Long track record of operations and experienced management
PCL, incorporated in 1992, is a Navi Mumbai-based company engaged in the manufacture of acetone and phosphorous-based compounds used in solvent-based paints, pesticides and engine oils. PCL is promoted by Mr. Nishith Shah (Metallurgical Engineer) and Mr. B. K. Gupta who possesses over three decades of overall experience with two decades of experience in the organic chemicals industry. The company has benefited from its experienced management and has become is one of the leading manufacturers of diacetone alcohol and phosphorus pentasulphide in India. The company is a Government of India certified Two Star Export House Company with the global distribution network spread across 45+ countries across Asia, North America, and the European Union as on December 31, 2021. The company has a research and development centre which helps undertake collaborative product development with the customers leading customized products in line with customer expectations and consumer preferences, whilst simultaneously ensuring shorter lead-times.

Acuité believes that PCL will continue to benefit from its established position in the market and experienced management.

Low Customer Concentration Risk
The product mix of the company is 53% acetone-based specialty chemical, 27% phosphorous based specialty chemical and 20% trading of other specialty chemicals. The revenue of the company stood at Rs. 931.40 Cr. in FY2023 as against Rs. 896.81 Cr. in FY2022. The company has a diversified customer base across 30+ verticals including home and personal care, pharmaceuticals, agrochemicals, lubricants and coating amongst others. Also, revenue from top 10 customers is around 20-23 per cent which mitigates the customer concentration risk.

Healthy Financial Risk Profile
The financial risk profile of the company is healthy marked by moderate net worth, debt-protection metrics and low gearing level. The tangible net worth of the company stood at Rs. 307.08 Cr. as on March 31, 2023 as against Rs.261.19 Cr. as on March 31, 2022. The company follows conservative leverage policy as reflected in  gearing level of 0.61 times as on March 31, 2023 as against 0.62 times as on March 31, 2022. The total debt of the company outstanding as on March 31, 2023 of Rs.185.99 Cr. comprises of long term debt of Rs.89.06 Cr. and working capital borrowings of Rs. 96.93 Cr. The debt protection metrics of the company are moderate as debt service coverage ratio (DSCR) stood at 2.16 times in FY2023 as against 2.32 times in FY2022. The interest coverage ratio (ICR) stood at 7.44 times in FY2023 as against 11.70 times in FY2022. The company has on-going capex towards debottlenecking and addition to capacity of existing facilities which includes capacity addition of DETC and PPS product from current capacity of 4000 MTPA to 8000 MTPA.. The total cost of project is around Rs. 68.75 Cr. and is expected to be completed by the end of FY2024

Acuité believes that PCL's financial risk profile will remain healthy in medium term.

­Working Capital Intensive Nature of Operations
The operations of the company are working capital intensive in nature, however, have recorded marginal improvement during the year marked by gross current asset (GCA) days of 131 days for FY2023 as against 145 days for FY2022. The inventory days stood at 57 days for FY2023 as against 66 days for FY2022. The debtor stood at 66 days for FY2023 against 71 days for FY2022. The creditor days stood at 90 days for FY2023 as against 130 days for FY2022. The average utilization of the fund based facilities of the company remained moderate at 80.56% percent in last six months ended July 2023.

Volatility in raw material prices and forex rates
PCL’s major raw materials are acetone and yellow phosphorus, which is a derivative of crude oil and the prices of which are highly volatile. Thus, PCL’s margins are susceptible to adverse movements in raw material prices. The operating profit margin has declined to 9.48% in FY2023 as against 15.60% in FY2022. Operating profit margins were higher in FY2022 on account of increase in realisation of products in FY2022, which was an exceptional year and the margins have been corrected in the current FY2023. The profit after tax (PAT) margin stood at 5.22% in FY2023 as against 9.21% in FY2022.The company tries to mitigate this risk by buying the raw materials in bulk.. PCL imports around 66 percent of its total raw material requirement while export sales account for around 27 percent of its total revenue which provides a natural hedge to some extent.