| Experienced management and an established track record of operations
The group has more than two and a half decades of experience in the trading of plastic products, polymers, and flexible packing films. The group is currently managed by Mr. Prem Jain, Mrs. Premila Minni, Mr. Tanmayy Minni, and Mrs. Shejal Tanmayya Minni. The extensive experience of promotors has helped the group establish long-term relationships with its customers and suppliers for repeat orders. The group's customers include companies in the FMCG, textile, industrial packing, construction, automotive, and agriculture sectors. PAN Group procures a large variety of polymers and flexi packing products manufactured by reputed suppliers and trades them to various customers as per their requirements with the help of its distribution centres across India. Major products of trade for the group include polyester films, CPP films, BOPP films, aluminium foils, various types of polyethylene granules, and polypropylene granules.
Acuite believes that PG may continue to benefit from its established track record of operations and longstanding relationships with its customers and suppliers.
Stable business profile with low geographical and customer concentration risk
The group engaged in the trading of products including polyester films, CPP films, BOPP films, aluminium foils, various types of polyethylene granules, and polypropylene granules. The group has various distribution centres across India and is diversified across various regions. The diversified distribution mechanism of the group has helped them register healthy growth in revenue from operations to Rs. 970.25 crore in FY23 (provisional), compared to Rs. 694.08 crore in FY22 and Rs. 441.47 crore in FY21. Also, the group caters to various clients across different industries, such as FMCG, textile, industrial packing, construction, automotive, and agriculture sectors, among others. Acuité believes that the business profile of the group will continue to remain healthy on account of its diversified distribution centres and clients across the country and industries.
Moderate working capital management
The Group’s working capital operations are moderate, as reflected by its improved Gross Current Asset (GCA) days of 96 days for FY22 as against 138 days for FY21. The inventory days ranged between 21 and 41 days, and the debtor’s days ranged between 47 and 67 days, during the last three years ending FY22. To support the working capital, the group stretched the creditors to an extent of about 12–24 days during the last three years, ending in FY22. Furthermore, the average working capital limit utilisation remains moderate at 61.60 percent in the past 12 months ended March 2023. Acuité believes that the working capital management of the group will remain a key rating sensitivity over the medium term.
|
| Average financial risk profile
The financial risk profile of the group is average, marked by moderate net worth, high leverage ratios, and comfortable debt protection matrices. The group’s net worth stood at Rs. 77.91 crore as of March 31, 2022, as against Rs. 67.25 crore as of March 31, 2021. The total debt of Rs. 111.94 crore as of March 31, 2022, consists of Rs. 21.88 crore of term loans, Rs. 8.23 crore of unsecured loans from partners, a working capital loan of Rs. 78.26 crore, and current maturities of long-term debt of Rs. 3.56 crore. The gearing (debt/equity) of the group remains high at 1.44 times as of March 31, 2022, compared to 1.49 times in the same period last year. Furthermore, the debt-to-EBITDA ratio of the group also remains high at 5.77 times for FY22, compared against 7.38 times for FY21. However, the debt protection matrices remain comfortable, marked by an interest coverage ratio of 5.13 times and a debt service coverage ratio of 2.79 times for FY22. The ratio of total outside liabilities to tangible net worth stood at 1.82 times for FY2022 as against 2.10 times in FY2021.
Acuité believes that the improvement in the financial risk profile of the group going forward will remain a key rating sensitivity.
Thin profitability margins
The group’s operating profit margin remained thin at 2.60%–2.68% for the last three years ended March 31, 2023 (provisional) due to the trading nature of the business. Also, the margins remain susceptible to fluctuations in traded goods prices. The domestic plastic producers are substantially dependent on imports of petroleum products, and, hence, any supply-side issue could have a material impact on trading operations and the profitability of the group.
Susceptibility to cyclicality in the plastic industry and end-user industry
The domestic plastic sector is characterised by demand cyclicality, volatility in raw material and metal prices, high regulatory risk, and the risk of imports. Group operates in the cyclical plastic industry, thus making it vulnerable to downturns in industry demand, leading to declines in realisations and profitability. Moreover, the bulk of its revenue is derived from cyclical domestic end-use industries; demand depends on economic growth and consumer sentiments, and thus any decline in demand can also have an adverse impact on sales and profitability for the group. Demand for plastic products depends on the level of construction and infrastructure activities and any movement in economic cycles. Furthermore, the plastic industry remains exposed to global crude oil prices. While the cost-efficient and integrated domestic operations of the company partially cushion profitability against cyclical downturns, it will remain exposed to inherent price and demand volatility in the plastic industry.
|
