| Pokarna Limited | ||||||
| Ratings upgraded to 'CRISIL A-/Stable/CRISIL A2+' | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its ratings on the bank facilities of Pokarna Limited (PL; part of the Pokarna group) to 'CRISIL A-/Stable/CRISIL A2+' from 'CRISIL BBB+/Positive/CRISIL A2'.
The ratings upgrade takes into account Pokarna group’s healthy operating performance and strong and improving financial risk profile & liquidity which are expected to be sustained going forward. Aided by strong demand for quartz surfaces from the key market of United States, revenue has been increasing at a healthy rate. Operating margin was slightly impacted in the past few quarters due to higher input costs; however, it is expected to improve going forward with softening of raw material prices and expected higher realisations from the group’s focus on premium products. This is expected to result in healthy cash accrual while the working capital requirements continue to be efficiently managed and are largely funded by internal accruals and creditors resulting in moderate reliance on external debt. Return on capital employed is also expected to remain comfortable at above 20% going forward.
Financial risk profile continues to strengthen aided by healthy cash generation and absence of any major debt funded capex plans. The rating action also factors in the expected improvement in the group’s liquidity and financial flexibility with healthy net cash accrual, repayment of term debt and increase in cash & bank balances. Demand from the key markets of USA and China along with sustenance of operating margin and any changes in the duties levied by US Department of Commerce on the import of quartz surfaces shall remain the key monitorables.
The ratings also reflect the established market position of the group in the granite and engineered stones businesses, supported by extensive experience of its promoters, established client relationships and the comfortable financial risk profile. These strengths are offset by susceptibility to demand from key market and exposure to volatility in input costs and fluctuations in foreign exchange (forex) rates. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of PL and Pokarna Engineered Stone Limited (PESL; rated ‘CRISIL A-/Stable/CRISIL A2+’), together referred to as the Pokarna group.
Unsecured loans (outstanding at Rs 11.71 crore as on March 31, 2022) extended by the promoters and related parties, have been treated as debt as these may not be retained 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: Established position in the granite and engineered stones business, supported by extensive experience of the promoters and established client relationships: The Pokarna group is the largest exporter of quartz surfaces in India, and a leading exporter of granite slabs and blocks. PESL benefits from its established relationship with Breton S.p.A and access to its patented technology for manufacturing quartz surface products. Nearly three-decade-long experience of the promoters in the stone industry, long track record of operations and healthy relationships with customers have enabled the group to establish a strong market position.
Comfortable financial risk profile: Financial risk profile is supported by a healthy networth & capital structure and comfortable debt protection metrics. Networth and gearing ratio were at Rs 521 crore and 0.83 time on March 31, 2022. Healthy operating margin from the high-margin premium quartz surfaces business should result in strong net cash accrual leading to reduction of debt over the medium term. This also results in comfortable debt protection metrics
Weaknesses: Susceptibility to demand risk: Capacity utilisation at granite processing units has been low over the past few years, amidst heightened competition from countries such as Brazil and China. Further, majority of the products are exported to USA & China (almost 80%) and the future growth also remains highly dependent on demand from key markets.
Susceptibility to input costs and fluctuation in forex rates: Operating margin varies based on the prices of quartz lumps, resin binders, pigments and additives which are key raw materials for manufacturing quartz surfaces. The prices of these products especially resins and pigments are linked to crude prices and are highly volatile. Also, volatility in forex rates impacts operating margin to some extent. |
Liquidity: Strong Net cash accrual is projected to remain strong and should comfortably cover the maturing term debt of Rs 21-34 crore per fiscal over the medium term. Bank limit utilisation was moderate, averaging about 70% over the 12 months ending September 2022. Liquidity is further aided by average unencumbered cash and bank balance of about Rs 37 crore maintained in the current and Exchange Earners' Foreign Currency Account (EEFC) accounts, over the 6 months through September 2022. |
Outlook: Stable CRISIL Ratings believes that Pokarna groups will benefit over the medium term from its established market position, supported by its promoters' extensive industry experience and established relations with its customers |
Rating Sensitivity factors Upward factors • Significant reduction in debt resulting in gearing of below 0.5 time • Revenue growth of 20% along with improvement in operating margin to over 30% resulting in substantial cash accrual and improvement in liquidity
Downward factors • Significant decline in revenue and profitability of the group, resulting in subdued debt protection metrics • Any unanticipated capex, any large dividend pay-out or stretch in the working capital cycle, leading to increase in gearing ratio to over 1 time |
About the Group Set up in 1991, by Mr Ashok Jain, Mr Gautam Jain, Mr. Prakash Jain, and their family members, PL exports granites from its quarries in Andhra Pradesh, Telangana and Tamil Nadu. It also manufactures ready-made garments under the Stanza brand. PESL manufactures engineered quartz (also known as engineered stone) under the Quantra brand.
For the 6 months ended September 2022, Pokarna group achieved revenue and profit after tax (PAT) of Rs 453 crore and Rs 52.5 crore respectively as against Rs 254 crore and Rs 24.4 crore for the corresponding period of previous fiscal. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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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 Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Cash Credit | 2 | Union Bank of India | CRISIL A-/Stable |
| Export Packing Credit | 20 | Union Bank of India | CRISIL A2+ |
| Foreign Currency Term Loan | 12.44 | Union Bank of India | CRISIL A-/Stable |
| Foreign Documentary Bills Purchase | 10 | Union Bank of India | CRISIL A2+ |
| Letter of Credit | 8.5 | Union Bank of India | CRISIL A2+ |
| Proposed Long Term Bank Loan Facility | 7.06 | Not Applicable | CRISIL A-/Stable |
This Annexure has been updated on 20-Feb-23 in line with the lender-wise facility details as on 01-Feb-23 received from the rated entity.
Criteria Details
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