Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA-/Stable/Crisil A1+’ ratings on the bank loan facilities of ProConnect Supply Chain Solutions Ltd (Proconnect).

 

The ratings continue to reflect the healthy business risk profile of ProConnect supported by presence across diverse segments in the warehousing and transportation businesses, wide customer base, adequate financial risk profile, as well as managerial and organisation support provided by the parent, Redington Ltd (Redington; 'Crisil AA+/Stable/Crisil A1+'). These strengths are partially offset by the highly fragmented and intensely competitive nature of the logistics sector, and moderately working capital intensive operations.

 

During first nine months of fiscal 2025, consolidated revenue has grown at 11% on-year basis supported by increased volumes from major customers. Over the medium term, ProConnect is expected to register a revenue growth of 8-10% and surpass Rs.1000 crore driven by rise in demand for modern warehousing and demand from the key industry verticals supported by government’s increased focus on infrastructure. Further, steady revenue contribution from overseas subsidiaries, in addition to Automated Distribution Centre (ADC) in Saudi Arabia, is expected to contribute to the revenue.

 

Operating Profitability has improved by 80 basis points to 10.6% in first nine months of fiscal 2025 from 9.8% in the corresponding period of the previous fiscal mainly supported by rental savings due to the acquisition of ADC, operating leverage and benefit of various cost cutting measures adopted by the company. Earlier in fiscal 2024, operating profitability has improved from 7.6% (fiscal 2023) to 9.9% (fiscal 2024). Proconnect is also investing in automation, and upgradation of infrastructure that will improve operating efficiency over the medium term, which will aid in the sustenance of profitability at 10.5-11.0%.

 

Crisil Ratings notes the completion of the acquisition of two overseas entities, PSCL (ProConnect Supply Chain LLC) and PSL (ProConnect Saudi LLC) , through its wholly owned subsidiary PHL (ProConnect Holdings Limited) in April 2023 from parent Redington.. Acquisition was completed with equity in the form of the right issue.

 

The company’s financial risk profile is adequate and improving. Its networth increased to Rs.195 crore as on March 31, 2024, supported by healthy cash generation due to improved profitability. Despite debt addition of Rs 35 crore in fiscal 2024 for acquisition of ADCs (Chennai and Kolkata), capital structure continues to be healthy backed by improved networth. Gearing remained comfortable around 0.2 time as on March 31, 2024, and debt to earnings before interest, tax, depreciation and amortisation (Debt/EBITDA) is expected to remain comfortable below 0.5 time over the medium term. Besides, the company is likely to undertake routine capital expenditure (capex) of Rs.70-80 crore annually for which no additional debt is expected to be added. Net cash accrual is expected to improve to ~Rs.90-100 crore in fiscal 2025 from Rs 87 crore in fiscal 2024.

Analytical Approach

Crisil Ratings has consolidated the business and financial risk profiles of ProConnect with PSCL and PSL i.e wholly owned stepdown subsidiaries of ProConnect effective April 1, 2023. PSL, PSCL are in similar line of business and will receive significant operational and managerial support from ProConnect.

 

Crisil Ratings has amortised the goodwill of Rs.14 crore on the acquisition of the Dubai & Saudi Subsidiaries from parent Redington over a period of five years from fiscal 2024 till fiscal 2028.

 

Further, the parent notch-up criteria have been applied factoring support from the parent, Redington Ltd. 

 

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:

• Presence across diverse segments with wide customer base: In its year of incorporation in fiscal 2012, Redington was Proconnect’s major client contributing about 80% to the revenue. However, with the addition of clients over the years, Redington’s contribution has come down to 24% in the first nine months of fiscal 2025, though it remains among the top three customers. At present, the company has around ~150 clients spread over different industry verticals, but IT and telecom segments account for the maximum share. Top clients for the company include Redington, Samsung and Reliance and contribute around 60% of the revenue.

 

The company provides both warehousing and transportation services, with warehousing services accounting for ~65-70% of revenue. ProConnect has a network of 149 warehouses and handles about 65000 stock keeping units (SKUs),150000 tonne per annum across 36000 customer locations. The company works on an asset-light model with the majority of the warehouses on short-term leases. Over the medium term, Proconnect plans to upgrade infrastructure, to develop IT capabilities and in automation, which are expected to improve operating efficiency.

 

• Adequate and improving financial risk profile: The company’s financial risk profile is adequate and improving. Its networth increased to Rs 195 crore as on March 31, 2024, supported by healthy cash generation due to improved profitability. Despite debt addition of Rs 35 crore (lower than expected due to better accruals), capital structure remains healthy supported by improved networth. Term loan is expected to be fully repaid by fiscal 2027 supported by better cash generation. Gearing remained comfortable around 0.2 time as on March 31, 2024, and debt to earnings before interest, tax, depreciation and amortisation (Debt/EBITDA) ratio is expected to remain comfortable below 0.5 time over the medium term. Besides, the company is expected to undertake capex of Rs 70-80 crore annually for which no additional debt is expected to be added which will be funded from own accruals limiting addition of external debt.

 

• Support from the parent, Redington: ProConnect is a wholly owned subsidiary of Redington and provides backward as well as forward linkages to the parent. Also, Redington’s entire supply chain with respect to physical business is managed by ProConnect, rendering ProConnect a valuable channel partner for Redington. Redington is one of India’s leading distributors for IT hardware and mobility products and is growing rapidly through operations in 40 markets across India and Middle East & Africa(MEA) region through a vast network of over 80+ sales offices and 180 warehouses. It distributes over 450+ brands through a huge network of over 70,000 channel partners.

 

Given the strong business linkages between Redington and ProConnect, Redington has constantly provided support to obviate any pressures on the latter’s balance sheet, and to also support growth plans. Besides providing short term loans to reduce borrowing costs, Redington has also infused equity into ProConnect to support acquisitions as well as to manage debt. All three board members of ProConnect are also on the board of Redington and they offer strategic inputs and oversight. Redington has a demonstrated track record of supporting its associate and subsidiary companies, on need basis, in a timely manner, and the same is expected to continue in case of ProConnect, which enhances its financial flexibility. Redington is also expected to continue being the largest stakeholder in ProConnect.

 

Weaknesses:

• Highly competitive and fragmented nature of the logistics industry: The $270 billion Indian logistics sector is highly fragmented and unorganised (over 85% share) given the presence of many players in the market, both in the warehousing and transportation verticals. This results in intense price competition across players and limits significant improvement in operating profitability.

 

• Moderately working capital-intensive nature of operations: The company’s operations are moderately working capital intensive; albeit the company has been focusing on pruning working capital needs, resulting in gross current assets reducing to 96 days as on March 31, 2024, from 153 days as on March 31, 2019. Receivables, at 61 days as on March 31, 2024, constituted over 60% of current assets and 31% of total assets. Maintaining an efficient working capital cycle as the business expands and enters new geographies will be critical.

Liquidity: Strong

ProConnect’s liquidity profile benefits from its linkages with Redington, which enjoys superior liquidity with only short-term borrowings on its balance sheet, and cash surplus of over Rs 1400 crore as on December 31, 2024. Crisil Ratings expects support from Redington will continue in a timely manner, as has been demonstrated in the past.

 

On a standalone basis, ProConnect’s liquidity is adequate, supported by expected cash accrual of Rs 90-100 crore per annum and bank limits of ~Rs 75 crore, which have been sparingly utilised at 8% in the 12 months ended December 2024. Liquidity is also supported by cash surplus of Rs 25 crore as on December 31, 2024.The company’s accruals will suffice to meet repayment obligations of ~Rs 14 crore in fiscal 2025, and ~Rs 6 crore in fiscals 2026. While the transfer of ADCs and subsidiaries from Redington were funded by a mix of equity, internal accrual and debt, capex is expected at ~Rs.70-80 crore annually. Routine capex and incremental working capital needs are expected to be funded from accruals, unutilised bank limits and cash surplus.

Outlook: Stable

ProConnect is expected to sustain its healthy business performance leveraging its established position in the warehousing vertical, and presence across diverse segments and wide customer base. Its linkages with Redington, also offer opportunities to enhance offerings in the META region. The company’s financial risk profile is expected to remain adequate, supported by better cash generation, despite debt being raised for acquiring assets.

Rating sensitivity factors

Upward factors:

• Healthy improvement in revenue with sustained double-digit profitability, resulting in better-than-expected cash generation
• Better-than-expected improvement in financial risk profile and debt metrics, due to higher cash generation or equity infusion
• Improvement in the credit risk profile of Redington by one notch.

 

Downward factors:

• Moderation in business performance and lower-than-expected operating profitability (4-5%), impacting cash generation
• Significant moderation in financial risk profile and debt metrics, due to sizeable debt funded acquisition or elongation of working capital cycle
• Change in ownership with Redington not holding majority stake
• Change in stance of support by Redington or moderation in its credit risk profile

About the Company

ProConnect was started in 1993 by Redington as a division to provide supply chain services for its India business. It was incorporated as a separate company from 2012 and provides end-to-end supply chain solutions to over 160 leading brands across industry verticals. ProConnect provides cohesive package of end-to-end supply chain solutions across India with over 149 warehouses and more than 8 million square feet of space, delivery capability to more than 36,000 customer locations. It currently also operates two ADCs - in Chennai (operational since August 2009), Kolkata (February 2014). Besides, ProConnect also operates an ADC in Dubai on lease basis. The company remains wholly owned by Redington.

 

Proconnect has completed the acquisition of two overseas entities, PSCL and PSL in April 2023 from parent Redington.

About the parent

Set up in 1993, Redington is a leading distributor for IT hardware and mobility products. The company made its initial public offering in early 2007. It currently has a diversified holding structure with the largest shareholder, Synnex Technology International Corp through its investment arm Synnex Mauritius Ltd., Taiwan, During September 2019, Redington has been classified as a listed entity with no promoters.

 

As of March 2023, Redington operates in 40 markets across India and MEA region with an employee base of 4700. It distributes 450+ brands through a huge network of over 70000+ channel partners. While distribution of IT and mobility products contributes the bulk of its revenue, Redington is also enhancing its presence in the cloud solutions space and logistics business in India and the Gulf.

Any other information: Not Applicable