Pacific Consolidated Industries (PCI) Gases India Pvt. Ltd.

Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs.13.40 Crs. of Pacific Consolidated Industries (PCI) Gases India Pvt. Ltd.

Particulars

Facility**	Amount (Rs.Crs)	Tenure	Rating*
Fund Based
Term Loan - Proposed Cash Credit - Sanctioned Cash Credit - Proposed Lease Rental Discounting - Out-standing	05.00 03.00 04.00 01.40	Long Term	BWR BBB - (Stable)
Sub-Limit (Bank Guarantee) - Sanctioned	(01.00)	Short Term	BWR A3
Sub Total	13.40
Grand Total	13.40	(Rupees Thirteen Crores and Forty lakhs Only)

*Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank facilities are provided in Annexure-I RATING ACTION / OUTLOOK : Stable

BWR has essentially relied upon the audited financial statements of Pacific Consolidated Industries (PCI) Gases India Pvt. Ltd. for FY19, FY20, FY21, provisional financial statements of FY22 and projected financial statements for FY23 and FY24, publicly available information and information/clarifications provided by the entity’s management and its bankers.

BWR has assigned the long term ratings of BWR BBB-,Stable and the short term ratings of BWR A3 to their bank loan facilities aggregating Rs. 13.40 Crs.The rating draws strength from experienced promoter and management , satisfactory capacity utilisation (CU) of the plants , comfortable financial risk profile , diversified revenue streams and patented VSA technology in India .However, the rating is constrained by limited track record and modest scale of operations , capital intensive nature of business , vulnerability of the business risk profile to any downturn in its end-user industry , highly competitive nature of the industrial gas industry and foreign currency risk.

BWR believes that the business risk profile of Pacific Consolidated Industries (PCI) Gases India Pvt. Ltd. will be maintained over the medium term. The 'Stable' outlook indicates a low likelihood of rating change over the medium term. The rating outlook may be revised to 'Positive' in case the revenues, profit, and financial indicators show sustained improvement. The rating outlook may be revised to 'Negative' if the revenues go down and profit margins as well as financials show lower than expected figures.

Going forward, the ability of the entity to accelerate its scale of operations, improvement in overall gearing along with improvement in working capital cycle on a sustained basis, strengthen the overall financial risk profile, and eImprovement in capacity utilisation of oxygen units on a sustained basis, shall be the key rating sensitivities.

KEY RATING DRIVERS

Credit Strengths:

• Experienced promoter and management :

  PCI Gases LLC started its wholly owned subsidiary, Pacific Consolidated Industries (PCI) Gases India Pvt. Ltd., in 2016. PCI Gases LLC was founded in 1984 to manufacture cryogenic air separation devices for operation in extreme and remote environments. Mr. Asit Baran Gangopadhyay, Mr. Indrajit Mookerjee, Mr. Soeren Johann Schmitz, Mr. Robert Michael Eng, and Mr. Paul Timothy Stevents are the directors of the company. The directors of the company have more than three decades of experience in the gas generator manufacturing industry.

• Satisfactory capacity utilisation (CU) of the plants :

  PCIGIPL has a factory in Bangalore with a monthly capacity of 24 units. Capacity utilisation has improved to 76% in FY22 from 55% in FY21. Up to May 2021, PCI was operating in the previous factory (capacity was 5 units per month), and from June 2021 onwards, PCI started to gradually move to the existing factory. From Aug. 21 onwards, complete infrastructure was set up and, accordingly, planned capacity is full and volume has also started increasing rapidly.

• Comfortable Financial Risk Profile :

  Turnover has increased to Rs. 102.56 Crs (Provisional) in FY22 from Rs. 24.3 Crs in FY21 on account of increased oxygen regenrator sales and rental income from two DOCS-5000 capacity captive plants in Haldia for Chloride Metals Ltd in Dec-20 and one DOCS-80 capacity captive plant for Biocon. Total Operating Income has increased to Rs. 104.94 Crs (Provisional) in FY22 from Rs. 24.99 Crs in FY21.Following a consistent upward trend PAT has improved substantially to Rs. 20.92 Crs in FY22 from Rs. 1.54 Crs in FY21. TNW has improved to Rs. 28.31 Crs in FY22 from Rs. 4.56 Crs in FY21. The gearing ratio has also improved to 0.23 times in FY22 from 2.16 times in FY21.OPM currently stands comfortable at 23.64 in FY21.Following a consistent upward trend NPM has improved to 19.93 in FY22 from 6.16 in FY21.The current ratio has shown a consistent improvement over the past three fiscals. It has reached 1.83 times in FY22 compared to 1.15 times in FY21.ISCR stands comfortably at 40.63 times in FY22, compared to 7.14 times in FY21. The same has been improving since three fiscals.Following an upward trend, DSCR has improved to 13.11 times in FY22 compared to 3.53 times in FY21.

• Diversified revenue stream :

  Sales of oxygen regenrators is the major revenue stream of the company. Other than that, PCIGIPL generates revenue from post-sales AMC charges and facility fees received from captive plants installed. The company has already installed two DOCS-5000 capacity captive plants in Haldia for Chloride Metals Ltd. in Dec-20 and one DOCS-80 capacity captive plant for Biocon, which increased their revenue by Rs. 1.10 Cr p.a.

• Patented VSA technology in India :

  PCI Gases LLC, parent company of PCIGIPL, patented Vacuum Swing Adsorption (VSA) technology on Dec- 15, which is valid till Dec- 2035. Depending on consumption, most businesses will benefit financially from the VSA system instead of the PSA system on account of low OPEX and a fast return on investment. Hence, the company has a competitive edge compared to its peers.

Credit Risks:

• Limited track record and modest scale of operations :

  PCIGIPL started its operations in 2016. For the first two years, the company used to import plants from their parent concern, PCI Gases LLC, and install them in the client's facility. PCIGIPL started manufacturing in 2018 and, as of March 31st, 2022, they have manufactured 217 units of Deployable Oxygen Concentration Systems (DOCS). They have started installing captive plants since 2020 and have installed them for Chloride Metals Ltd. and Biocon only. PCIGIPL has modest scale of operations marked by total operating income of Rs. 104.94 Crs (provisional) and TNW of 28.31( Provisional) Crs in FY22. The modest size deprives from the benefits of economies of scale and restricts the financial flexibility of the company in the times of stress.Company is in the mode of diversification on onsite plant towards Health Care units through its expertise to retain competitiveness in the market and to improve its financials in coming years.

• Capital intensive nature of business :

  The onsite segment is highly capital intensive, involving large capex, long gestation period,and stretched payback. PCIGIPL has to incur regular capex for installing captive plants.These factors could have an adverse impact if the implementation of onsite projects or large capacity addition were to coincide with a downturn in the industry. Pharma Sector is likely to grow by 13% to 14% this FY 23 (BWR report on Pharma Sector May 2022) which in turn is reflexive of growth in Health Care Industry.

• Vulnerability of the business risk profile to any downturn in its end-user industry :

  Industrial gases find their application in the oil and gas, iron and steel, healthcare, construction, food and beverage,mining, transportation, and other end-user industries.Industrial gases are a consumable product and not a standalone finished product. Being a derived demand, its growth and profitability depends on the growth and profitability of user industries.The inherent cyclicality in end-user segments exposes the company to sluggish growth during economic downturns.But , the HealthCare Industry is also likely to grow in India in FY 23 and FY 24. India is one of the major centers for affordable treatment for the incoming patients residing at SAARC countries like Sri Lanka, Bangladesh, Nepal and thereby demand for medical gasses is likely to continue.

• Highly competitive nature of the industrial gas industry :

  The industrial gas industry is highly competitive due to the commoditized nature of the products and limited product differentiation, and the company faces competition from the Indian subsidiaries of the international majors and other local players. However, long distance transportation is not very viable in the industry, and the local manufacturer has the advantage in freight costs over other players. Apart from purity, there is limited product differentiation, and thus the merchant segment faces competition from other domestic players and players from the unorganised segment, leading to a limited ability to pass on the rise in input cost. As per Peer Analysis PPT, the revenue generation of the company is better in this segment.

• Foreign Currency Risk :

  PCIGIPL imports some of the raw materials from companies outside India and also engages in export of the plant, which constitutes 10-15% of their total sales. The company does not have any hedging mechanism regarding foreign currency. This exposes PCIGIPL to foreign currency risk.

ANALYTICAL APPROACH AND APPLICABLE RATING CRITERIA

To arrive at its ratings, BWR has relied upon the standalone audited financials up to FY21 , provisional financials of FY22 and projected financials of FY23 and FY24.

RATING SENSITIVITIES

Positive

• Increase in scale of operations and improvement in overall gearing along with improvement in working capital cycle on a sustained basis.

• Improvement in capacity utilisation of oxygen units beyond 90% on a sustained basis.

Negative

• Decline in scale of operations , deterioration in overall gearing and stretch in working capital cycle leading to deterioration of business risk profile.

• Decine in capacity utilisation below 50%.

LIQUIDITY POSITION

The liquidity position of the company is adequate.

• The average utilisation of the CC facility of SBI is 2.08% from Feb-22 to Apr-22. Though , CC facility was sanctioned in Aug-21 , the CC account opened in Dec-21 and there were no utilization for Dec-21 and Jan-22.

• The current ratio has shown a consistent improvement over the past three fiscals. It has reached 1.83 times in FY22 compared to 1.15 times in FY21.

• The cash conversion cycle has improved to 20 days in FY22 from 32 days in FY21 on account of due to a reduction in receivables days of 65% and inventory days of 42% in FY22.

• ISCR stands comfortable at 40.63 times in FY22 compared to 7.14 times in FY21. The same has been improving since three fiscals.Following an upward trend DSCR has improved to 13.11 times in FY22 compared to 3.53 times in FY21.

• Net Cash accruals has improved significantly to Rs. 22.12 Crs (Provisional) in FY22 from Rs. 2.29 Crs in FY21.Net Cash Accruals to Total Debt stands comfortable at 3.34 times in FY22 compared to 0.23 times in FY21.

• Cash & Cash equivalents has improved to Rs. 14.10 Crs (Provisional) in FY22 from Rs. 2.57 Crs in FY21.  Reason :(a) PCIGIPL has Rs.  0.03 Crs of cash on hand currently , (b) balance in current account has increased to Rs. 6.56 Crs in FY22 from Rs. 2.06 Crs in FY21 , (c)balance in escrow account with HDFC has increased substantially .Cash & Cash equivalents is exhibiting a consistent upward trend since last three fiscals.

• TOL/TNW has improved to 1.17 times in FY22 from 5.01 times in FY21. The same stood at 2.98 in FY20.

PROFILE

On July 4, 2016, PCI Gases LLC launched its wholly owned subsidiary, Pacific Consolidated Industries (PCI) Gases India Pvt. Ltd., based in Bangalore. Mr. Asit Baran Gangopadhyay, Mr. Indrajit Mookerjee, Mr. Soeren Johann Schmitz, Mr. Robert Michael Eng, and Mr. Paul Timothy Stevents are the directors of the company. Stake of PCI Gases LLC in the PCIGIPL is 87.85%. PCI manufactures ruggedized onsite liquid and gaseous oxygen and nitrogen generators for a variety of markets, including military, medical, water and wastewater treatment, industrial, and oil & gas markets. PCI was founded in 1984 to manufacture cryogenic air separation devices for operation in extreme and remote environments. Since then, PCI has continually expanded its technology platforms to include membrane and vacuum swing adsorption (VSA) technology. PCI’s corporate headquarters are located in Riverside, California. PCI’s Quality Management System meets the requirements of ISO 9001:2015 and ISO 13485:2016. Sales of oxygen regenerators is the major revenue stream of the company. Other than that, PCIGIPL generates revenue from post-sales AMC charges and facility fees received from captive plants installed. PCIGIPL patented their VSA method in India in 2020. Currently they have three plants in Bangalore of total capacity of 24 units per month.

KEY FINANCIAL INDICATORS

Key Parameters	Units	FY 21-22 (Provisional)	FY 20-21 (Audited)
Operating Revenue	Rs.Crs.	104.94	24.99
EBITDA	Rs.Crs.	24.81	3.15
PAT	Rs.Crs.	20.92	1.54
Tangible Net Worth	Rs.Crs.	14.83	4.56
Total Debt/Tangible Net Worth	Times	1.07	2.16
Current Ratio	Times	1.60	1.15

RATING HISTORY (INCLUDING WITHDRAWAL AND SUSPENSION)

S.No	Current Rating (2022)				Rating History
	Facilities	Tenure	Amount (Rs.Crs)	Rating	2021	2020	2019
Fund Based
1	Term Loan - Proposed Cash Credit - Sanctioned Cash Credit - Proposed Lease Rental Discounting - Out-standing	Long Term	05.00 03.00 04.00 01.40	BWR BBB- (Stable)	NA	NA	NA
2	Sub-Limit (Bank Guarantee) - Sanctioned	Short Term	01.00	BWR A3	NA	NA	NA
Total			13.40	(Rupees Thirteen Crores and Forty lakhs Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS

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 :

• General Criteria
• Approach to Financial Ratios
• Manufacturing Companies
• Short Term Debt

For More Information Contact:

Analytical Contacts
Soubhik Bhattacharjee Lead Analyst soubhik.b@brickworkratings.com	Dipak Kumar Das dipakkumar.d@brickworkratings.com
1-860-425-2742 | media@brickworkratings.com

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	HDFC Bank	Lease Rental Discounting - Out-standing	1.40	_	1.40
2	State Bank Of India (SBI)	Term Loan - Proposed	5.00	_	5.00
3	State Bank Of India (SBI)	Cash Credit - Sanctioned	3.00	_	3.00
4	State Bank Of India (SBI)	Cash Credit - Proposed	4.00	_	4.00
5	State Bank Of India (SBI)		_	1.00	1.00
	Sub-Limit (Bank Guarantee) - Sanctioned
Total			13.40	0.00	13.40
TOTAL (Rupees Thirteen Crores and Forty lakhs Only)