POCL Enterprises Ltd.

Brickwork Ratings upgrades the ratings for the Bank Loan Facilities of Rs. 85.07 Crs. of POCL Enterprises Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (26 Jul 2021)	Present
Fund Based	55.18	60.77	Long Term	BWR BBB- /Stable Reaffirmation	BWR BBB /Stable Upgrade
	(0.00)	(25.00)
	(0.00)	(10.00)
	13.00	13.00	Short Term	BWR A3 Reaffirmation	BWR A3 + Upgrade
Non Fund Based	11.30	11.30	Short Term	BWR A3 Reaffirmation	BWR A3 + Upgrade
	(0.00)	(25.00)
	(0.00)	(25.00)
Grand Total	79.48	85.07	(Rupees Eighty Five Crores and Seven 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 action for POCL Enterprises Ltd. ('POEL' or 'the company') reflects the better-than-expected performance in fiscal 2022, driven by demand recovery and cost efficiency measures. Brickwork Ratings (BWR) believes that the business and financial profile shall continue to be maintained over the medium term supported by steady demand for its products. BWR also notes the company's ability to secure incremental orders from one of its key existing clients, augmenting the company's growth plans. The improvement in business performance is reflected in 56% YOY growth in revenue to Rs.498 Crs in FY22 backed by volumetric growth across all the business segments. The improved scale of operations and firmed up prices have supported ~44% YOY growth in EBITDA in FY22.

The ratings continue to be supported by the experience of the management, established track record in the industry with a long association with its suppliers and customers. However, the ratings remain constrained due to susceptibility of margins to fluctuation in raw material prices, vulnerability to global demand-supply, cyclicality of end user industries and geopolitical scenario, regulatory risk, foreign exchange rate fluctuations and working capital intensive operations.

The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. BWR believes POCL's business risk profile will be maintained over the medium term. The outlook may be revised to 'Positive' if a sustained increase in the scale of operations, higher than envisaged profitability, efficient management of its working capital and improved gearing and debt coverage metrics result in an improved financial risk profile. The outlook may be revised to 'Negative' if lower than expected revenue or profitability, stretch in liquidity, sizeable and unanticipated Capex or weakening gearing adversely impact the financial risk profile.

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 :
Despite the impact of Covid-19 induced disruptions in Q1FY22, the company's scale of operations improved significantly in FY22. Operating income increased from ~Rs. 319 crores in FY21 to ~Rs. 498 crores in FY22. EBITDA and PAT increased over the period on account of increase in sales and improvement of the prices of lead and zinc in domestic and international markets. The TNW improved to Rs.38.63 Crs and which resulted in improvement in Total Debt/ TNW to 2.21 times as on 31Mar2022. Debt coverage metrics given by ISCR and DSCR are adequate as on 31Mar2022. ISCR improved from 1.42 times as on 31Mar21 to 1.69 times as on 31Mar22. DSCR declined from 1.58 times as on 31Mar21 to 1.4 times as on 31Mar22.

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.
Foreign exchange risk and working capital intensive operations :
The company gets ~42% of its revenue from exports and imports ~74% of its raw material consumed. The company has a natural hedge and additionally, it hedges the foreign exchange risk by availing forward contract limits. Furthermore, the company's operations are working capital intensive leading to reliance on external borrowings with associated finance costs. BWR notes the improvement in the working capital cycle to ~2 months as on 31 Mar 22. The sustainability of the working capital cycle at these levels continues to be a key monitorable.
Industry competition :
The company faces strong competition from both organized and unorganized players. Often, the competition is based upon margins, 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.
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 the company has the appropriate clearances, the company's operations remain susceptible 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 31Mar2022.

RATING SENSITIVITIES

The ability of the company to significantly 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 the company's EBIDTA and net cash accrual remains a key monitorable.

Upward:

Significant improvement in scale of operations and profitability on a sustained basis
Prudent working capital management.

Downward:

Decline in net sales and profitability on a sustained basis.
Specific credit metrics that could result in negative rating action include Total Debt/TNW above 2.50 times and ISCR/DSCR weakening to below unity on a sustained basis.

LIQUIDITY INDICATORS - Adequate

The liquidity profile is considered adequate as reflected in moderate working capital utilisation, net cash accruals and cash & cash equivalents. The EBITDA was adequate to cover the finance charges in FY22. Net cash accruals in FY22 is adequately covering the debt repayments and a similar trend is expected in FY23 and FY24. The average working capital limit utilization was ~70% in the past 6 months. Cash & cash equivalents were modest at ~Rs. 3.20 Crs. as on 31Mar2022. The current ratio improved to 1.22 times as on 31Mar22 from 1.20 times as on 31Mar21. The cash conversion cycle improved from 79 days as on 31Mar21 to 59 days as on 31Mar22

ABOUT THE ENTITY

POCL Enterprises Limited ('POEL' or 'The company') 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 ~42% of total sales in FY22. Metals, plastic additives and metal oxides contributed ~73%, ~12% and ~15% of net sales in FY22.

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 21-22 (Audited)	FY 20-21 (Audited)
Operating Revenue	Rs.Crs.	497.83	318.88
EBITDA	Rs.Crs.	11.31	7.85
PAT	Rs.Crs.	3.37	1.45
Tangible Net Worth	Rs.Crs.	38.63	35.18
Total Debt/TNW	Times	2.21	2.41
Current Ratio	Times	1.22	1.20

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 (2022)			2021		2020		2019
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	60.77	BWR BBB/Stable (Upgrade)	26Jul2021	BWR BBB- Stable (Reaffirmation)	27Nov2020	BWR BBB- Stable (Reaffirmation)	15Apr2019	BWR BBB- Stable (Reaffirmation)
FB SubLimit	LT	(25.00)	BWR BBB/Stable (Upgrade)	26Jul2021	BWR BBB- Stable (Reaffirmation)	NA	NA	NA	NA
		(10.00)	BWR BBB/Stable (Upgrade)	26Jul2021	BWR BBB- Stable (Reaffirmation)	NA	NA	NA	NA
Fund Based	ST	13.00	BWR A3+ (Upgrade)	26Jul2021	BWR A3 (Reaffirmation)	27Nov2020	BWR A3 (Reaffirmation)	15Apr2019	BWR A3 (Reaffirmation)
Non Fund Based	ST	11.30	BWR A3+ (Upgrade)	26Jul2021	BWR A3 (Reaffirmation)	27Nov2020	BWR A3 (Reaffirmation)	15Apr2019	BWR A3 ()
NFB SubLimit	ST	(25.00)	BWR A3+ (Upgrade)	26Jul2021	BWR A3 (Reaffirmation)	NA	NA	NA	NA
		(25.00)	BWR A3+ (Upgrade)	26Jul2021	BWR A3 (Reaffirmation)	NA	NA	NA	NA
Grand Total		85.07	(Rupees Eighty Five Crores and Seven lakhs Only)

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
Vineet Krishnan Nair Senior Ratings Analyst vineet.kn@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	Cash Credit - Sanctioned	17.70	_	17.70
	Sub-Limit (WCDL) - Sanctioned	(10.00)
2	Canara Bank	PC/PCFC/FDB/BRD/FBE - Sanctioned	_	13.00	13.00
3	Canara Bank	Emergency Credit Line Guarantee Scheme (ECLGS) - Sanctioned	6.70	_	6.70
4	Canara Bank	Emergency Credit Line Guarantee Scheme (ECLGS) - Sanctioned	3.49	_	3.49
5	Canara Bank	ILC/FLC/BG - Sanctioned	_	5.30	5.30
6	HDFC Bank	Standby LC/ILC/FLC/BG - Sanctioned	_	6.00	6.00
7	HDFC Bank	Emergency Credit Line Guarantee Scheme (ECLGS) - Sanctioned	2.74	_	2.74
8	HDFC Bank	Emergency Credit Line Guarantee Scheme (ECLGS) - Sanctioned	5.14	_	5.14
9	HDFC Bank	Cash Credit - Sanctioned	25.00	_	25.00
	Sub-Limit (Post Shipment Finance) - Sanctioned		(25.00)
	Sub-Limit (Pre Shipment Finance) - Sanctioned		(25.00)
	Sub-Limit (Working Capital Demand Loan) - Sanctioned	(25.00)
Total			60.77	24.30	85.07
TOTAL (Rupees Eighty Five Crores and Seven lakhs Only)

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