| Extensive experience of Promoters in the Industry
Shah Group has been in the coal trading business since 1997, Mr. Vinay Shah and Mr. Ketan Shah, (Promoters), looks after the day-to-day operations of the group. Over the years the promoters have forayed into logistics business and the provide transportation service from the coal fields to the customers location. Their presence of more than three decades of experience in the coal trading business and logistics solutions has enabled the promoter to establish healthy relationships with its customers. Acuité believes that Shah group will continue to derive benefits from the extensive experience of its promoters and the established relationships with its key customers.
Moderate Financial Risk Profile
The financial risk profile of the group stood moderate marked by healthy net worth, low gearing and moderate debt protection metrics. The tangible net worth stood at Rs.242.86 crore as on 31 March 2024 as against Rs.226.71 crore as on 31 March, 2023. The total debt of the group for FY2024 stood at Rs.122.14 crore includes Rs.25.12 crore of long-term debt, Rs.56.40 crore of short-term debt, Rs.17.15 crore of unsecured loans and Rs.23.47 crore of CPLTD as on 31 March, 2024. The gearing (debt-equity) stood low at 0.50 times as on 31 March, 2024 as against 0.58 times as on 31 March, 2023. Interest Coverage Ratio stood at 3.02 times for FY2024 as against 3.80 times for FY2023. Debt Service Coverage Ratio (DSCR) stood at 1.06 times in FY2024 as against 1.27 times in FY2023. Total outside Liabilities/Total Net Worth (TOL/TNW) stood at 1.12 times as on 31 March, 2024 as against 1.11 times as on 31 March, 2023. Net Cash Accruals to Total Debt (NCA/TD) stood at 0.22 times for FY2024 as against 0.27 times for FY2023. Acuite believes, the financial risk profile to remain moderate over the medium term on account of debt funded capex.
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| Decline in operating performance of the company
The turnover of the group declined significantly and stood at Rs.480.61 crore in FY2024 as against Rs.671.40 crore showing a decline of 28.42 per cent The decline is on account of reduced trading of imported coal in SCPL due to low realisations. Out of the total revenue generated by the group in FY2024, SCPL generated a revenue of Rs.446.93 crore (Rs.144.41 crore are from Pan Asia) and remaining Rs.35.98 crore are generated from ALPL. Further, the decline continued with Shah group reporting the revenue of Rs.148.47 crore for 10MFY2025, wherein the group is targeting to close the year in the range of Rs.170 crore – Rs.180 crore. The operating margins of the group improved marginally and stood at 7.55 per cent in FY2024 as against 6.99 per cent in FY2023. The margins are expected to improve in near to medium terms as the company has reduced low margin imported coal trading business. However, the PAT margins of the company declined on account of high interest and depreciation cost and stood at 1.28 per cent in FY2024 as against 2.01 per cent in FY2023.
Acuite believes, the operating scale and profitability of the company would remain subdued over the medium term owing to reduction on coal trading business.
High customer concentration risks
While the company enjoys a long standing relationship with its key customers, Shah group is exposed to high customer concentration risk. The company added new customers such as Karnataka Power Corporation Ltd, Parichha Thermal Power Project (UP Power), Anpara Thermal Power Plant (UP Power) & Rashtriya Ispat Nigam Limited (RINL). The company is engaged in providing logistics solutions backed by the orders received, thus any decline in offtake from its customers will have a huge impact on the company’s sales volume.
Acuité believes that, power corporations would contribute majority of the groups revenue in the medium to long term, thereby exposing the group to customer concentration risk.
Working Capital Intensive Operations
The operations of the group remained working capital intensive marked by GCA of 252 days in FY2024 as against 159 days in FY2023. The debtor days stood at 108 days in FY2024 as against 77 days in FY2023 The creditor days stood at 107 days in FY2024 as against 55 days in FY2023. There is very less inventory in the group, which is because, the group had changed its policy to not hold high inventory of coal for its trading operations and procuring coal based on confirmed order only, thereby eliminating price risk. The fund-based limits utilisation 6 months stood at 85 per cent and non-fund bases stands at 72 per cent ended February 2025.
Acuite expects the operations of the company to remain working capital intensive over the medium term on the back of exposure to power corporations which are expected to further elongate the working cycle of the group.
Competitive and regulated industry
Coal being a commodity has demonstrated significant volatility in its prices in the past. Imported coal prices are also governed by global demand-supply factors. The coal trading and transport industry is highly fragmented, with a large number of players, due to the low entry barriers. This has restricted the growth in the company’s margins in these segments. Also, the industry is highly regulated, with the ministry of coal governing its operations in the country. Any adverse regulations would impact the operations of the company. Shah Coal group may face challenges if receivables exceed usance of letters of credit. Furthermore, the business risk profile remains exposed to fluctuations in coal prices and the regulatory policies of the government.
Acuité believes that any change in regulations and policies could have an adverse impact on the business risk profile of the group and expects the profitability position of the firm to remain modest over the medium term.
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