| Pondy Oxides and Chemicals Limited | ||||
| Rating reaffirmed at 'CRISIL A-/Stable' | ||||
| Rating Action | ||||
| ||||
| 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 reaffirmed its ‘CRISIL A-/Stable’ rating on the long-term bank facilities of Pondy Oxides and Chemicals Ltd (POCL).
The rating continues to reflect the strong business model of POCL, which is derived from its strong business risk profile, supported by well-entrenched relationship with key customers, diversified procurement and supply base, moderate entry barriers and established manufacturing capabilities. The rating also factors in comfortable financial risk profile, aided by adequate debt protection metrics, as the company largely uses its working capital debt, while holding minimal term debt obligation. These strengths are partially offset by exposure to stiff competition from both unorganised and organised players, susceptibility to fluctuations in raw material prices impacting profitability and risks associated with changes in government policies.
POCL recently made a series of announcements pertaining to its growth plans. POCL has entered a memorandum of understanding with the government of Tamil Nadu for building recycling plants in the state. Additionally, the Board of POCL also approved the fund raising plans via issue of equity shares amounting to Rs 51 crore (with Rs 1 crore as equity share capital and share premium of Rs 50 crores) and issue of warrants amounting to Rs 82.5 crore (Rs 1.6 crore as equity share capital and share premium of Rs 80.9 crores). Funds raised from above will be utilized for expansion of manufacturing facilities, working capital and general corporate purposes. The capital expansion plan and its funding for the same will be a monitorable.
POCL is likely to report topline of ~Rs 1,500 crore and operating margin of 4.5-5.0% in fiscal 2024. Topline is driven by expected marginal growth in volumes. Operating margin was impacted due to breakdown maintenance in the smelting units during the first quarter of fiscal 2024 and lower realisation in the aluminum vertical, which is still scaling up. In the first six months of fiscal 2024, the company has reported topline of Rs 714 crore and operating margin of over 4.2%.
Financial risk profile has been comfortable, with networth of Rs 244 crore and debt of Rs 142 crore, resulting in gearing under 0.6 time as on March 31, 2023. With no significant debt funded capex, financial risk profile is expected to remain comfortable. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of POCL and its subsidiary, POCL Future Tech Pvt Ltd, and Harsha Exito as they have significant managerial, operational, and financial linkages.
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:
The company also has a well-diversified supplier and procurement base, with over 270 suppliers and procurement from above 90 countries. The import of lead scrap in India is subject to licensing from the Ministry of Environment and Forest, while setting up of lead recycling plants require permissions from the central and state pollution boards, resulting in entry barriers for new entrants.
Also, POCL is focusing on aluminum, copper and plastic verticals, enabling diversification.
Moreover, the company has well-established manufacturing facilities, providing it a logistical advantage. Its Sriperumbudur plant in Tamil Nadu is close to the Chennai port while its Chittoor plant in Andhra Pradesh near the Amara Raja unit. POCL has also acquired Harsha Exito, which has facilities in close proximity to the Chennai port. POCL will be undertaking expansion at this location.
Weaknesses:
The operating margin stood stable at 5-7% between fiscals 2015 and 2017. However, the margin was impacted in fiscals 2020 and 2021 due to augmentation of its smelting facilities and high volatility in raw material prices due to COVID 19 pandemic. However, the margin reverted to earlier levels of over ~5% in fiscals 2022 and 2023; the margin is projected at 4.0-4.5% in fiscal 2024. Volatility in the operating margin will remain a key monitorable.
|
Liquidity: Adequate Liquidity is reflected by a significant gap between cash accrual and repayment obligation. Cash accrual is projected at Rs 50-80 crore per annum for fiscals 2024 to 2026, against yearly debt obligation of Rs 0.5 crore and incremental working capital requirement. The capex may be funded through cash accrual and equity infusion. |
Outlook: Stable POCL will continue to benefit from its established position in the lead metal, lead alloys and other nonferrous metals business and from its longstanding relationship with customer. |
Rating Sensitivity factors Upward factoros
Downward factors
|
About the Company Incorporated in March 1995, POCL manufactures lead and lead alloys, which are supplied to customers that produce batteries. Its production units are strategically located; Sriperumbudur and the Harsha Exito facility are in the Thiruvallur district (Tamil Nadu), near the Chennai Port and Chittoor in Andhra Pradesh that is near the Amara Raja plant. The company’s core product is lead and lead alloys, which are mainly used in making lead-acid batteries. The company has smelting facilities and can manufacture various types of lead metal, lead alloys and other nonferrous metals as per customer needs. |
Key Financial Indicators
Basis standalone financials as subsidiaries are expected to contribute going forward |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
&Interchangeable with cash credit, export packing credit, packing credit loan in foreign currency, foreign bill purchase, foreign bill discounting, packing credit loan in foreign currency, bill discounting and other long-term facilities |
Annexure - List of Entities Consolidated
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||
|
Criteria Details
|