| Pokarna Limited | ||||||
| Ratings upgraded to 'CRISIL BBB+/Positive/CRISIL A2' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
CRISIL Ratings has upgraded its ratings on the bank facilities of Pokarna Limited (PL; part of the Pokarna group) to 'CRISIL BBB+/Positive/CRISIL A2' from 'CRISIL BBB/Positive/CRISIL A3+'.
The rating action reflects better-than-expected business performance supported by faster than expected ramp up in sales from the new quartz surfaces unit resulting in increase in revenue to around Rs 650 crore in fiscal 2022 from Rs 295 crore in the previous fiscal. Though the operating margin reduced marginally, on account of one-time expenses & higher input costs, it remained healthy at 26.8% in fiscal 2022. Revenue is expected to increase further over the medium term supported by robust demand for quartz surfaces from the key customers in USA market. Net cash accrual also increased to Rs 115 crore in fiscal 2022 from Rs 48 crore in 2021 and is expected to further increase over the medium term.
Financial risk profile will continue to be aided by the healthy net cash accrual and absence of any major debt funded capex plans. The rating action also factors in sufficient liquidity and financial flexibility, and net cash accrual is expected to result in reduction of debt. This in turn is likely to strengthen the capital structure and debt protection metrics. Healthy flow of orders leading to continued higher capacity utilisation at the new unit, and sustenance of healthy operating margin will be a key monitorable.
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 To arrive at the ratings, CRISIL Ratings has combined the business and financial risk profiles of PL and Pokarna Engineered Stone Ltd (PESL; rated 'CRISIL BBB+/Positive/CRISIL A2'), together referred to as the Pokarna group.
Unsecured loans (outstanding at Rs 10.72 crore as on March 31, 2021) 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 518 crore and 0.82 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: Adequate Estimated net cash accrual of Rs 135-160 crore in fiscals 2023 and 2024, should comfortably cover the maturing term debt of Rs 20-34 crore. Bank limit utilisation was moderate, averaging about 74% over the 12 months ending March 2022. Liquidity is further aided by unencumbered cash and bank balance of about Rs 16 crore maintained in the current and Exchange Earners' Foreign Currency Account (EEFC) accounts, over the 7 months through February 2022. |
Outlook: Positive CRISIL Ratings believes that Pokarna group will continue to benefit from the strong demand for premium quartz surfaces and the additional capacity available, after the commissioning of new quartz surfaces manufacturing unit. |
Rating Sensitivity factors Upward factors
Downward factors
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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. |
Key Financial Indicators
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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)
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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 | |||||||||||||||||||||
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Criteria Details
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