Established brand presence, long standing track records and extensive experience of the promoters
Pothys was established in 1923 (~98 years) by late Mr. Thiru K.V. Pothy Moopanar under the name Pothy Moopanar to sell cotton sarees, dhotis and towels woven on his own loom. He started his own business with the aid of his son, Mr. K.V.P Sadayandi Moopanar, who had joined the business with him in the year 1955. In 1977, Mr. K.V.P Sadayandi Moopanar was able to establish the name and expand the outfit with a self – styled retail showroom at Srivilliputtur, renamed the brand name as ‘POTHYS’. Pothys Group, is among the largest family owned enterprises in Tamil Nadu. Promoters have rich experience in the retail market and have wide reputation in entire corporate retail market segment. The brand Pothys is renowned for the variety of range of silk sarees, readymade garments, fashion wear, etc. and has further diversified to electronics and day-to-day products as well. Pothys targets all segments of customers from low and middle-income customers to high-income customers, with varied brand preferences. The group has a total of 18 showrooms and with presence in all across South India. The group has strong procurement linkages owing to large scale of operations, and also commands pricing of cost-plus-nominal markup from manufacturers. With a long-standing brand presence of more than nine decades now, the group has established strong supplier relations with vendors from various regions for textile products, plus for all other products through C&F agents, stockists, etc. The operating income of the Group stood at Rs.3274.94 Cr in FY2022 as against Rs.1765.14 Cr in FY2021 and Rs.3.00 Cr in FY2020. Out of the total operating income in FY2022, Rs.481.94 Cr was earned from the recently commenced jewelry trading business of the Group under PSMPL.

Acuité believes that Pothys Group will continue to benefit from its established market position, extensive experience of the promoters and longstanding relationship with its suppliers over the medium term backed by its increasing network of stores at various locations.

Resourceful promoters group
The strong backing of an experienced and resourceful promoters with experienced teams operating the stores provide sound support to the group. Moreover, promoter’s funds which could be available for meeting any shortfall in debt servicing, fund new projects, and meet cash flow shortfalls in nascent stages, further gives financial flexibility to group. 

Moderate financial risk profile
The financial risk profile of the Group continues to remain moderate marked by modest capital structure, healthy net-worth and moderate debt protection metrics. Considering the unsecured loans from promoters, directors and related parties as quasi-equity, the overall gearing stood at 1.03 times as on March 31, 2022 as against 0.88 times as on March 31, 2021 and 0.87 times as on March 31, 2020. The unsecured loans from promoters, directors and related parties stood at Rs.128.03 Cr as on March 31, 2022. The Debt-EBITDA ratio stood at 2.55 times in FY2022 as against 3.22 times in FY2021 and 1.75 times in FY2020, while the TOL/TNW stood at moderate 1.53 times in FY2022 as against 1.25 times in FY2021 and 1.27 times in FY2020. The interest coverage ratio for the Group stood at 4.43 times in FY2022 as against 3.47 times in FY2021 and 6.06 times in FY2020. The NCA/TD stood at 0.24 times in FY2022 as against 0.18 times in FY2021 and 0.36 times in FY2020.

Acuité believes that the financial risk profile of the group is expected to remain moderate with regular accretions to reserves. 

Moderate working capital cycle
The Group has a moderate working capital cycle as reflected in its GCA days of 187 days as on March 31, 2022 as against 211 days as on March 31, 2021 and 104 days as on March 31, 2020. The inventory days as on March 31, 2022 stood at 160 days as against 162 days as on March 31, 2021 and 73 days as on March 31, 2020. The group is operating retail showrooms, it maintains optimal inventory across stores in terms of quantity and designs at the stores. As majority of the transactions are on immediate payment, debtors’ cycle is low. The debtor days stood at 27 days as on March 31, 2022  as against 35 days in March 31, 2021 and 22 days on March 31, 2020.

Acuité believes that, with the nature of business, operations are expected to be moderately working capital intensive over the medium term.

Exposure to risk associated with its on-going capital expenditure for the new showrooms
The group has 3 upcoming stores in Padi, Kanchipuram and Tirupur. These projects are being undertaken in Pothys Group and KVPS Properties and Developers Private Limited. The total project cost was earlier estimated to be Rs.463 Cr to be funded through bank debt of Rs. 289 Cr. and promoter contribution of 174 Cr. The group had been sanctioned term loan for one of the three upcoming stores and received in principal sanction for the other two stores but the final financial closure was yet to be achieved. The estimated project cost has now increased to Rs. 499 Cr as on March 2022. This escalated cost is expected to be primarily funded by additional debt. The project completion date which was initially estimated to be in FY2023, was extended to FY2024, is once again revised to H1FY2025. A new project is planned under the newly formed subsidiary Pothys Swarna Mahal Private Limited. The project will be in Trivandrum, Kerala with total project cost of around Rs.20 crore, out of which Rs. 13 crores will be funded by way of term loan from bank for infrastructures and interiors.

Acuité believes timely project implementation while sustaining the financial risk profile will remain a key rating sensitivity factor.

Geographical concentration risk
The Group’s total revenue from ‘Pothys’ stores is generated majorly from stores in Tamil Nadu which contributes 67% of total revenue, 19% from Kerala, 8% form Pondicherry and 6% from Karnataka. This proposition will change due to opening of 2 stores, one each in Tamil Nadu and Kerala. Currently group is operating 14 stores in Tamil Nadu including latest store opening in Chennai, 2 stores in Kerala including store opened recently in Ernakulum and each one store in Pondicherry & Karnataka. In terms of ‘Pothys’ showroom area Tamil Nadu holds 59%, Kerala holds 27%, Pondicherry holds 7% and Karnataka holds 7%. Acuité believes that large format stores concentration renders the revenue growth and profitability susceptible to overall market conditions in the Tamil Nadu and Kerala region. 

Exposure to competition in the retailing industry
The Group under the store name ‘Pothys’ currently operates with 18 showrooms with 3 other new showrooms coming up on the high streets of Chennai and other cities in Tamil Nadu. However, these places are also flooded with small and large players in the same line of business. The entry of branded textile players in Chennai is expected to intensify the competitive landscape for existing players like Pothys Group. The nontextile segment also faces stiff competition from local players which would limit the company’s ability to increase revenues significantly while maintaining margins. The credit profile of the group, over the medium term, will continue to be impacted by the geographical concentration of its stores in and around Chennai coupled with increasing competition from other players.