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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 34.75 | ACUITE BBB | Stable | Reaffirmed | - |
| Bank Loan Ratings | 10.00 | - | ACUITE A3+ | Reaffirmed |
| Total Outstanding | 44.75 | - | - |
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Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE BBB’ (read as ACUITE triple B) and short-term rating of 'ACUITE A3+' (read as ACUITE A three plus) on Rs.44.75 crore bank facilities of Deccan Sales and Services Pvt Ltd (DSSPL). The outlook is ‘Stable’.
Rationale for rating reaffirmation
The rating reaffirmation takes into account improvement in operating and financial performance DSSPL marked by improvement in operating income, operating margins and moderate financial risk profile. The company’s revenue stood at Rs.273 Cr in FY2023 as against Rs.223 Cr in FY2022 which is a growth of ~22 percent achieved based on increase in the overall sales of products and increase in contribution from after sale services. The operating margins stood at 4.53 percent in FY2023 as agaisnt 4.37 percent in FY2022. The rating also draws comfort from the company’s experienced management with an established track record of operations and moderate financial risk profile marked by moderate net worth, low gearing and moderate debt protection metrics. The rating is however constrained due moderately intensive working capital operations and high competion risk. Going forward, ability of DSSPL to sustain the improved operating performance while improving and maintaining an efficient working capital cycle will remain key rating sensitivity factors. |
| About the Company |
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DSSPL is an Indore based company, established as a proprietorship firm in 1996 by Mr. Ratiram Patil and later converted as a private limited company in 2007. Mr. Ratiram Patil, Managing Director, is a mechanical engineer & has more than 3 decades of experience in the similar line of business. The company is an authorized dealer of Cummins India Limited, L&T Construction Limited, BK Tyres, Valvoline Inc., Mahindra & Mahindra, Komatsu India Private Limited, Wipro Water equipment, Chicago Pneumatic & Elgi Equipment. The company is currently operating in 7 spares cum service centers in Indore (Madhya Pradesh), Surat, Baroda, Ahmedabad and Vapi to name a few.
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| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
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Acuite has considered a standalone approach to arrive at the rating of Deccan Sales And Services Pvt Ltd (DSSPL).
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| Key Rating Drivers |
| Strengths |
| Experienced management and established track record of operations
DSSPL was established as a proprietorship firm in 1996 by Mr. Ratiram Patil and later converted as a private limited company in 2007. DSSPL is being managed by Mr. Ratiram Sitaram Patil, Mr. Manikrao Patil, and CEO Mr. Praveen Yadav who possess extensive experience of more than three decades. Promoters are well supported by second line of generation, Mr. Deepak Patil and Mr. Prashant Ratiram Patil. The extensive experience of the promoters has helped DSSPL to establish a healthy relationship with various Original Equipment Manufacturers (OEMs). Acuité believes that the company will continue to benefit from its experienced management and established track record of operations. Moderate financial risk profile
Financial risk profile of DSSPL is moderate marked by moderate net worth, low gearing and moderate debt protection metrics. The tangible net-worth of the company stood improved at Rs.37 Cr as on 31 March, 2023 as against Rs.32 Cr as on 31 March, 2022 due to accretion of profits to reserves. It also includes the unsecured loans from directors of Rs.5 Cr been treated as quasi equity since they are subordinated to the bank borrowings. The gearing (debt-equity) therefore stood improved at 1.04 times as on 31 March, 2023 as against 1.23 times as on 31 March, 2022. The total debt of Rs.38 Cr as on March 31, 2023 comprises of long term bank borrowings of Rs.10 Cr and the short term bank borrowings of Rs.28 Cr. The gearing is expected to improve further and remain low over the medium term in the absence of any significant debt-funded capex plan. The interest coverage ratio and DSCR stood moderated at 3.16 times and 1.37 times for FY2023 as against 3.30 times and 1.39 times for FY2022. The Net Cash Accruals to Total debt stood at 0.17 times for FY2023 as against 0.15 times for FY2022. The Total outside liabilities to Tangible net worth stood improved at 2.05 times for FY2023 as against 2.26 times for FY2022. The Debt-EBITDA ratio stood improved at 2.82 times for FY2023 as against 3.55 times for FY2022. Acuité believes that the financial risk profile of DSSPL is expected to remain moderate over the medium term due to its moderate debt levels vis-à-vis moderate tangible net worth and moderate debt protection metrics. Improved operating performance The revenue of DSSPL stood improved at Rs.273 Cr in FY2023 as against Rs.223 Cr in FY2022 which is a growth of ~22 percent achieved based on increase in the overall sales and providing after sale services. he operating margin of the company also stood improved at 4.53 percent in FY2023 as against 4.37 percent in FY2022, however the net profit margin of the company stood decline at 1.84 percent in FY2023 as against 2.00 percent in FY2022 due to an increase in the interest cost during the year. For the current year as of December 2023, DSSPL has achieved revenue of ~Rs.237 Cr as against Rs. during the same period in FY2023 and is further expected to achieve revenue of ~Rs.300 Cr by the year end. Acuité believes that the ability of DSSPL to achieve a sustainable operating performance will remain a key rating sensitivity factor. |
| Weaknesses |
| Moderately working capital intensive operations
The working capital operations of DSSPL are moderately intensive marked by its Gross Current Assets (GCA) of 120 days for FY2023 which stood improved as against 137 days for FY2022. This is due to its receivables cycle which stood improved at 51 days for FY2023 as against 62 days for FY2022. On the other hand, the inventory cycle of the company stood at 56 days for FY2023 as against 57 days for FY2022. The creditors cycle of the company also stood improved at 42 days for FY2023 as against 49 days for FY2022. The average bank limit utilization for 6 months’ period ended November 2023 however stood high at ~94 percent. Acuité believes that the ability of DSSPL to improve maintain an efficient working capital cycle over the medium term will remain a key rating sensitivity factor. Highly fragmented and competitive industry DSSPL operates in a highly competitive and fragmented industry characterised by large number of players. Further, its current profitability remains modest, given the low value-added nature of trading business and competition from dealers for other manufacturers in the segment. |
| Rating Sensitivities |
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| Liquidity Position - Adequate |
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DSSPL has adequate liquidity position marked by sufficient net cash accruals (NCA) to its maturing debt obligations. The company generated cash accruals in the range of Rs.6 Cr to Rs.7 Cr during FY2021 to FY2023 against its debt repayment obligation in the range of Rs.3 Cr to Rs.4 Cr during the same period. Going forward, the NCA are expected in the range of Rs.8 Cr to Rs.10 Cr for the period FY2024-FY2025 against its debt repayment obligation in the range of Rs.2 Cr to Rs.4 Cr during the same period. The working capital operations of the company are moderately intensive marked by its gross current asset (GCA) days of 120 days for FY2023. The average bank limit utilization for 6 months’ period ended November 2023 stood high at ~94 percent. Current ratio stands at 1.39 times as on 31 March 2023. The company has maintained cash & bank balance of Rs.4 Cr in FY2023.
Acuité believes that the liquidity of DSSPL is likely to remain adequate over the medium term on account of sufficient cash accruals against its maturing debt obligations. |
| Outlook: Stable |
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Acuité believes that DSSPL will maintain 'Stable' outlook over the medium term on account of its experienced management with an established track record of operations. The outlook may be revised to 'Positive' in case of higher-than-expected growth in revenue and profitability while effectively managing its working capital cycle and keeping the debt levels moderate. Conversely, the outlook may be revised to 'Negative' in case of lower-than-expected growth in revenue or deterioration in the financial and liquidity profile most likely as a result of higher than envisaged working capital requirements.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 273.07 | 222.86 |
| PAT | Rs. Cr. | 5.03 | 4.45 |
| PAT Margin | (%) | 1.84 | 2.00 |
| Total Debt/Tangible Net Worth | Times | 1.04 | 1.23 |
| PBDIT/Interest | Times | 3.16 | 3.30 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not applicable |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Trading Entitie: https://www.acuite.in/view-rating-criteria-61.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in
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