| P N International Private Limited | ||||||
| Ratings reaffirmed at 'CRISIL A- / Stable / CRISIL A2+ ' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A-/Stable/CRISIL A2+’ ratings on the bank facilities of PN International Pvt Ltd (PNI; part of the Karam group).
The ratings continue to reflect the group’s strong market position and the extensive experience of the promoters in the safety equipment segment. In May 2020, P N International was reconstituted as a private limited company from a partnership firm. During fiscal 2020, the partners had withdrawn capital of Rs 82.87 crore and simultaneously the promoters extended unsecured loans of Rs 75 crore. Karam Industries (KRM), part of the Karam group, is also to be reconstituted as a private limited company. Sustainability of the networth is a key rating sensitivity factor. Higher competition, pressure on end-user industries and lower demand from the European market, combined with the impact of the Covid-19 pandemic have led to muted revenue and lower profitability in fiscal 2020. Operating performance is expected to improve in fiscal 2021, as the group has booked revenue of Rs 256.69 crore till November 2020.
Despite capital withdrawals, the financial risk profile remains robust backed by a strong networth and healthy profitability. These strengths are partially offset by large working capital requirement and susceptibility to volatile raw material prices and foreign exchange (forex) rates, and to intense competition. |
Analytical approach
Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
The promoters, Mr Rajesh Nigam and Mr Hemant Sapra, have industry experience of over two decades. Before establishing the group, they traded in safety equipment through PN Safetech (set up in 1994). They have introduced new products over the years, which, along with a strong client and supplier relationship, has led to healthy growth in revenue. Operating profitability is high on account of the gradually developed in-house manufacturing line, consistent introduction of new products that command higher margins, presence in a niche segment, and established brand in the domestic as well as global markets.
The financial risk profile is strong despite continuous capital withdrawals, and should remain stable over the medium term, backed healthy accretion to reserves, low reliance on borrowing and a comfortable capital structure. The gearing improved to 0.13 time as on March 31, 2020, from 0.15 time a year earlier. The networth is estimated at more than Rs 270 crore as on March 31, 2021, and is expected to continue to increase gradually over the medium term backed by healthy profitability and low dependence on external debt. Debt protection metrics should remain comfortable over the medium term due to healthy profitability; the interest coverage ratio was 28.8 times in fiscal 2020.
Weakness:
Gross current assets (GCAs) were high at 221 days because of inventory and receivables of 125 days and 77 days, respectively, and high cash and bank balances, as on March 31, 2020. Working capital requirement is partly managed through payables of 54 days, while the rest is met through internal cash accrual, thus limiting reliance on bank debt. Nonetheless, working capital requirement remains high because of larger inventory as the group imports 5-10% of its requirement (as per quality and specifications), which entails a lead time of around 45 days in delivery and orders are made as per minimum lot size; this has resulted in a considerable increase in GCAs. Controlled working capital management remains critical and will be monitored. Any further stretch in the working capital cycle, impacting liquidity, will be rating sensitivity factor.
The business remains exposed to cyclicality in end-user industries. Further, 60% of revenue is derived from exports and around 10% of requirement is imported, thus providing a partial hedge. Though open positions are hedged through forward contracts, operations remain susceptible to sharp changes in forex rates. Further, prices of key raw materials (yarn and steel) are volatile; as these constitute around 65% of the total cost of sales, any fluctuation in their prices can adversely affect the operating margin. Any economic downturn, impacting demand, and competition from market players pose an additional challenge and also limit bargaining power. |
Liquidity: Strong Cash accrual is expected at more than Rs 55.0 crore per fiscal in fiscals 2021, 2022 and 2023, against nil debt obligation. Bank limit utilisation was low at 23.44% during the 12 months through December 2020. Unencumbered cash balances/fixed deposits were healthy at about Rs 11.31 crore and Rs 19.51 crore, as on March 31, 2020, and November 30, 2020, respectively. The current ratio remained comfortable at 2.33 times as on March 31, 2020. |
Outlook: Stable The Karam group should continue to benefit from the extensive experience of the promoters. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Group PNI and KRM were set up as partnership firms in 2004 and 2006, respectively, by Mr Rajesh Nigam and Mr Hemant Sapra. The Lucknow-based firms manufacture personal protective equipment such as rings, buckles, hooks, connectors, anchors, pulleys, rope grabs and parachute angles. In May 2020, P N International was reconstituted as a private limited company. |
Key financial indicators – Karam group
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Status of non cooperation with previous CRA: PNI has not cooperated with India Ratings and Research Pvt Ltd, which has classified it as non-cooperative through a release dated January 15, 2019. The reason provided is non-furnishing of information for monitoring the ratings. |
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)
**Packing credit limit Rs 29.00 #Cash credit limit Rs 5 crore |
Annexure – List of entities consolidated
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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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**Packing credit limit Rs 29.00
#Cash credit limit Rs 5 crore
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