Pasupati Acrylon Ltd. — Capital/Financing Update 2023

Mar 28, 2023

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March 28, 2023

	BSE Limited Listing Department 25thFloor, P J Towers, Dalal Street Mumbai -400001 Stock Code.500456	Manager – Listing Compliances National Stock Exchange Of India Ltd. Exchange Plaza Bandra Kurla Complex Bandra (E), Mumbai-400051 Stock Code:PASUPTAC

Sub : Revision in Credit Rating for bank facilities

Ref: Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

Dear Sir/Madam,

Pursuant to Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulation, 2015, we wish to inform you that Credit Rating Agency - CARE has revised the credit rating from BBB+/Positive to BBB+/Stable outlook for long term bank facilities and re-affirmed rating CARE A2 for short term bank facilities of the Company.

Further, CARE has assigned the rating BBB+; Stable outlook for proposed Long Term Bank Facilities up to Rs. 130 Crores that may be availed by the Company for its new segment – Grain Based Ethanol Plant. The copy of rating letter covering the rationale for credit ratings received from CARE is enclosed.

Please take the same in your records.

Thanking you,

Yours faithfully,

For Pasupati Acrylon Limited

BHARAT Digitally signed by BHARAT KAPOOR KAPOOR Date: 2023.03.28 17:25:35 +05'30'

Bharat Kapoor

Company Secretary & Compliance Officer

Membership No. A54267

Encl: as above

PASUPATI ACRYLON LIMITED

CORPORATE OFFICE: M-14, CONNAUGHT CIRCUS, MIDDLE CIRCLE, NEW DELHI – 110001 (INDIA) Tel: EPABX - 91-11-47627400; Email: palsecretarial@gmail.com; Website: www.pasupatiacrylon.com

REGD. OFFICE & WORKS: KASHIPUR ROAD, THAKURDWARA, DIST. MORADABAD (U.P.) – 244601 Email: works@pasupatiacrylon.com; CIN: L50102UP1982PLC015532

Press Release

Press Release Pasupati Acrylon Limited

March 23, 2023

Ratings

Facilities/Instruments	Amount (₹ crore)	Rating1	Rating Action
Long Term Bank Facilities	130.00	CARE BBB+; Stable	Assigned
Long Term Bank Facilities	10.62	CARE BBB+; Stable	Reaffirmed; Outlook revised from Positive
Short Term Bank Facilities	280.00	CARE A2	Reaffirmed

Details of instruments/facilities in Annexure-1.

Rationale and key rating drivers

The ratings to the bank facilities of Pasupati Acrylon Limited (PAL) continues to derive strength from the established position of the company over three decades in acrylic staple fibre (ASF) industry, experienced promoters and management team, established relationship with customer and suppliers. The rating also factors PAL’s foray in Cast Polypropylene (CPP) film segment leading to revenue diversification and comfortable financial risk profile.

The ratings are, however, constrained on account of project risk associated with new segment for Grain Based Ethanol Plant, working capital-intensive operations, foreign exchange, raw material volatility and availability of cheaper substitutes.

Rating sensitivities: Factors likely to lead to rating actions

Rating sensitivities Positive:

• Sustained increase in total operating income beyond Rs 900 crore.

• Sustaining the improvement in the GCA above Rs.60 crore.

• Increase in the capacity utilisation above 90% for manufacturing of ASF.

Negative:

• Increase in overall gearing (including acceptance) beyond 1x.

• Decline in PBILDT Margins below 6% on sustained basis.

Analytical approach : Standalone

Outlook: Stable

CARE has revised the outlook from “positive” to “stable” for the bank facilities of Pasupati Acrylon limited considering the risk associated with new debt funded project and moderation the profitability margins generated by the company in 9MFY23, however the risk can be mitigated with comfortable debt protection metrics, strong liquidity position and comfortable operating cycle of the company.

Key strengths

Experienced promoter and Management team:

Pasupati Acrylon Limited was promoted in 1982 by Mr. Vineet Jain, Managing Director. Mr. Jain is BBA (London) and has been associated with PAL. He has around three decades of experience in the acrylic industry. Mr. S. P. Gupta is the Director of Operation who has a B. Tech in Chemical Engineering and has been associated with PAL since 2012. He has previously worked with various industries such as Acrylic Fibre, Chemicals, Fertilizer, Tea etc. and has got over four decades of experience. The promoters are supported by professional management team who have relevant experience in the industry.

Established position in acrylic fibre industry:

Pasupati Acrylon Limited (PAL) was established in 1982 and is a leading manufacturer of Acrylic Staple Fibre (ASF). However, it started its commercial operation in 1990. It is engaged in manufacturing of Acrylic Staple Fibre (ASF), both in dyed & grey form and has further diversified in Cast Polyproylene film (CPP). The domestic ASF industry is mainly concentrated among three large manufacturers namely PAL, Vardhman Acrylic Limited and Indian Acrylics Limited. PAL is one of the largest acrylic producers in the country with 42,000 Metric Tonnes Per Annum (MTPA).

1Complete definition of the ratings assigned are available at www.careedge.in and other CARE Ratings Ltd.’s publications

CARE Ratings Ltd.

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Press Release

Established relationship with customers & suppliers over the years:

Due to the its long track record of operations, PAL has developed an established relationship with its customers and suppliers. The company has been dealing with customers since last 25 years thus has been getting repeat orders from them. The revenue profile of the company is fairly diversified in terms of customers as top 10 customers contributed around 55% of sales during FY22 vis-à-vis 48% in FY21.

Comfortable financial risk profile:

The total operating income of the company has increased by ~53% to Rs.779.08 crore in FY22 as against Rs. 509.07 crore in FY21 mainly on account of significant increase in the raw material ACN price from Rs.97.47/kg to Rs.171.57/kg resulting in increased top line. The sales volume of ASF has declined by 1.41% to 30918 metric tonne (MT) in FY22 (PY: 31361 MT) however, sales realization improved by 50.22% to Rs.218.53/kg (PY: Rs. 145.47/Kg). Further, sales volume of CPP improved by ~59% to 6210 MT (PY: 3898 MT) and sales realization also increased by 27.36% to Rs. 160.85/Kg in FY22 from Rs. 126.3/Kg in FY21. GCA of the company is also improving from past 3 years as in FY22 it reached to Rs.52.26 crore from Rs.49.59 crore in FY21 (PY: Rs. 21.05 crore in FY20).

The PBILDT margins declined by 399 bps to 8.47% in FY22 from 12.46% in FY21 however PBILDT improved in absolute terms from Rs.63.41 crore in FY21 to Rs.66.02 crore in FY22. The raw materials for ASF is majorly imported and has an average lead time of 5 months between buying and selling process. The raw material price was high when order for the same was placed. Thus, the company lost their margins from it as prices of ASF went down in the last quarter Q4FY22.

The overall gearing has improved to 0.34x as on March 31, 2022 from 0.42x as on March 31, 2021 account of higher networth base resulting from accretion of profit to reserves. Further, the debt protection metrics as marked by interest coverage and TDGCA also improved owing to better profitability. Interest coverage ratio stood at 20.84x for FY22 as against 16.79x for FY21 while TDGCA stood at 1.81x for FY22 as against 1.99x for FY21.

Furthermore, in 9MFY23 ( From April 2022 to Dec 2022) company has achieved the total operating income of Rs.655.51 crore with PBILDT and PAT margin of 6.4% & 3.9% respectively, the decline in the margins is on account of volatality in raw material price.

Foray in flexible packing industry would provide revenue diversification and growth:

The company has diversified into CPP Film (flexible packaging) by starting commercial operations in Sep, 2017 and had set up manufacturing capacity of 5,000 MTPA then. Further, the company had implemented expansion of CPP Films by another 5000 MT, taking total production capacity to 10000 MT. The flexible packaging industry has been growing at a healthy rate and finds application in industries such as snacks, confectioneries, tobacco, spices etc. The company reported income of Rs. 99.89 crore during FY22 from CPP Films vis-à-vis Rs 49.23 crore in FY21.

In 9MFY23, company has reported income of Rs.87.25 crore from CPP films division as against Rs.63.21 crore in 9MFY22.

Key weaknesses

Volatility in profitability due to raw material and foreign exchange fluctuations:

PAL’s profitability margins have remained volatile in the past primarily on account of raw material being crude derivative and the prices are dollar denominated. Acrylonitrile (ACN) the major raw material (~76% of total cost in FY22) being a derivative of crude demonstrates volatility. ACN cost increased to Rs.171.57/kg in FY22 from Rs. 97.47/kg in FY21. The prices get impacted with fluctuation in crude oil as well as the USD rates. Inability to pass on increase in the raw material cost might have adverse impact on the profitability of the company. The company imports majority of raw material consumed (around 85% in FY22) from USA, Japan etc. and thus is also exposed to foreign exchange fluctuation risk. The risk is mitigated to some extent as the company derives around 4% in FY22 (PY: 17%) of its revenue from exports thereby providing it natural hedge to that extent. PAL purchases the raw material approximately 5 months before the sale of final product, which also mitigate the risk to some extent as depreciated Indian rupee lead to increase the raw material price of ACN which company is able to pass on to its customers by increasing the sale price in domestic market. Further, as per risk management policy of PAL, foreign currency fluctuation risk is managed through limited and short-term hedging of transaction with bankers. The company normally hedges its exposure for the next two months in advance. Nevertheless, the company is exposed to the foreign exchange fluctuation risk. In FY22, due to decrease in the prices of ACN profitability margins of the company continuously declined in last four quarters as from Q1FY22 to Q4FY22, PAT margins declined from 13% to 2%. Furthermore, in 9MFY23 PBILDT and PAT margin of the company were 6.4% & 3.9% respectively, the decline in the margins is on account of volatility in raw material price (ACN) coupled with decline in the production in CPP films division from 10000 MT to 8500 MT due to shut down of plant for 15 days in August 2022.

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Press Release

High inventory holding:

The operations of the company are working capital intensive as the company holds inventory of around 66 days in FY22 as against 92 days in FY21. The decrease in inventory days is owing to increase in sales value as the inventory in absolute terms has remained almost in line with the previous year. The raw material acrylonitrile is 100% imported and it takes around 5 months between the shipment of the raw material and the point of sale of the product acrylic stable fiber.

The average collection days for the company has remained around 31 days in FY22 as the company provides 15-30 days credit to its domestic customers while certain customer makes advance payment. The export receivables are either backed by advances or LC (which is discounted). Also, the company purchases its raw material on LC thereby getting a credit of around 90-180 days. The average creditor days remained around 55 days during FY22 as against 90 days in FY21. Entailing all, operating cycle increased to 41 days in FY22 from 34 days in FY21.

Competitive industry scenario with cheaper substitutes and imports:

Acrylic is a substitute for cotton, wool and polyester and thus faces intense competition from these substitutes. Furthermore, the industry also faces competition from imports due to

demand supply mismatch and capacities. The domestic acrylic industry is concentrated among few players and the major raw material ACN has high volatility. However, as the prices are set on monthly basis, considering the current raw material prices, import prices and exchange rate, thereby reducing the competition to certain extent.

Project execution and stabilization risk:

PAL has undertaken capex plan with total project cost of Rs.182.58 crore for setting up Grain Based Ethanol Plant of 150 KLPD Capacity at Village Mohammad Ganj, Tehsil - Thakurdwara, Dist. Moradabad, Uttar Pradesh. The company also proposes to setup 4 MW co-generation power plant with 35 TPH Boiler. The project is proposed to be funded through term loan of Rs.127.81 crore and balance through internal accruals of Rs.54.78 crore. However, the debt is yet to be tied-up and the project is at very nascent stage. The project is expected to commence its operations from FY25. The execution of the project with the envisaged time and cost remains a crucial from analytical prospective in the consideration of funding yet to be tied up. Further, post project implementation risk in the form of stabilization and streamlining of operations to achieve the envisaged scale of business and risk associated with the services in the light of competitive nature of industry is yet to been seen. During the initial phases of operations on new facility, the capital structure of the company is expected to remain leveraged due to debt funded CAPEX undertaken.

Liquidity: Strong

Liquidity is marked by strong envisaged GCA of Rs. 43.08 crore in FY23 against no repayment obligations of term debt and cash and bank balance to the tune of Rs. 121.09 crore as on Dec 31, 2022 (including margin money for LC). With a gearing of 0.34 times as of March 31, 2022, the issuer has sufficient gearing headroom, to raise additional debt for capex (if required). Its unutilized bank lines will also provide sufficient liquidity caution.

Applicable criteria

Policy on default recognition Financial Ratios – Non financial Sector Liquidity Analysis of Non-financial sector entities Rating Outlook and Credit Watch Short Term Instruments Manmade Yarn Manufacturing Manufacturing Companies Policy on Withdrawal of Ratings

About the company and industry

Industry Classification

Macro Economic Indicator	Sector	Industry	Basic Industry
Consumer Discretionary	Textiles	Textiles & Apparels	Other Textile Products

Pasupati Acrylon Limited (PAL), promoted by Mr. Vineet Jain, is engaged in manufacture of Acrylic Staple Fibre (ASF), both in dyed & grey form. PAL has a manufacturing plant located at Moradabad District (Uttar Pradesh) with installed capacity of 42,000

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Press Release

Metric Tonnes Per Annum (MTPA) and is one of the largest domestic acrylic producers. The company has also diversified into CPP Film (flexible packaging) and has set up manufacturing capacity of 10,000 MTPA which started commercial operations since September, 2017

September, 2017
			(Rs. crore)
Brief Financials(₹ crore)	FY21(A)	FY22(A)	9MFY23
Total operating income	509.07	779.08	655.51
PBILDT	63.41	66.02	41.99
PAT	43.05	45.9	25.77
Overallgearing (times)	0.42	0.34	NA
Interest coverage (times)	16.79	20.84	15.73

A: Audited; NA: Not Available; Note: ‘the above results are latest financial results available’

Status of non-cooperation with previous CRA: Not Applicable

Any other information: Not Applicable

Disclosure of Interest of Independent/Non-Executive Directors of CARE Ratings Ltd. : Not Applicable OR

Disclosure of Interest of Managing Director & CEO : Not Applicable

Rating history for the last three years: Please refer Annexure-2

Covenants of the rated instruments/facilities: Detailed explanation of covenants of the rated instruments/facilities is given in Annexure-3

Complexity level of various instruments rated for this company : Annexure- 4

Lender details: Annexure-5

Annexure-1: Details of instruments/facilities

Name of the Instrument	ISIN	Date of Issuance (DD-MM- YYYY)	Coupon Rate (%)	Maturity Date (DD- MM-YYYY)	Size of the Issue (₹ crore)	Rating Assigned along with Rating Outlook
Fund-based - LT-Cash Credit		-	-	-	10.62	CARE BBB+; Stable
Fund-based - LT-Term Loan		-	-	31-12-2029	130.00	CARE BBB+; Stable
Non-fund- based - ST- BG/LC		-	-	-	280.00	CARE A2

Annexure-2: Rating history for the last three years

Sr. No.	Name of the	Current Ratings	Current Ratings	Current Ratings
						Rating	History
			Amount		Date(s) and Rating(s) assigned in 2022- 2023	Date(s) and Rating(s) assigned in 2021- 2022	Date(s) and Rating(s) assigned in 2020- 2021	Date(s) and Rating(s) assigned in 2019- 2020
	Instrument/Bank
	Facilities	Type	Outstanding	Rating
			(₹ crore)
1	Fund-based - LT- Cash Credit	LT	10.62	CARE BBB+; Stable	1)CARE BBB+; Positive	1)CARE BBB+; Positive	1)CARE BBB+; Stable	1)CARE BBB+; Stable

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					(03-Aug- 22)	(05-Oct- 21)	(01-Dec- 20)	(03-Jan- 20) 2)CARE BBB+; Stable (05-Apr- 19)
2	Non-fund-based - ST-BG/LC	ST	280.00	CARE A2	1)CARE A2 (03-Aug- 22)	1)CARE A2 (05-Oct- 21)	1)CARE A2 (01-Dec- 20)	1)CARE A2 (03-Jan- 20) 2)CARE A2 (05-Apr- 19)
3	Fund-based - LT- Term Loan	-	-	-	-	-	-	1)CARE BBB+; Stable (05-Apr- 19)
4	Fund-based - LT- Term Loan	LT	130.00	CARE BBB+; Stable

*Long term/Short term.

Annexure-3: Detailed explanation of the covenants of the rated instruments/facilities : Not Applicable

Annexure-4: Complexity level of the various instruments rated

Sr. No.	Name of the Instrument	Complexity Level
1	Fund-based - LT-Cash Credit	Simple
2	Fund-based - LT-Term Loan	Simple
3	Non-fund-based - ST-BG/LC	Simple

Annexure-5: Lender details

To view the lender wise details of bank facilities please click here

Note on the complexity levels of the rated instruments: CARE Ratings has classified instruments rated by it on the basis of complexity. Investors/market intermediaries/regulators or others are welcome to write to care@careedge.in for any clarifications.

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Contact us

Media Contact Name: Mradul Mishra Director CARE Ratings Limited Phone: +91-22-6754 3573 E-mail: mradul.mishra@careedge.in Relationship Contact

Name: Dinesh Sharma Director CARE Ratings Limited Phone: +91-11-4533 3288 E-mail: dinesh.sharma@careedge.in

Analytical Contacts

Name: Sajan Goyal Director CARE Ratings Limited Phone: +91- 11-4533 3256 E-mail: sajan.goyal@careedge.in Name: Amit Jindal Assistant Director CARE Ratings Limited Phone: +91- 11-4533 3242 E-mail: amit.jindal@careedge.in Name: Shabnam Goyal Lead Analyst CARE Ratings Limited E-mail: shabnam.goyal@careedge.in

About us:

Established in 1993, CARE Ratings is one of the leading credit rating agencies in India. Registered under the Securities and Exchange Board of India, it has been acknowledged as an External Credit Assessment Institution by the RBI. With an equitable position in the Indian capital market, CARE Ratings provides a wide array of credit rating services that help corporates raise capital and enable investors to make informed decisions. With an established track record of rating companies over almost three decades, CARE Ratings follows a robust and transparent rating process that leverages its domain and analytical expertise, backed by the methodologies congruent with the international best practices. CARE Ratings has played a pivotal role in developing bank debt and capital market instruments, including commercial papers, corporate bonds and debentures, and structured credit.

Disclaimer:

The ratings issued by CARE Ratings are opinions on the likelihood of timely payment of the obligations under the rated instrument and are not recommendations to sanction, renew, disburse, or recall the concerned bank facilities or to buy, sell, or hold any security. These ratings do not convey suitability or price for the investor. The agency does not constitute an audit on the rated entity. CARE Ratings has based its ratings/outlook based on information obtained from reliable and credible sources. CARE Ratings does not, however, guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions and the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE Ratings have paid a credit rating fee, based on the amount and type of bank facilities/instruments. CARE Ratings or its subsidiaries/associates may also be involved with other commercial transactions with the entity. In case of partnership/proprietary concerns, the rating/outlook assigned by CARE Ratings is, inter-alia, based on the capital deployed by the partners/proprietors and the current financial strength of the firm. The ratings/outlook may change in case of withdrawal of capital, or the unsecured loans brought in by the partners/proprietors in addition to the financial performance and other relevant factors. CARE Ratings is not responsible for any errors and states that it has no financial liability whatsoever to the users of the ratings of CARE Ratings. The ratings of CARE Ratings do not factor in any rating-related trigger clauses as per the terms of the facilities/instruments, which may involve acceleration of payments in case of rating downgrades. However, if any such clauses are introduced and triggered, the ratings may see volatility and sharp downgrades.

For the detailed Rationale Report and subscription information, please visit www.careedge.in

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