Rating Rationale

Strengths
* Strong market position in domestic plastic pipe industry supported by diverse product portfolio, diversified geographical presence, and diversified end-user industry: PPFL holds around 5% market share in PVC pipes segment and is one of the top six players in the pipes & fittings industry. The strong market position is supported by its diverse product offering with presence in UPVC, CPVC, PPR and HDPE segments. PPFL has an established track record and market position in the segments it operates in backed by its widespread distribution network. PPFL's revenue has witnessed a healthy CAGR of 11% over past eight fiscals ended 2020 to record and operating income of Rs.1636 crore. The market position is also supported by PPFL's presence in diverse end-user industries like agriculture, plumbing, and sewer segments. Business risk profile will continue to be supported by strong market position in domestic plastic pipe industry.

* Extensive experience of promoters: The promoters have been involved in the pipes & fittings industry for over three decades. Over their extensive tenure, the promoters have developed a sound understanding of the local market dynamics and established strong relations with suppliers and customers.

* Robust financial risk profile: A strong networth, healthy capital structure, and comfortable debt-protection metrics keep the financial risk profile robust. The improved financial risk profile backed by infusion of IPO funds in Fiscal 2020, should continue to remain healthy over medium term. Networth was strong at Rs.834.66 crore, capital structure was healthy with gearing at 0.31 time as on March 31, 2020. Debt-protection metrics too were comfortable with interest coverage and net cash accruals to adjusted debt ratios of 7.3 times and 0.58 time, respectively in Fiscal 2020.

Weaknesses
* Moderate operating efficiencies and susceptibility to volatility in raw material prices: Company is majorly into manufacturing of UPVC (~70% of revenue) which is a lower margin product in the segment. This leads to moderate operating margin which was 12.5% to 14.1% in last three fiscals ended 2020. The pipes and fittings industry is highly competitive, especially in the commoditized products segment, which has low differentiation. However, over last few years, PPFL has been increasing its presence in high margin products like CPVC pipes, which should support its operating efficiencies in medium term. PPFL is also susceptible to volatility in the prices of key raw material, PVC, which is a crude oil derivative and hence affected by change in crude oil prices, and foreign exchange rates, albeit partly offset by its ability to pass on price fluctuations to the consumers.

* Moderate working capital requirements: PPFL has moderate working capital requirements, reflected in gross current asset days 120-145 days over past four fiscals ended 2020. The working capital requirements are supported by bank lines. Also, Return on Capital Employed (RoCE) was moderate at 20.1% in Fiscal 2020.

Liquidity: Strong
Liquidity is backed by healthy cash accrual against repayment obligations, moderate bank limit utilization, and a healthy cash & bank balance. The average utilization in bank lines is 84% over the 13 months ended June-2020. The cushion in bank lines will support the incremental working capital requirements. PPFL is expected to generate NCA of Rs.124-190 crore which will be more than adequate to cover repayments of Rs.16.5 crore in FY21, Rs.12.96 crore in FY22 and Rs.8 crore in FY23. Cash & bank balance stood at Rs.265.7 crore as on March 31, 2020.