| PNP Polymers Private Limited | ||||||
| Ratings removed from 'Watch Developing' ; Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has removed its ratings on the bank facilities of PNP Polymers Private Limited (PP; part of PNP group) from 'Rating Watch with Developing Implications' and has reaffirmed the ratings at 'CRISIL BBB//CRISIL A3+' while assigning a 'Negative' outlook. |
| Analytical Approach |
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For arriving at its ratings, CRISIL has combined the business and financial risk profiles of PP and PNP Polytex Private Limited (PT). That's because the two companies, together referred to as the PNP group, are under a common management, operate in the same business, and have operational and financial linkages. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Established market position and experienced promoters: The promoters have been in the coated cloth, NFY, and other imported items trading business for over two decades and have gained insights into plastic- and textile-related products and their demand in the Indian market. Further, the group has strong association with reputed suppliers such as Formosa Industries Corporation and caters to all key consumer markets. The established position, has also enabled the group to start and stabilize its NFY manufacturing project and achieve a quick ramp-up in sales. Positive demand-supply dynamics for key products (coated cloth and NFY) also bolster the business risk profile. * Moderate financial risk profile: The networth is estimated at Rs 174.45 crore, backed by steady accretion to reserves and capital infusion while the total outside liabilities to tangible networth (TOLTNW) ratio was 1.70 times and the gearing 0.85 time as on March 31, 2019 . The interest coverage and net cash accrual to total debt ratios were also adequate in fiscal 2019 (2.40 times and 0.15 time, respectively) due to steady cash accruals. The project to set up the NFY manufacturing unit at a total cost of Rs 115 crore (debt-funded by Rs 75 crore) is complete and fully operational, as a result of which the financial risk profile is expected to remain comfortable over the medium term, driven by increasing networth and expected TOLTNW ratio of less than 1.5 times over the medium term. Weakness: * Working capital-intensive operations and exposure to sharp volatility in prices of traded goods and in forex rates: Gross current assets (GCA) were 254 days, due to large inventory of 192 days, as on March 31, 2019. That's because of the large product basket and lead time of 60-90 days in procurement as most of the traded goods and raw materials are imported. Sizeable inventory also exposes profitability to any sharp and sudden fluctuation in the prices of crude and in forex rates. Furthermore, the entire imports are against usance foreign letters of credit as the forex exposure is not completely hedged. This is mitigated by pass-through of prices to customers. Operations are likely to remain working capital intensive over the medium term. |
| Liquidity Adequate |
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Liquidity is adequate, cash accruals are expected to be in the range of Rs 20 - 23 crore over fiscal 2020 and 2021 against maturing debt of Rs 11.52 crore per fiscal respectively. The fund-based bank limits remain utilised moderately at over 75%, however the utilisation in first quarter of fiscal 2020 has been at an average of 90%. Current ratio was adequate at 1.52 times as on March 31, 2019. Liquidity is further supported by maintenance of moderate cash balances of Rs 5 - 7 crore, and support from promoters through unsecured loans of Rs 18.58 crore as on March 31, 2019. Timely enhancement in working capital limits will be critical for managing the incremental working capital requirements and liquidity. |
| Outlook: Negative |
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CRISIL believes that the COVID-19 outbreak and subsequent nationwide lockdown would constrain the near term business performance of the company thereby financial risk profile particularly liquidity. |
| Rating Sensitivity factors |
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Upward factors * Higher than expected ramp up in manufacturing sales leading to improved revenues and profitability * Significant improvement in debt protection metrics, with interest coverage and net cash accruals to adjusted debt ratios at over 3.5 times and 0.24 time respectively * Timely working capital support from suppliers Downward factors * Stretch in working capital cycle with inventories of over 220 days * Lower than expected revenues and profitability leading to lower cash accruals |
| About the Group |
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The Mumbai-based PNP group was set up in 1997 by Mr Pawan Kaushik, a non-resident Indian based in Taiwan. The group distributes and markets coated fabrics, label tape, air ventilator, synthetic wood, luggage products, webbings, warehouse racks, and roofing screws in the domestic market. It imports about 90% of goods from Taiwan, China, and Vietnam. The group also operates a multi-brand bags showroom (Bagginov) in Mumbai. Its newly set up NFY manufacturing facility has commenced commercial operations from March 2018. PP now manufactures NFY at this unit while PT trades in coated cloth and other items. |
| Key Financial Indicators | ||||||||||||||||||||||||
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Status of non cooperation with previous CRA: |
| 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) | ||||||||||||||||||||||||||||||||||||||||||
# Rs 10 crore CC as sub limit $ Rs 4.75 crore CC as sub limit | ||||||||||||||||||||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||||||||||||||||||||||||||||
#Rs 10 crore CC as sub limit $Rs 4.75 crore CC as sub limit | ||||||||||||||||||||||||||||||||||||||||||||||||
| For further information contact: | ||||||
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