Rationale

 The revision in outlook to Negative from Stable for Big C Mobiles Pvt. Ltd. (BMPL) factors in the sustained moderate debt coverage metrics in FY2024, which is expected to continue in FY2025 due to increase in selling and marketing expenses and operating losses from its subsidiary, Big C Mobiles TN Pvt Ltd. The company’s adjusted1 interest coverage remained below 2.4 times over the last two fiscals and is projected to remain moderate at 2.5 times in FY2025. Further, its TOL/TNW ratio remains high at 5.1 times as on March 31, 2024 (PY: 4.4 times) and is likely to remain elevated as on March 31, 2025, owing to a moderation in net worth with continued expected losses in the subsidiary. The rating reaffirmation for BMPL factors in the promoters’ significant experience in the mobile retailing business leading to established relationships with major mobile phone suppliers. The company operates 227 stores under the brand ‘Big C’ as of June 2024, with reputed presence and a strong market position in Andhra Pradesh and Telangana. The rating considers an estimated revenue growth of 5% year-on-year (YoY) in FY2025, supported by higher sales of high-end mobile phones and operating margins are expected to be low around 1.4-1.5%. The company has enhanced its working capital limits to Rs. 49.5 crore in November 2023 from Rs. 40 crore to support the increase in its scale of standalone operations and inventory levels of its subsidiary. However, the average utilisation remained high at 83% during April 2023 to August 2024, providing limited cushion. The flexibility to reduce the directors’ remuneration and availability of need-based unsecured loans from promoters support the liquidity to an extent. The ratings are constrained by the high brand concentration risk with the top three brands – Vivo, Xiaomi, and Samsung, contributing to ~60% of the total sales in FY2024. Despite the company’s foray into Tamil Nadu, it is exposed to geographical risk, as it generates more than 95% of the total sales from stores in Andhra Pradesh and Telangana. The ratings also consider the intense competition in the industry from e-commerce players, other large mobile retail chains and unorganised stores.