­­Established track record of operations and experienced management
Incorporated in 1981, AAPL is a Maharashtra based company engaged in manufacturing of Aluminium alloy ingots. The company is promoted by the Lodha family and presently run and managed by Mr. Manoharlal Lodha, Mr. Pavan Lodha and Mr. Mitesh Lodha who have wide experience in the industrial machine manufacturing sector. The operations of the company are managed by qualified and well experienced senior management team who are ably supported by a strong line of mid-level managers. The experience of the promoters and long track record of operations in the aforementioned industry has helped the company to maintain healthy and long-term relationships with both its customers and suppliers.
Acuité believes that AAPL will continue to benefit from their established presence in the industry backed by promoters’ vintage and established track record of operations.

Stable Operating performance
The operating performance of the company has recorded a strong growth marked by CAGR growth of 46 percent in the operating income over three years through 2022. The operating income of the company stood at Rs.193.03 crore in FY22 as against 119.37 crore in FY21 and 61.95 crore in FY20. Growth seen in the operating income comes at the back of increase in demand for the products coupled with price realisation. Operating income of the company stood at Rs. 197.11 crore for FY23 (Prov.)
The operating profit margins of the company has shown a consistent decline over the last three years. The operating margins of the company stood at 3.47 percent in FY22 as against 6.29 percent in FY21 and 8.8 percent in FY20. Such decline in operating margins comes at the back of certain one time fixed costs in FY21 and FY22. The normalised profits excluding such one time fixed costs stood at  4.70 percent in FY22 and 9.22 percent in FY21. The operating profits have further improved at 4.77 percent for FY23 (Prov.). The PAT margins of the company stood at 1.79 percent in FY23(Prov.) as against 1.06 percent in FY22 and 1.61 percent in FY21.
Acuité believes that the operating performance of the company is expected to improve on account healthy demand in the near to medium term. However, sustainability of the operating margins remains key rating sensitivity.

Moderate working capital operations

The working capital operations of the company are moderate marked by GCA days of 113 days in FY22 as against 160 days in FY21 and 232 days in FY20. The GCA days if the company are driven by inventory holding period. The production cycle to make aluminium alloys is approximately 90 days and the company as a policy maintains inventory of 60-70 days. The inventory holding period of the company has improved to 83 days in FY22 as against 133 days in FY21 and 193 days in FY20. The debtor collection period of the company stood at 31 days in FY22 as against 33 days in FY21 and 48 days in FY20. The company purchased aluminium scrap domestically and through exports. The procurement of scrap is majorly on advance payment basis or through opening an LC of 90 days. The creditor days stood at 29 days in FY22 as against 65 days in FY21 and 33 days in FY20. The company’s reliance on bank limits is high marked by fully utilized fund based and non-fund based bank limits.
The company’s ability to manage its working capital operations efficiently will remain a key rating sensitivity.

Average financial risk profile

The financial risk profile of the company is average marked by low networth, low gearing and healthy debt protection metrics. The tangible networth of the company stood at Rs. 29.48 crore as on March 31, 2022 as against 18.83 crore as on March 31, 2021 and Rs. 17.18 crore as on March 2020. The increase in net worth is on account of increase in accretion of profits to reserves. Total debt of the company stood at Rs. 31.92 crore as on March 31, 2022 as against Rs. 35.54 crore as on March 31, 2021 and Rs. 32.74 crore as on March 31, 2020. The company follows a moderate financial policy marked by gearing (Debt/Equity) at 1.08 times as on March 31, 2022 as against 1.89 times as on March 31, 2021 and 1.91 times as on March 31, 2020. TOL/TNW of the company remains moderate at 1.65 times as on March 31, 2022 as against 2.70 times as on March 31, 2021 and 2.08 times as on March 31, 2020. Debt protection metrics remain healthy with DSCR of 1.60 times for FY22 as against 1.70 times for FY21 and 1.31 times for FY20. ICR stood at 2.04 times for FY22 as against 1.84 for FY21 and 1.33 times for FY21.
Acuité expects AAPL’s financial risk profile is likely to improve in the near to medium term on account of likely improvement in operating performance and absence of any major debt funded capex plan.

Profitability susceptible to fluctuations in raw material prices and customer concentration risk
Aluminium forms a major part of the raw material of the company. Prices of the products are linked to the London Metal exchange and hence the profitability of the company remains susceptible to fluctuation in commodity prices. Approximately 50-60 percent of the revenue is contributed by two major customers over the last two years where the end use is in the automobile and electronics industry. Hence, the performance is susceptible to cyclicality in investments by the end user industries. The diversification protects the company to some extent from a slowdown in demand prospects of any particular industry. Further, the aluminium alloy industry is largely fragmented and faces stiff competition from established foreign as well as domestic players.