain impacted by the commodity concentration risk for CBPL as the business entirely depends on a single agro-commodity, tea. Besides, CTPL faces product concentration risk as it undertakes contract manufacturing of only toothbrushes for their principals. The ratings also factor in CBPL’s working capital intensive nature of operations with the requirement of sizeable trade advances to be extended to the tea producers. The Stable outlook on the long-term rating reflects ICRA’s opinion that the Contemporary Group will be able to maintain its business position, given its established track record of operations in the tea broking and oral care industries, while sustaining its profitability in the long run.