Rating Rationale
May 06, 2022 | Mumbai
Pan Agri Export
Ratings migrated to 'CRISIL BBB+/Stable/CRISIL A2'
 
Rating Action
Total Bank Loan Facilities RatedRs.65 Crore
Long Term Rating^CRISIL BBB+/Stable (Migrated from 'CRISIL B/Stable ISSUER NOT COOPERATING*')
Short Term Rating&CRISIL A2 (Migrated from 'CRISIL A4 ISSUER NOT COOPERATING*')
& *Issuer did not cooperate; based on best-available information
^ *Issuer did not cooperate; based on best-available information
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

Due to inadequate information and in line with the Securities and Exchange Board of India guidelines, CRISIL Ratings had migrated its ratings on the bank facilities of Pan Agri Export (PAE; part of the Pan group) to ‘CRISIL B/Stable/CRISIL A4 Issuer Not Cooperating'. However, the firm’s management has subsequently started sharing the information necessary for a comprehensive review of the ratings. Consequently, CRISIL Ratings has migrated the ratings to ‘CRISIL BBB+/Stable/CRISIL A2’.             

 

The ratings reflect the extensive experience of the promoters in the textile industry, the group’s healthy scale of operations, adequate risk management policies and moderate financial risk profile. These strengths are partially offset by average operating margin, large working capital requirement and exposure to project risk.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of Jaydeep Cotton Fibres Pvt Ltd (JCFPL), PAE, Pan Healthcare Pvt Ltd (PHPL) and Pan Tex Nonwoven Pvt Ltd (PTNPL). All the entities, together referred to as the Pan group, operate in similar businesses and have common management and significant operational and financial linkages.

 

Unsecured loan extended by the promoters and their relatives has been treated as debt.

 

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:

  • Extensive experience of the promoters: The Pan group benefits from its promoters’ experience of around four decades, their healthy relationships with customers and suppliers, and presence in diverse businesses such as power generation, construction, cement, steel products and edible oil, which will continue to support the business risk profile.

 

  • Comfortable financial risk profile: The group had a networth of Rs 167 crore, which translated into gearing of 1.14 times and total outside liabilities to tangible networth ratio of 1.51 times, as on March 31, 2021. Debt protection metrics were comfortable, as indicated by interest coverage of 4.01 times and net cash accrual to adjusted debt ratio of 0.20 time in fiscal 2021.

 

  • Healthy scale of operations: The group’s scale of operations remained healthy as reflected in revenue of Rs 754 crore in fiscal 2021. While revenue of JCFPL and PAE declined and was subdued over the four years through fiscal 2022, PHPL’s revenue increased significantly over the period, resulting in largely stable revenue and improved operating margin for the group. The group’s scale of operations is expected to remain healthy over the medium term.

 

Weaknesses:

  • Average operating margin: Operating margin was average at 7.30% for fiscal 2021, largely on account of low operating profitability of JCFPL and PAE due to their low-margin cotton-ginning and cottonseed oil manufacturing activities. However, the consolidated operating margin is expected to improve over the medium term with increase in scale of operations in the health and hygiene segment which has better operating margin.

 

  • Large working capital requirement: Operations are working capital intensive as indicated by gross current assets (GCAs) of 147 days as on March 31, 2021, driven by receivables of 49 days and inventory of 69 days. Seasonality in the business results in pressure on working capital management. The working capital requirement will remain large over the medium term.

 

  • Exposure to project risk: The Pan group is setting up a manufacturing plant for nonwoven textiles under PTNPL in Rajkot, Gujarat, entailing capital expenditure (capex) of Rs 80.40 crore. Funding risk is low, as the company has already availed term-debt and the promoters have infused majority of their contribution. Demand risk remains moderate as nonwoven textiles will be utilised largely for PHPL’s health and hygiene products. Timely completion of capex without cost escalation and the subsequent scale-up of operations remain key rating sensitivity factors.

Liquidity: Adequate

The group has adequate liquidity, with cash accrual expected at Rs 37-56 crore against debt obligation of Rs 12-20 crore over the medium term. Bank limit utilisation averaged 45% over the 12 months through February 2022. Current ratio was comfortable at 1.64 times as on March 31, 2021.

Outlook: Stable

The Pan group will continue to benefit from the extensive experience of its promoters and established relationships with clients.

Rating Sensitivity factors

Upward factors

  • Sustained revenue growth of 20% and improvement in operating margin, leading to higher cash accrual
  • Improvement in the working capital cycle, with gross current assets reducing to 120 days

 

Downward factors

  • Decline in revenue by 20% and reduced profitability leading to lower-than-expected accrual
  • Transfer of funds to other businesses or withdrawal of capital
  • Larger-than-expected debt-funded capex weakening the capital structure
  • Substantial increase in working capital requirement weakening the liquidity and financial risk profile

About the Group

Incorporated in 1997, JCFPL gins and presses raw cotton at Shapar, near Rajkot. The company also operates a 10 MW solar power plant in Rajkot.

 

Set up in 1982, PAE is a partnership firm engaged in ginning and pressing raw cotton and manufacturing cottonseed oil at its facility at Shapar.

 

Incorporated in 2016, PHPL manufactures hygienic health care products such as baby diaper pants, adult diaper, sanitary napkins. Its manufacturing facility is in Rajkot.

 

Incorporated in 2020, PTNPL is undertaking greenfield capex for setting up a facility to manufacture nonwoven fabrics, which will be utilised to integrate PHPL’s operations backward.

Key Financial Indicators

As on / for the period ended March 31

 

2021

2020

Operating income

Rs crore

753.75

481.08

Reported profit after tax (PAT)

Rs crore

26.19

16.22

PAT margin

%

3.47

3.37

Adjusted debt/adjusted networth

Times

1.14

1.33

Interest coverage

Times

4.01

3.34

 

Status of non cooperation with previous CRA:

PAE has not cooperated with Acuité Ratings & Research, which has classified the firm as an issuer not cooperating through a release dated April 7, 2022. The reason provided by Acuité Ratings & Research was non-furnishing of information by PAE for monitoring the ratings.

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of instrument

Date of allotment

Coupon
rate (%)

Maturity

date

Issue size
(Rs crore)

Complexity

level

Rating assigned 

with outlook

NA

Cash Credit

NA

NA

NA

36

NA

CRISIL BBB+/Stable

NA

Proposed Fund-Based Bank Limits

NA

NA

NA

29

NA

CRISIL A2

 

 

 

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Jaydeep Cotton Fibres Pvt Ltd

Full

Common promoters, operational and financial linkages

Pan Agri Export

Full

Common promoters, operational and financial linkages

Pan Healthcare Pvt Ltd

Full

Common promoters, operational and financial linkages

Pan Tex Nonwoven Pvt Ltd

Full

Common promoters, operational and financial linkages

 

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 65.0 CRISIL BBB+/Stable / CRISIL A2   -- 23-07-21 CRISIL B /Stable(Issuer Not Cooperating)* 15-04-20 CRISIL BB+ /Stable(Issuer Not Cooperating)* 30-03-19 CRISIL BBB/Stable --
Non-Fund Based Facilities ST   --   -- 23-07-21 CRISIL A4 (Issuer Not Cooperating)* 15-04-20 CRISIL A4+ (Issuer Not Cooperating)* 30-03-19 CRISIL A3+ --
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information
Annexure - Details of Bank Lenders & Facilities      
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 36 YES Bank Limited CRISIL BBB+/Stable
Proposed Fund-Based Bank Limits 29 Not Applicable CRISIL A2

This Annexure has been updated on 27-Feb-23 in line with the lender-wise facility details as on 11-Feb-23 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Assessing Information Adequacy Risk
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation
CRISILs Approach to Recognising Default
Understanding CRISILs Ratings and Rating Scales

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