POCL Enterprises Ltd.

Brickwork Ratings reaffirms the ratings and changes the outlook from 'Negative' to 'Stable' for the Bank Loan Facilities of Rs. 84.48 Crs. of POCL Enterprises Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (27 Nov 2020)	Present
Fund Based	57.76	55.18	Long Term	BWR BBB- / Negative Reaffirmed with revision in outlook	BWR BBB - /Stable Reaffirmation and change in Outlook
Fund Based	13.00	18.00	Short Term	BWR A3 Reaffirmed	BWR A3 Reaffirmation
Non Fund Based	15.30	11.30	Short Term	BWR A3 Reaffirmed	BWR A3 Reaffirmation
Grand Total	86.06	84.48	(Rupees Eighty Four Crores and Forty Eight lakhs Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure

RATING ACTION / OUTLOOK

The rating reaffirmation of bank loan facilities of POCL Enterprises Ltd. ('POEL' or 'the company') continues to factor the experience of the promoters in the metal and chemicals industry, longstanding relationships with reputed clientele and established market position. However, the ratings remain constrained by the subdued FY21 performance, susceptibility of margins to fluctuation in raw material prices, vulnerability to global demand-supply, cyclicality of end user industries and geopolitical scenario, foreign exchange rate fluctuations and working capital intensive operations.

BWR notes that the company did not avail Covid-19 related RBI Moratorium Package during Mar'20 - Aug'20. However, the company has availed the Emergency Credit Line Guarantee Scheme (ECLGS) term loans from Canara Bank and HDFC Bank. The company did not apply for one time restructuring (OTR) of any loan under RBI Resolution Framework for Covid-19 related Stress.

The revision in rating outlook from 'Negative' to 'Stable' takes into account the recovery of business during H2FY21 and achieving net profit after two fiscals. BWR notes the confirmed order book position of ~Rs. 195 Crs. for Jul'21 - Mar'22 period excluding other orders based on spot prices. The revision in outlook also factors the expected improvement in sales in the short term on account of the long term contracts entered into with customers for FY22, capex to develop new product-line, regular capacity expansion and upgradation of machinery. BWR believes POEL’s business and financial risk profile will be maintained over the medium term. The outlook may be revised to 'Positive' if there is improvement in net sales, commercialization of the new product lines and profitability on a sustained basis. The outlook may be revised to 'Negative' if there is decline in sales and profitability and deterioration of gearing and debt coverage metrics, thereby weakening the financial risk profile of the company.

KEY RATING DRIVERS

Credit Strengths:

Experienced management :
The management is experienced in the metals and chemicals sector. The company has an established track record of over three decades in manufacturing of metals, metal oxides and other chemicals. The reputation and extensive experience of the management among the industry peers is expected to support the company's operations.
Established operational track record and diversified customer base :
The company started with trading of chemicals in 1980s and gradually became an established player in the metals, metal oxides and plastic additives segment. The company has been able to establish long and stable relationships with reputed clientele, both domestic and overseas. The company has been able to secure repeat orders from these clients. The company also has long term contracts with many of these companies.
Moderate financial performance :
The company's financial performance in FY21 was impacted due to the Covid-19 induced disruptions. Normalization of business conditions in H2FY21 resulted in improvement on some financial metrics. Operating income marginally declined from ~Rs. 347 Crs. in FY20 to ~Rs. 318 Crs. in FY21. EBITDA and PAT increased over the period on account of firmed up London Metal Exchange (LME) price of lead and zinc after Q1FY21. Increase in total debt as on 31Mar2021 resulted in marginal deterioration in gearing to 2.41 times. Debt coverage metrics given by ISCR and DSCR improved as on 31Mar2021 but are still subdued. ISCR improved from previous two fiscals to 1.26 times. DSCR was 1.56 times as on 31Mar2021. Profitability margins improved from FY20, but remained low. Current ratio also improved as on 31Mar2021 but continued to remain subdued.

Credit Risks:

Susceptibility of revenue to external factors :
The company operates primarily in the commodity sector which is characterized by high volume, low margins and dependence of the revenue and profitability on global growth scenario, global demand-supply conditions, international trade environment, strength of dollar vs. other currencies and domestic growth scenario. The company’s profitability is also affected by the other raw materials used in the company’s manufacturing process. The weakness of metal prices in Q1FY21 due to Covid-19 pandemic impacted the company's credit profile, however, a subsequent revival of the metal prices during ensuing quarters helped in faster recovery.
Foreign exchange risk and working capital intensive operations :
The company gets ~38% of its revenue from exports and imports ~70% of its raw material consumed. Export proceeds work as a natural hedge for the imports. The company hedges the foreign exchange risk partially by entering into forward contracts with the banks. Furthermore, the company's operations are working capital intensive leading to reliance on external borrowings with associated finance costs.
Moderate scale of operations and industry competition :
The company's scale of operations are moderate as reflected by its operating income, installed capacity and order book position. The company faces strong competition from both organized and unorganized players. Often, the competition is based upon margin, and there is limited bargaining power with both suppliers and customers. Also, the commodity nature of the products limits the pricing power of the company. BWR notes the company's ongoing capex plans are expected to diversify the product base and generate additional revenue stream.
Regulatory risk arising from compliance with environmental norms :
The primary product of the company is Lead which is hazardous in nature and hence, requires the requisite certifications and renewals thereof from the State Pollution Control Board. Although reportedly, the company has the appropriate clearances, the company's operations are expected to be adversely affected in case of any violations of such regulatory norms.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, Brickwork Ratings has applied its rating methodology as detailed at the end of the document. The company does not have any subsidiary, associate or holding company as on 31Mar2021.

RATING SENSITIVITIES

Ability of the company to increase its scale of operations while also improving its profitability and gearing on a sustainable basis would be key rating sensitivity. Keeping in view the ongoing capex through internal accruals and increase in debt repayments, the proposed improvement in company's EBIDTA and net cash accrual remains a key monitorable.

Positive:

Improvement in scale of operations and profitability on a sustained basis
Prudent working capital management and realization of business objectives from recent capex projects

Negative:

Decline in net sales and profitability
Specific credit metrics that could result in negative rating action include Total Debt/TNW above 2.75 times and ISCR/DSCR weakening to below unity on a sustained basis

LIQUIDITY INDICATORS - Stretched

Liquidity is stretched as reflected in high working capital limit utilization, low net cash accruals and cash & cash equivalents, subdued current ratio and stretched cash conversion cycle. Operating profit just covered the finance cost in FY21. Net cash accruals covered debt repayments in FY21 and the trend is expected to continue with low debt repayment of Rs. 0.11 Cr. scheduled for FY22. Working capital limit utilization with the banks was ~100% in past 6 months. Cash & cash equivalents were modest at ~Rs. 3.16 Crs. as on 31Mar2021. Cash conversion cycle got stretched to 80 days as on 31Mar2021 due to elongation of Days Inventory. Keeping in view the ongoing capex through internal accruals and increase in debt repayments, the proposed improvement in company's EBIDTA and net cash accrual remains a key monitorable.

ABOUT THE ENTITY

POCL Enterprises Limited (POEL) was initially established on 20May1988 for trading of chemicals in Chennai. POEL is an ISO 9001:2015 company and specializes in manufacturing and trading of various metals, metal oxides and plastic additives. The company has manufacturing units in Puducherry (two), Kakkalur – Thiruvallur and Maraimalai Nagar, Tamil Nadu. The company’s shares are listed on BSE Ltd. Exports contributed ~38% of total sales in FY21. Metals, metal oxides and plastic additives contributed ~53%, ~31% and ~16% of net sales in FY21.

Mr. Harish Kumar Lohia is the Non-Executive Chairperson. Mr. Devkar Bansal and Mr. Sunil Kumar Bansal are the Managing Directors.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	318.00	346.87
EBITDA	Rs.Crs.	6.97	4.17
PAT	Rs.Crs.	1.45	-0.61
Tangible Net Worth	Rs.Crs.	35.18	33.40
Total Debt/Tangible Net Worth	Times	2.41	2.18
Current Ratio	Times	1.20	1.01

KEY COVENANTS OF THE FACILITY RATED

The terms of sanction include standard covenants normally stipulated for such facilities.

NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY

Not applicable

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2021)			2020		2019		2018
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	55.18	BWR BBB-/Stable (Reaffirmation and change in Outlook)	04Mar2020	BWR BBB-/Stable (Reaffirmed)	15Apr2019	BWR BBB-/Stable (Reaffirmed)	16Feb2018	BWR BBB-/Stable (Reaffirmed)
		NA	NA	27Nov2020	BWR BBB-/ Negative (Reaffirmed with revision in outlook)	NA	NA	NA	NA
Fund Based	ST	18.00	BWR A3 (Reaffirmation)	04Mar2020	BWR A3 (Reaffirmed)	15Apr2019	BWR A3 (Reaffirmed)	16Feb2018	BWR A3 (Reaffirmed)
		NA	NA	27Nov2020	BWR A3 (Reaffirmed)	NA	NA	NA	NA
Non Fund Based	ST	11.30	BWR A3 (Reaffirmation)	04Mar2020	BWR A3 (Reaffirmed)	15Apr2019	BWR A3 (Reaffirmed)	16Feb2018	BWR A3 (Reaffirmed)
		NA	NA	27Nov2020	BWR A3 (Reaffirmed)	NA	NA	NA	NA
Grand Total		84.48	(Rupees Eighty Four Crores and Forty Eight lakhs Only)

Rating Advisory, as on 31Mar2021
COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.

Hyperlink/Reference to applicable Criteria

Analytical Contacts
Swarn Saurabh Senior Rating Analyst swarn.s@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

POCL Enterprises Ltd.

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Canara Bank	OCC/ODBD/WCDL/Bills - Sanctioned	17.70	_	17.70
2	Canara Bank	PC/PCFC/FDB/BRD/FBE - Sanctioned	_	13.00	13.00
3	Canara Bank	ILC/FLC/BG - Sanctioned	_	5.30	5.30
4	Canara Bank	Emergency Credit Line Guarantee Scheme (ECLGS) - Sanctioned	7.00	_	7.00
5	HDFC Bank	Emergency Credit Line Guarantee Scheme (ECLGS) - Sanctioned	5.48	_	5.48
6	HDFC Bank	Cash Credit - Sanctioned	25.00	_	25.00
7	HDFC Bank	Standby LC/ILC/FLC/BG - Sanctioned	_	6.00	6.00
8	HDFC Bank	Post Shipment Finance - Export Bill Discounting (Non-LC) - Sanctioned	_	5.00	5.00
Total			55.18	29.30	84.48
TOTAL (Rupees Eighty Four Crores and Forty Eight lakhs Only)

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Brickwork Ratings (BWR), a Securities and Exchange Board of India [SEBI] registered Credit Rating Agency and accredited by Reserve Bank of India [RBI], offers credit ratings of Bank Loan, Non- convertible / convertible / partially convertible debentures and other capital market instruments and bonds, Commercial Paper, perpetual bonds, asset-backed and mortgage-backed securities, partial guarantees and other structured / credit enhanced debt instruments, Security Receipts, Securitization Products, Municipal Bonds, etc. BWR has rated over 11,400 medium and large corporates and financial institutions’ instruments. BWR has also rated NGOs, Educational Institutions, Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations. BWR has Canara Bank, a leading public sector bank, as one of the promoters and strategic partner. BWR has its corporate office in Bengaluru and a country-wide presence with its offices in Ahmedabad, Chandigarh, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi along with representatives in 150+ locations.

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