Rating Rationale
August 05, 2020 | Mumbai
Petrochem Asia Private Limited
Ratings migrated to 'CRISIL BBB/Stable/CRISIL A3+'
 
Rating Action
Total Bank Loan Facilities Rated Rs.92 Crore
Long Term Rating CRISIL BBB/Stable (Migrated from 'CRISIL BB+/Stable ISSUER NOT COOPERATING'*)
Short Term Rating CRISIL A3+ (Migrated from 'CRISIL A4+ ISSUER NOT COOPERATING'*)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
*Issuer did not cooperate; based on best-available information
Detailed Rationale

Due to inadequate information, CRISIL, in line with Securities and Exchange Board of India guidelines, had migrated the ratings on the bank facilities of Petrochem Asia Private Limited (PAPL; part of the DR Polymer group) to 'CRISIL BB+/Stable/CRISIL A4+ Issuer Not Cooperating'. However, the management has subsequently started sharing the requisite information for carrying out a comprehensive review of the ratings. Consequently, CRISIL is migrating the ratings to 'CRISIL BBB/Stable/CRISIL A3+' from ' CRISIL BB+/Stable/CRISIL A4+ Issuer Not Cooperating'.
 
The ratings reflect an established market position in the polymer trading industry with a strong client relationship, moderate working capital requirement, and an above-average capital structure. These strengths are partially offset by a moderating scale of operations and operating margin amid intense competition, and susceptibility to changes in government regulations and to cyclicality in domestic end-user industries.
 
The ratings take cognizance of impact of the measures taken by the state and central governments to contain the spread of Covid-19. These measures include a nationwide lockdown imposed from March 25, 2020, though its partial easing from June 8, 2020, should limit the impact and help to recover performance in the second half of fiscal 2021.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of PAPL and D R Polymers Pvt Ltd (DRPPL). That's because the two companies, together referred to as the DR Polymer group, are under the same management and have operational and financial linkages.

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:
* Established market position with a strong client relationship
A presence of more than 40 years in the polymer industry has enabled the promoters to build an established relationship with customers in the automotive and electronics industries. This has also given them an understanding of local market dynamics, while building a healthy relationship with suppliers.
 
* Above-average capital structure
The consolidated networth is estimated at more than Rs 150 crore as on March 31, 2020, while the gearing has remained below 1 time over the past three fiscals. Adequate liquidity and financial flexibility should continue to support debt repayment.
 
* Moderate working capital requirement
Gross current assets are estimated at 128 days as on March 2020, driven by receivables and inventory of 63 days and 44 days, respectively. The group imports around 80% of raw material. The working capital cycle is expected to remain at a similar level over the medium term.
 
Weaknesses:
* Moderating scale of operations and operating margin
Though revenue grew by a robust 19% to Rs. 1,172 crore in fiscal 2019, the estimated sales during fiscal 2020 moderated by about 21% to Rs 925 crore. The decline was largely due to dip in sales realisations (volume remained at a similar level) as well loss of business from an automobile customer.
 
The operating profitability margin has been declining over the past three fiscals and is estimated at 2.6% for fiscal 2020 as against 7.4% in fiscal 2018. This was largely on account of a continuous fall in the cost of traded goods over the years, and exposure to volatility in foreign exchange (forex) rates and cost of raw material (crude oil derivative). With declining profitability, debt protection metrics moderated, as reflected in interest coverage and net cash accrual to total debt ratios of 1.76 times and 0.09 time, respectively, in fiscal 2020, as against 3.20 times and 0.17 time for fiscal 2019.
 
* Susceptibility to changes in government regulations, and to cyclicality in domestic end-user industries: The inorganic chemicals business is highly susceptible to government regulations, and any unfavourable changes in policies can strain profitability. The industry has a low barrier, thereby further increasing competition.
Liquidity Adequate

Bank limit utilisation was low at 63.12% during the 12 months through June 2020. Cash accrual is expected at over Rs 10 crore in fiscal 2021 and over Rs 16 crore in fiscal 2020 against which there is no major term loan repayment obligation. In addition, the promoters are likely to extend support in the form of unsecured loans (around Rs 16 crore as on March 31, 2020). The current ratio was healthy, estimated at 1.7 times on March 31, 2020.

Outlook: Stable

CRISIL believes the DR Polymer group will continue to benefit from the diversification in customer and product profiles and extensive experience of the promoters. 

Rating Sensitivity factors
Upward factors
* Sustained increase in revenue by 20% per fiscal while maintaining the operating margin, leading to higher cash accrual
* Improvement in the working capital cycle, with gross current assets falling to 90 days

Downward factors
* A decline in revenue by 30%, and in the operating profitability margin to 2.0-2.5 %, leading to net cash accrual of below Rs 8 crore per fiscal
* Large, debt-funded capital expenditure, weakening the capital structure
* A substantial increase in working capital requirement, thus weakening the financial profile, especially liquidity.
About the Group

Incorporated in 1978 and promoted by Mr Dinesh Kumar Doshi and his family members, DRPPL is based in Delhi. The company is an international trading house that supplies superior quality polymers to industrial and commercial manufacturers.
 
Incorporated in 2011, PAPL is one of the largest distributors for all major engineering plastics across India.

Key Financial Indicators
As on / for the period ended March 31   2019 2018
Operating income Rs crore 302.52 234.34
Reported profit after tax Rs crore 4.91 8.79
PAT margins % 1.60 3.80
Adjusted Debt/Adjusted Net worth Times 1.11 0.80
Interest coverage Times 3.26 5.48

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon
rate (%)		 Maturity date Issue Size
(Rs crore)		 Complexity
Levels		 Rating assigned 
with outlook
NA Cash Credit NA NA NA 7.00 NA CRISIL BBB/Stable
NA Letter of Credit NA NA NA 55.00 NA CRISIL A3+
NA Proposed Non Fund
based limits		 NA NA NA 30.00 NA CRISIL A3+
 
Annexure - List of entities consolidated
Name of the company Extent of consolidation
Petrochem Asia Private Limited Full
D R Polymers Private Limited Full
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  7.00  CRISIL BBB/Stable  30-06-20  CRISIL BB+/Stable (Issuer Not Cooperating)*  29-03-19  CRISIL BBB+/Stable    --    --  -- 
Non Fund-based Bank Facilities  LT/ST  85.00  CRISIL A3+  30-06-20  CRISIL A4+ (Issuer Not Cooperating)*  29-03-19  CRISIL A2    --    --  -- 
All amounts are in Rs.Cr.
*Issuer did not cooperate; based on best-available information
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 7 CRISIL BBB/Stable Cash Credit# 27 CRISIL BB+/Stable/Issuer Not Cooperating
Letter of Credit 55 CRISIL A3+ Letter of Credit 65 CRISIL A4+/Issuer Not Cooperating
Proposed Non Fund based limits 30 CRISIL A3+ -- 0 --
Total 92 -- Total 92 --
#Interchangeable limit of Rs 27 crore Letter of Credit.
Links to related criteria
Assessing Information Adequacy Risk
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for Consolidation

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