Pincon Spirit Limited

Rating downgraded to 'CRISIL BB+/Stable' ; placed on 'Notice of withdrawal'

Total Bank Loan Facilities Rated Rs.1000 Million Long Term Rating CRISIL BB+/Stable (Downgraded from 'CRISIL BBB/Stable'; Placed on 'Notice of Withdrawal')

(Refer to Annexure 1 for Facility-wise details)

CRISIL has downgraded its rating on the long-term bank facilities of Pincon Spirit Ltd (PSL; part of the Pincon group) to 'CRISIL BB+/Stable' from 'CRISIL BBB/Stable', and placed the rating on notice of withdrawal for 60 days at the Pincon group's request. The rating will be withdrawn at the end of the notice period, in line with CRISIL's policy on withdrawal of its bank loan ratings.
 
The rating downgrade reflects deterioration in the Pincon group's liquidity because of funding requirement for its recent asset acquisition and its large incremental working capital requirements. The group's scale of operations has increased sharply over the past few quarters resulting in large incremental working capital requirements. As enhancement in bank lines has lagged the growing working capital requirements, the group has utilised its existing fund-based working capital limits extensively. Moreover, the group recently purchased a country liquor manufacturing plant for a cash consideration of Rs.85 million, which has further strained its liquidity. Substantial capital infusion by promoters and controlled working capital cycle are crucial for shoring up the group's liquidity, and will remain key rating sensitivity factors over the medium term.
 
The rating reflects the Pincon group's moderate financial risk profile, marked by a comfortable capital structure and adequate debt protection metrics, and its sound risk management policies. These rating strengths are partially offset by the group's large working capital requirements, susceptibility to changes in government regulations, and exposure to intense competition in the Indian-made foreign liquor (IMFL) industry.
 
For arriving at the rating, CRISIL has combined the business and financial risk profiles of PSL and Paul Distributors Pvt Ltd (PDPL), together referred to as the Pincon group. PDPL is a 55 per cent subsidiary of PSL, and both the companies are in the same line of business and have a common management.

CRISIL believes that the Pincon group will continue to benefit over the medium term from its established position in the IMFL distribution business. The group's liquidity, however, will remain constrained over this period by its large working capital requirements. The outlook may be revised to 'Positive' in case of significant and sustainable growth in the group's cash accruals and controlled working capital cycle, resulting in an improvement in its liquidity. Conversely, the outlook may be revised to 'Negative' in case of a stretch in the Pincon group's working capital cycle or any unanticipated investments in unrelated businesses that weaken its liquidity.

The Pincon group, based in Kolkata, is promoted by Mr. Monoranjan Roy. PSL (formerly, Sarang Viniyog Ltd), incorporated in 1978, trades in IMFL manufactured by established companies such as United Breweries Ltd, Seagram India Pvt Ltd, and Radico Khaitan. It also blends and sells IMFL under its own brand, Pincon.
 
PDPL was incorporated in 1995. The company is a distributor of IMFL and beer for several liquor manufacturers in West Bengal. PSL acquired PDPL in 2012-13 (refers to financial year, April 1 to March 31).
 
For 2013-14, PSL reported a profit after tax (PAT) of Rs.99.5 million on net sales of Rs.3.8 billion, against a PAT of Rs.84.8 million on net sales of Rs.3.2 billion for 2012-13.
 
For 2013-14, PDPL reported a PAT of Rs.11.6 million on net sales of Rs.949 million, against a PAT of Rs.4.1 million on net sales of Rs.506 million for 2012-13.