| O2z Trading & Industries Private Limited | ||||
| 'CRISIL BB-/Stable' assigned to Bank Debt | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed rationale: CRISIL Ratings has assigned its ‘CRISIL BB-/Stable’ rating to the long-term bank facilities of O2z Trading & Industries Private Limited (O2Z).
The rating reflects extensive industry experience of the promoters, moderate DSCR coupled with escrow mechanism and adequate liquidity. These strengths are partially offset by exposure to regulatory risk and climatic conditions, susceptibility to hydrology risks and small scale of operations. |
Key Rating Drivers & Detailed Description Strengths Extensive industry experience of the promoters: The promoters have an experience of over 5 years in independent power producers & energy traders industry. This has given them an understanding of the dynamics of the market, and enabled them to establish strong relationships with suppliers and customers.
Moderate DSCR coupled with escrow mechanism: The debt service coverage ratio (DSCR) is likely to be greater than unity in the next three years as well as over the repayment tenor. Also, an escrow mechanism ensures priority of term loan repayment.
Weaknesses Exposure to regulatory risk and climatic conditions: Although, the entity reported a healthy average plant load factor (PLF) of around 70 per cent since inception, maintenance of the PLF will be a challenge. Although, it has entered into long-term power purchase agreement (PPA) of 12 years with the captive off-takers i.e. Asian Hotels & Avduth at fixed tariff, it remain exposed to regulatory risk such as change in tariff. Moreover, the nation-wide 2nd wave of the COVID-19 pandemic may restrict cash inflow from some of the counterparties.
Susceptibility to hydrology risks: Despite a detailed hydrology analysis to mitigate future risk, power generation will continue to depend on availability of adequate water flow. Water level in river depends on annual yield of rainfall from south-west monsoon (June-November). The key risk is 'spread of rainfall' across the monsoon: the more the even inflows into the river, the longer the peak power generation periods and vice versa. However, this risk is mitigated by catchment areas that are well-designed to ensure plant operates at low PLF.
Small scale of operations: Since the company has commissioned its project only in March 2020, it has limited track record. O2Zs’ business profile is constrained by its small scale of operations in the intensely competitive independent power producers & energy traders industry. However, the trading of Kashmiri handicraft items provide some cushion. The company is expected to record revenue of only around Rs 14 crore in fiscal 2021 (as against Rs 5.13 crore in the previous fiscal). O2Z’s small scale of operations will continue to limit its operating flexibility. |
Liquidity: Adequate Bank limit utilisation was low at 53% on average over the 6 months through March 2021. Expected annual net cash accrual of Rs 2-6 crores would be more than sufficient to meet debt repayment obligation of Rs 2-3.5 crores per annum over the medium term. However, current ratio is estimated to be low at 0.95 times as on March 31, 2021. |
Outlook: Stable CRISIL Ratings believes O2Z will maintain its stable debt servicing coverage ratio (DSCR) over the medium term, backed by steady cash inflow. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company O2Z was incorporated in 2013 by the Zaroo family. The company is primarily into the export of Kashmiri handicraft items crafted by a group of 200 local artisans. O2Z has its showrooms in Mumbai, Delhi, Muscat, Kuwait & UAE. O2Z has recently completed construction of a 5 MW hydro power plant on a small tributary river of Ahlan at Ichoo district of Anantnag in J&K. The project was commissioned in March 2020 and is promoted by Mr. Obaid Ishaq Zaroo and Mr. Ovaice Ishaq Zaroo. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||
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Criteria Details
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