Rating Rationale
June 09, 2020 | Mumbai
Parekh Innovative Logistics Solutions Private Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.5 Crore
Long Term Rating CRISIL BBB-/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL BBB-/Stable' rating on the long term bank facilities of Parekh Innovative Logistics Solutions Private Limited (PILSPL; Part of Parekh Group)
 
CRISIL's rating continue to reflect benefits that Parekh group derives from the extensive experience of its promoters in the logistics industry, its longstanding relationship with key clients and adequate debt protection metrics and liquidity. These rating strengths are partially offset by the average capital structure because of secured but elongated receivables.

Analytical Approach

For arriving at the ratings CRISIL has combined the business and financial profiles of PILSPL, and its group entities: Parekh Polymer Distributors LLP (PPD); Parekh Plastichem Distributors LLP (PPCD), Parekh Integrated Services Pvt Ltd (PISPL), and IP Integrated Services Private Limited (IP). This is because all these entities, together referred to as the Parekh group, have common promoters and strong operational and financial links. Furthermore, PISPL has provided corporate guarantee for PPD, PPCD, and IP.
 
For arriving at the rating, CRISIL has treated unsecured loans up to Rs 40 crore, extended to group by its promoters, as equity since these are subordinated to bank debt, and are expected to remain in the business over the medium term.

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: 
* Promoter's extensive experience in the logistics industry and their fund support:
The group has been in the logistics business for more than three decades. Its key promoter, Mr. Vikram H Parekh has over 25 years' industry experience and has been instrumental in the group's growth by helping build its major clientele. Furthermore the promoters have constantly been supporting the business through their fund support in the form of unsecured loans thereby reducing its reliance on external debt, such fund support is expected to continue over the medium term.
 
* Long standing relationships with major clients:
The group has long-standing associations with most of its clientele across industries such as pharmaceuticals and medical devices, agro chemicals, paints, consumables, and automobile accessories. These include Alcon Laboratories, Nestle India Limited (rated 'CRISIL AAA/Stable/CRISIL A1+', Kansai Nerolac Paints Ltd (rated 'CRISIL AAA/Stable/CRISIL A1+'), Tata Chemicals Ltd ('CRISIL A1+'), Reliance Industries Ltd (rated 'CRISIL AAA/Stable/CRISIL A1+), and BASF India Ltd ('CRISIL AAA/FAAA/Stable/CRISIL A1+'). Most of the clients have been doing business with the group for more than seven years, implying revenue visibility for the company for the medium term. CRISIL believes that the group will continue to benefit from its strong clientele and long-standing relationship with its major clients.
 
* Adequate debt protection metrics:
Interest coverage ratio of over 3 times and NCATD of about 0.2 times, estimated for fiscal 2020, indicate adequate debt protection metrics. Expected moderate operating profitability, steady interest incomes and limited reliance on external debt shall keep the metrics adequate over medium term as well.
 
Weaknesses:
* Improved yet average capital structure:
Financial risk profile is characterised by total outside liabilities to tangible networth ratio of about 4.3 times estimated as on March 31, 2020. The high ratio is partially on account of the high creditor position given the peculiar nature of business leading to high creditors.Nonetheless the capital structure has improved from historical level on account of gradual reduction in receivables. Going ahead sustained improvement in capital structure remains a critical factor.
 
* High receivables position:
Group has a large receivables position (Net debtors estimated at over Rs. 400 crore as on March 31, 2020). PISPL does not assume credit risk for a sizable proportion of the receivables, since it is assumed by the principal company and hence mitigates risk to the large extent. However, the group remains exposed to credit risk on the balance debtors, which include receivables from its trading and distribution business.
 
Moderate customer concentration in debtors coupled with steady improvement in receivables from historical levels the debtor days have improved to an estimated level of around 210 days as on March 31, 2020 as against over 600 days as on March 31, 2016. The company also has a high creditor position due to which its working capital requirements are moderate.
Liquidity Adequate

The group's liquidity position is comfortable, as reflected by bank limit utilisation averaging 64% for the past 12 months through December 2019, healthy unencumbered cash and cash equivalents to the extent of Rs 20 crore estimated as on March 31, 2020 and absence of any major term debt on the balance sheet as on the same date. Cash accrual estimated over Rs 45 crore in fiscal 2020 and is expected at Rs 40 - 45 crore per fiscal over the medium term against repayment obligation of Rs 3.3 crore each fiscal. Furthermore Working capital requirements are partially supported by funding from promoters in the form of unsecured loans. Unsecured loans from promoters are estimated at Rs. 120 crore as on March 31, 2020. Current ratio remains moderate at 1.2 times estimated as on March 31, 2020. There is no major dividend pay-out, or any major capex expected over the medium term.

Outlook: Stable

CRISIL believes Parekh group will continue to benefit from the extensive experience of the promoters in the logistics industry, and the strong clientele.

Rating Sensitivity factors
Upward factors
* Steady improvement in scale of operations and sustenance of operating margin at above 8%, leading to higher cash accrual
* Better working capital cycle

Downward factors
* Higher-than-expected decline in revenue or deterioration in operating profitability to 4% or lower
* Large, debt-funded capex or unanticipated withdrawal weakening financial risk profile, especially liquidity
About the Group

PISPL was incorporated in 1982, by the promoter, Mr Vikram H Parekh. The Mumbai-based company is a consignment sales agent (CSA), a Carrying and forwarding agency and provides logistics & warehousing solutions.

PISPL is the sole consignment sales agent (CSA) for Alcon, Inc. in India. Alcon, a division of Novartis, is one of the largest suppliers of ophthalmology pharmaceuticals/medical devices, and eye care equipment globally. PISPL provides end-to-end solutions to Alcon, including warehousing, logistics, customs clearance services, ERP services, tax management, and collections from doctors/clinics.

PPD incorporated in 2015, is a limited Liability Partnership, based in Mumbai. PISPL is an 87.5% Partner in the firm and rest from the promoters of PISPL Mr Vikram H Parekh, and Mr Mukesh M Maniar. PPD is one of the Del Cadre Agents (DCAs) for Reliance Industries Limited

PPCD incorporated in 2016 is a limited Liability Partnership, based in Mumbai. PISPL is a 95% Partner in the firm and rest from the promoters of PISPL Mr Vikram H Parekh, and Mr Mukesh M Maniar. PPCD is involved in trading of commodities.

PILSPL incorporated in 1987, promoted by Mr Vikram H Parekh and Mr Mukesh M Maniar is involved in providing logistic and transportation solutions.

Incorporated in 2011, Gurgaon (Haryana)-based IP is a joint venture between Itochu group-Japan and PISPL. IP is engaged in third party logistics solutions.

Key Financial Indicators - Consolidated
Particulars Unit 2019 2018
Revenue Rs crore 636.24 476.72
Profit after tax (PAT) Rs crore 20.29 8.83
PAT margin % 3.2 1.9
Adjusted debt/adjusted networth Times 1.16 0.95
Interest coverage Times 3.8 3.1

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)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs  Crore) Rating ssigned  with Outlook
NA Cash Credit NA NA NA 5 CRISIL BBB-/Stable
 
Annexure - List of entities consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
Parekh Polymer Distributors LLP Full consolidation Associate, Operational linkages and common management
Parekh Plastichem Distributors LLP Full consolidation Associate, Operational linkages and common management
Parekh Integrated Services Pvt Ltd Full consolidation Associate, Operational linkages and common management
I P Integrated Services Pvt Ltd Full consolidation Associate, Operational linkages and common management
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  5.00  CRISIL BBB-/Stable      30-05-19  CRISIL BBB-/Stable  29-09-18  CRISIL BBB-/Stable    --  -- 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 5 CRISIL BBB-/Stable Cash Credit 5 CRISIL BBB-/Stable
Total 5 -- Total 5 --
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
CRISILs Approach to Recognising Default
CRISILs Bank Loan Ratings
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt
Criteria for rating entities belonging to homogenous groups
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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