Experienced management and established track record of operations

SBEL has a long execution track record of over 30 years in the civil construction business with established track record of projects related to building and bridges. The company is managed by Anil Agarwal and his family. There is customer-wise demarcation of authorities and responsibilities among the directors, which enables smooth execution of the projects. The timely execution of the projects has helped the company in improving its market presence in Odisha.
  
Reputed clientele  

SBEL continues to be a Class 1 contractor for Orissa Public Works Department (PWD), National Highway Authority of India (NHAI), NTPC Limited and different departments of Railways. SBEL is entitled to bid for orders of any size. The company has orders from Govt companies like IOCL and MCL. The company also bid offers for the private parties such as GR Infraprojects Limited and TRL Krosaki Refractories ltd. among others. SBEL has diversified in the past few years, with orders inflow from irrigation, riverfront project and bridge construction segments as well.

Improvement in overall operating performance
 
The revenue of SBEL improved and stood at Rs. 766.72 Cr. in FY2024 as against at Rs.675.37 Cr. in FY2023 registering a growth of ~13 percent. Despite of increase in the overall operating costs and depreciation charges during the year, the operating and net profit margin of the company  improved and stood at 11.59 percent and 4.02 percent respectively in FY2024 as against 9.56 percent and 3.72 percent respectively in FY2023.
 
For 9M FY2025, company has achieved revenue of Rs.590.00 Cr. The company has unexecuted orderbook as on December 2024 of Rs. 2280.00 Cr. which provides revenue visibility over the medium term, however ability of the company to consistently improve its scale of operations while maintaining the profitability margins and to complete the work orders on timely basis without any significant delays will remain a key monitorable.

Healthy financial risk profile

Financial risk profile of SBEL remained healthy marked by moderate net worth, low gearing and comfortable debt protection metrics. The tangible net-worth of the company stood healthy at Rs. 261.76 Cr. as on 31 March, 2024 as against Rs. 230.90 Cr. as on 31 March, 2023 due to accretion of profits to reserves. The gearing (debt-equity) stood marginally improved at 0.37 times as on 31 March, 2024 as against 0.55 times as on 31 March, 2023 due to an decrease in the company’s overall debt of Rs.97.58 Cr. in FY2024 as against Rs.127.63 Cr. in FY2023. The gearing is however expected to improve and remain low over the medium term in the absence of any significant debt funded capex plan.
 
The interest coverage ratio and DSCR marginally declined at 3.53 times and 1.81 times for FY2024 as against 4.33 times and 2.00 times for FY2023. The Net Cash Accruals to Total debt stood at 0.57 times for FY2024 as against 0.35 times for FY2023. The Total outside liabilities to Tangible net worth stood at 0.90 times for FY2024 as against 1.18 times for FY2023. The Debt-EBITDA ratio stood increased at 1.05 times for FY2024 as against 1.87 times for FY2023.
Acuité believes that the financial risk profile of SBEL will remain healthy over the medium term due to its comfortable debt protection metrices and absence of debt funded capex plan.
 

Working capital intensive operations

The operations of SBEL are working capital intensive marked by its Gross Current Assets (GCA) of 151 days for FY2024 as against 184 days for FY2023. The inventory cycle of the company stood low at 68 days for FY2024 as against 96 days for FY2023 marked by an overall decrease in the work in progress levels at various sites whereas the receivables cycle stood at similar levels of 31 days for FY2024 as against 37 days for FY2023. The working capital requirement is inherently high in the construction industry, given the dependence on the state and central government authorities for timely receipt of payments. In general, majority of the billing towards the work orders get realised by the company during the third and fourth quarter of the year due to which the company generates higher revenue during this period. Further, the creditors cycle of the company stood at 74 days in FY2024 as against 109 days in FY2023.
Acuité believes that the ability of SBEL to improve working capital cycle over the medium term will remain a key rating sensitivity factor.

Geographic concentration risk

SBEL provides civil construction services mainly to the Central & State Government authorities of Odisha where few of the orders are from Jharkhand, Chhattisgarh and different departments of Indian Railways. The revenue of the company is highly dependent on the number and value of tenders floated by each of these authorities. Also, SBEL faces intense competition from several mid to big size players. Risk is more pronounced as tendering is based on minimum amount of biding of contracts.

Competitive and fragmented industry

SBEL is exposed to the cyclicality inherent in the construction industry and intense competition in the tender based contract award system, along with fluctuations in input costs (steel, cement etc.) likely to result in volatility in revenues and profit margins. However, its long standing promoter’s presence, past track record of timely execution of projects and established relationship with the clients led to healthy repeat order inflow.