Forever sells fine jewellery, metal ware and accessories through 146 outlets across 35 cities and has a significant export business. It is the delay in its foreign receivables that hampered the company's cash flows and put it in a serious crisis.
The company, in its debt recast proposals, said customers abroad (mostly from West Asia) suddenly stopped payment for exports made to them. Although there were intermittent delays, the company did receive a regular flow of remittances till the first week of March. Thereafter, there was a sudden and abrupt blockage of inward remittances.
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Put in a tight spot, the company was unable to pay on time to bullion banks (banks selling gold), which had given Forever gold against standby letters of credit (SBLCs) by Indian lenders. The same set of circumstances brought trouble for its sister unit Winsome Diamonds. It is also knocking on the doors of recast, with a debt pile of about Rs 4,000 crore.
Even as the company was trying to arrange short-term finance to clear irregularities, bullion banks pressed panic buttons, by invoking all SBLCs ahead of the due dates of gold loans.
In another blow to the company's balance sheet, gold prices crashed from $1,597 an ounce to $1,476, 7.6 per cent drop during April. This washed away much of the value of the gold inventories and bullion investments.
According to market sources, Forever's fortunes slipped into darkness mainly because of exposure to currency volatility and gold prices. The Jatin Mehta-promoted company tried to mitigate risks through long-term arrangement abroad, for regular supplies of diamonds.
Also, it tried to import gold on an unfixed price basis, under which the price is fixed subsequently on a back-to-back basis with customers to mitigate risks. But a delay in payments by some of these customers pushed the company into crisis.
In May, rating agency CRISIL downgraded the promoter, Winsome Group, along with group entities, including Forever, to 'D', following the default in repayments.
According to CRISIL Ratings data, for 2010-11, Forever reported a net profit of Rs 30.1 crore on net sales of Rs 1,750 crore. In 2009-10, net profit was Rs 17 crore on net sales of Rs 900 crore.
With survival at stake, Forever is reworking strategy with lenders to restructure debt, take a payment holiday and extended repayment period and some concession in interest rate. The promoters are likely to meet lenders later this month to chalk out restructuring plans.
A senior executive of a public sector bank said: "Though Winsome and Forever are distinct corporate entities, they belong to the same promoter group (Jatin Mehta). Forever has export business (jewellery), along with domestic retail operations. So, banks are taking a combined view while restructuring loans of Forever." Winsome holds 45.43 per cent in Forever. (Also read https://bsmedia.business-standard.comgoo.gl/eg9L6)
"The risk of foreign currency fluctuation was high as most of the requirement of rough diamonds and gold is met through imports. Also, the availability of adequate quantity of rough diamonds and volatility in the gold price remained a matter of concern," said a market source privy to the matter.
Managing director Jay Kumar Begani could not be reached for comment.
Insiders maintains the company had put in place a five-point strategy to service the debt. The company plans to focus on job work in jewellery, as this line of business enjoys substantially higher margins. Another step to improve margins is to source lab-grown diamonds at competitive rate.
It will also explore sale of non-core assets and take insurance cover for exporting goods to new customers. Finally, it will attempt to cut the credit period (to customers) from 180 days to 90 days.
For Forever, activity (domestic) is moving at a slow pace, making it difficult to replenish the stock after it is sold. There are issues in getting fresh credit. The company has to make advance payments to continue operations.
However, Forever's strong presence in the retail market is believed to generate sufficient cash flows to service the debt over the next two-three years.
The company sells gold jewellery in the business-to-business segment through wholesale centres in New Delhi, Gujarat, Maharashtra, Andhra Pradesh, Karnataka, and Tamil Nadu. Domestic outlets are still working but the scale of operations is low.