Rating Rationale
January 06, 2022 | Mumbai
Paharpur Cooling Towers Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities RatedRs.1450 Crore (Enhanced from Rs.1300 Crore)
Long Term RatingCRISIL A+/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
 
Rs.25 Crore Commercial PaperCRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A+/Stable/CRISIL A1+’ ratings on the bank facilities and commercial paper programme of Paharpur Cooling Towers Limited (PCTL).

 

PCTL’s operating performance is expected to remain steady in fiscal 2022 with topline in the range of Rs 2,300-2,500 crore driven by expectation of healthy execution in all segments: domestic cooling towers, Bangladesh cooling towers and SPG Dry Cooling Towers (SPG). Operating margin is expected to improve to 7-9% on account of higher share of industrial cooling towers in the current order book which has higher profitability. PCTL continues to hold strong order book of over Rs 3,200 crore as on September 30, 2021, providing healthy revenue visibility over the medium term.

 

In fiscal 2021, PCTL reported top line growth of 31% on year and operating margin of 6.5% (6.6% in fiscal 2020). The strong growth in top line was on account of strong growth in the SPG division which was driven by healthy execution of orderbook and some backlog of earlier years. However, this was offset by de-growth in the domestic cooling tower segment amid disruptions caused by the pandemic. The operating margin has largely remained stable as healthy execution at SPG was off set by de-growth in the domestic business, which has higher margins.

 

PCTL is expected to undertake capital expenditure (capex) of around Rs 25 core in fiscal 2022, while debt is expected to remain stable at Rs 500-550 crore. The financial risk profile is expected to remain healthy over the medium term with gearing of under 0.25 time and interest coverage of over 6 times. The financial risk profile is enhanced by a healthy quoted investment portfolio which had a market value of over Rs 1200 crore as on October 31, 2021.

 

The ratings continue to reflect PCTL’s strong financial risk profile, driven by ample financial flexibility, dominant market position and strong order book in the cooling tower segment. These strengths are partially offset by revenue concentration in the power sector, large working capital requirement, and improving but modest operating performance of SPG.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of PCTL and its subsidiaries, having common businesses and financial fungibility.

 

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Strong financial risk profile: The strong financial risk profile is supported by a large networth of Rs 2,900 crore and low gearing of 0.21 time as on March 31, 2021. Over the medium term, the company is expected to lower its debt to Rs 500-550 crore supported by improving accruals, leading to improvement in the financial risk profile. The financial flexibility of the company is further augmented by its substantial quoted investment portfolio of over Rs 1200 crore as on October 31, 2021 and sizeable non-core assets.

 

  • Dominant position in the cooling tower segment: The company enjoys a dominant market position in the domestic cooling tower segment on account of it being in the business for more than seven decades. The competitive position is backed by its diversified product portfolio, and strong technical and execution capabilities. The acquisition of the dry cooling business of SPG reaffirms the management’s strategy to further strengthen its market position and rebalance the portfolio between the wet and dry cooling businesses. Through the SPG acquisition, the company has gained access to its technology, patents, brand, and global customer base. As of fiscal 2021, revenues from SPG division contributed to nearly 53% of the total revenues (against 32% in fiscal 2020).

 

  • Strong order book in the domestic cooling tower segment: PCTL has started to witnessing traction in the cooling tower business with trends of negative revenue growth reversing since fiscal 2018. This has been on the back of healthy order execution coupled with receipt of large orders. Order book of over Rs 3,200 crore as on September 30, 2021, provides revenue visibility over the medium term.

 

Weaknesses:

  • Revenue concentration in the power sector: The cooling tower business operates in a weak industry environment as sizeable domestic power generation capacity particularly in private sector remaining unutilised. Consequently, falling plant load factors due to unutilised capacity and rising debt levels from under-construction and stuck projects made power generation companies wary of higher capacity additions. This has led to a slowdown in order inflow and execution on one hand, and delays in payments and build-up of receivables on the other. However, PCTL’s established presence in the cooling tower business and strong financial risk profile are expected to help it benefit from increase in demand as and when it materialises.

 

  • Large working capital requirement: The working capital cycle remains stretched given the exposure to the power sector, driven by receivables of 154 days as on March 31, 2021. However, the share of receivables greater than six months has come down significantly to 28% in fiscal 2021 from over 40% in fiscal 2017. While the company is focused on reducing receivables, slower project execution and tight liquidity in the market could result in receivables remaining high over the near to medium term. Ability to reduce receivables from current levels will be a key monitorable.  

 

  • Improving but modest operating performance of SPG: Operating performance of SPG segment was strong in fiscal 2021, as reflected in revenues of Rs 1470 crore and operating margin of 4.1%. The strong performance was driven by healthy execution of orderbook and some backlog of earlier years, while improvement in operating margin was on the back of operating leverage due to improved scale. Over the years, operating performance of the company has remained modest with operating margin of mid to low single digits, impacting the overall profitability. Operating performance over the medium is expected to remain modest with topline reverting to earlier years in the range of US$ 115-125 million (over Rs 900 crore) while operating margin is expected to improve to 3-4% driven by improving margins on dry cooling tower orders (against operating margins of 1.5-2.0% in fiscals 2018 and 2019).

Liquidity: Strong

Liquidity is strong driven by its quoted investment portfolio with a market value of over Rs 1200 crore as on October 31, 2021. The company’s net cash accruals would be sufficient to meet debt obligations of over Rs 100 crore in fiscal 2022. Bank limit utilisation averaged 87% over the ten months through October 2021.

Outlook: Stable

CRISIL Ratings believes that PCTL will continue to maintain its dominant market position in the cooling tower business backed by strong order book, while the company’s large investment portfolio is expected to support the financial profile.

Rating Sensitivity factors

Upward factors

  • Significant improvement in operating performance and working capital management
  • Substantial reduction in debt on account of monetisation of non-core assets
  • Healthy double digit return on capital employed

 

Downward factors

  • Significant weakening of operating performance
  • Sustained weakening in interest coverage ratios to below 2.5 times
  • Stretch in the working capital cycle weakening liquidity

About the Company

Established in 1948, PCTL is the world’s largest manufacturer of process cooling equipment with exports to over 60 countries. The company derives most of its revenue from the power sector. In March 2016, PCTL completed the acquisition of the dry cooling business of SPX Corporation Inc., one of the world leaders in the dry cooling business for USD 55 million. In addition, PCTL also has wind power generation capacity of 63.9 megawatt.

Key Financial Indicators (Consolidated)

Particulars

Unit

2021

2020

Revenue

 Rs crore

2,779

2,114

Profit After Tax (PAT)

Rs crore

141

92

PAT Margin

%

6.5

4.3

Adjusted debt/adjusted networth

Times

0.2

0.2

Interest coverage

Times

6.1

4.3

CRISIL Ratings adjusted

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)

ISIN

Name of instrument

Date of allotment

Coupon Rate (%)

Maturity Date

Issue size

(Rs cr)

Complexity

level

Rating assigned

and outlook

NA

Cash Credit

NA

NA

NA

315

NA

CRISIL A+/Stable

NA

Cash Credit

NA

NA

NA

35

NA

CRISIL A+/Stable

NA

Letter of credit & Bank Guarantee^

NA

NA

NA

335

NA

CRISIL A+/Stable

NA

Letter of credit & Bank Guarantee^

NA

NA

NA

80

NA

CRISIL A1+

NA

Letter of credit & Bank Guarantee^^

NA

NA

NA

260

NA

CRISIL A1+

NA

Letter of credit & Bank Guarantee

NA

NA

NA

200

NA

CRISIL A1+

NA

Letter of credit & Bank Guarantee^^^

NA

NA

NA

125

NA

CRISIL A1+

NA

Letter of credit & Bank Guarantee^^^^

NA

NA

NA

100

NA

CRISIL A1+

NA

Commercial Paper

NA

NA

7-365 days

25

Simple

CRISIL A1+

^Fully interchangeable

^^Sub-limit of Rs 120 crore for letter of credit

^^^Sub-limit of Rs 50 crore for letter of credit

^^^^Sub-limit of Rs 65 crore for letter of credit

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Industrial And Prudential Investment Company Limited (Consolidated)

46.07%

Strong managerial, operational, and financial linkages

Paharpur Cooling Technologies Private Limited

Full

Strong managerial, operational, and financial linkages

Paharpur Cooling Towers Bangladesh Limited

Full

Strong managerial, operational, and financial linkages

Safind Forest Products Pty Ltd.

51%

Strong managerial, operational, and financial linkages

Paharpur Mauritius Limited

Full

Strong managerial, operational, and financial linkages

Paharpur Cooling Technologies (Singapore) Pte Limited

Full

Strong managerial, operational, and financial linkages

Paharpur Europe S.A.

Full

Strong managerial, operational, and financial linkages

SPG Dry Cooling Belgium S.R.L

Full

Strong managerial, operational, and financial linkages

SPG Dry Cooling Technologies (Beijing) Co. Ltd

Full

Strong managerial, operational, and financial linkages

SPG Dry Cooling Technologies (Zhangjiakou) Co. Ltd

Full

Strong managerial, operational, and financial linkages

Paharpur SPG Dry Sogutma Ticaret Limited Sirketi

Full

Strong managerial, operational, and financial linkages

SPG Dry Cooling USA LLC

Full

Strong managerial, operational, and financial linkages

SPG Dry Cooling Italia S.R.L

Full

Strong managerial, operational, and financial linkages

Paharpur Nizeria FZE

Full

Strong managerial, operational, and financial linkages

Paharpur Natural Resources Pty Ltd

Full

Strong managerial, operational, and financial linkages

 

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 350.0 CRISIL A+/Stable   -- 29-01-21 CRISIL A+/Stable 10-01-20 CRISIL A+/Stable 17-10-19 CRISIL A+/Watch Developing CRISIL A+/Watch Developing
      --   --   --   -- 24-07-19 CRISIL A+/Watch Developing --
      --   --   --   -- 30-05-19 CRISIL A+/Watch Developing --
      --   --   --   -- 30-04-19 CRISIL A+/Watch Developing --
      --   --   --   -- 06-02-19 CRISIL A+/Watch Developing --
Non-Fund Based Facilities ST/LT 1100.0 CRISIL A1+ / CRISIL A+/Stable   -- 29-01-21 CRISIL A1+ / CRISIL A+/Stable 10-01-20 CRISIL A1+ / CRISIL A+/Stable 17-10-19 CRISIL A1 / CRISIL A+/Watch Developing CRISIL A1
      --   --   --   -- 24-07-19 CRISIL A1 / CRISIL A+/Watch Developing --
      --   --   --   -- 30-05-19 CRISIL A1 / CRISIL A+/Watch Developing --
      --   --   --   -- 30-04-19 CRISIL A1 / CRISIL A+/Watch Developing --
      --   --   --   -- 06-02-19 CRISIL A1 / CRISIL A+/Watch Developing --
Commercial Paper ST 25.0 CRISIL A1+   -- 29-01-21 CRISIL A1+ 10-01-20 CRISIL A1+ 17-10-19 CRISIL A1 CRISIL A1
      --   --   --   -- 24-07-19 CRISIL A1 --
      --   --   --   -- 30-05-19 CRISIL A1 --
      --   --   --   -- 30-04-19 CRISIL A1 --
      --   --   --   -- 06-02-19 CRISIL A1 --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 160 HDFC Bank Limited CRISIL A+/Stable
Cash Credit 35 Kotak Mahindra Bank Limited CRISIL A+/Stable
Cash Credit 50 Standard Chartered Bank Limited CRISIL A+/Stable
Cash Credit 55 ICICI Bank Limited CRISIL A+/Stable
Cash Credit 25 Axis Bank Limited CRISIL A+/Stable
Cash Credit 25 The Federal Bank Limited CRISIL A+/Stable
Letter of credit & Bank Guarantee 120 Exim Bank CRISIL A1+
Letter of credit & Bank Guarantee^ 30 YES Bank Limited CRISIL A1+
Letter of credit & Bank Guarantee^^^^ 100 Standard Chartered Bank Limited CRISIL A1+
Letter of credit & Bank Guarantee^^ 260 ICICI Bank Limited CRISIL A1+
Letter of credit & Bank Guarantee^^^ 125 Axis Bank Limited CRISIL A1+
Letter of credit & Bank Guarantee^ 50 The Federal Bank Limited CRISIL A1+
Letter of credit & Bank Guarantee 80 Exim Bank CRISIL A1+
Letter of credit & Bank Guarantee^ 220 HDFC Bank Limited CRISIL A+/Stable
Letter of credit & Bank Guarantee^ 115 Kotak Mahindra Bank Limited CRISIL A+/Stable

^Fully interchangeable

^^Sub-limit of Rs 120 crore for letter of credit

^^^Sub-limit of Rs 50 crore for letter of credit

^^^^Sub-limit of Rs 65 crore for letter of credit

This Annexure has been updated on 06-Jan-2022 in line with the lender-wise facility details as on 06-Jan-2022 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Engineering Sector
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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