| Long track record of operations supported by experienced management
DEL has been in the business of welding consumables since past more than four decades. Besides manufacturing welding consumables like electrodes, flux cored wires, etc., the company also offers solutions for reconditioning/repair of critical equipment used in manufacturing plants of cement, power, and steel, among others. Mr. N. K. Garg, promoter of the company, was a managing director of the company. However, after his demise in 2020, Mr. Prashant Garg was appointed as a managing director. The long-standing industry experience of the promoters, has enabled DEL not only to maintain good relationship with customers and suppliers, but also to diversify the product/service offerings. In addition to welding consumables, DEL also manufactures wear plates and some heavy machineries like plasma cutting machines, etc. The current managing director, Mr. Prashant, has around 14 years of experience and has shown his strong capability by developing a state-of-the-art production facility for DEL to manufacture sophisticated cement, power and steel plant equipment.
Acuite believes that DEL’s established track record and experienced management would continue to support its growth going ahead.
Healthy financial risk profile
DEL’s financial risk profile is healthy marked by healthy net worth, gearing, and strong debt protection metrics. Its net worth stood at Rs.190.59 Cr. as on 31 March 2024 as against Rs.141.91 Cr. as on 31 March 2023. The net worth has improved on account of accretion of profits to reserves and issue of 2,42,83,792 shares at the face value of Rs.10.00 worth of Rs.24.28 Cr. during FY2024. Furthermore, in the month of September 2024, DEL had issued (Initial Public Offer) IPO. The size of the IPO was Rs.157.96 Cr. The issue was of 94.05 lakh shares. The company will be utilizing the proceeds from the IPO towards CAPEX (Rs.101.77 Cr.), working capital requirements (Rs.22.00 Cr.) and remaining amount in General Corporate Purpose. The aim of the capex is to expand their presence in the domestic markets. The gearing level stood healthy at 0.18 times as on 31 March 2024 as against 0.34 times as on 31 March 2023. The total debt stood at Rs.34.44 Cr. as on March 31, 2024, comprising of short-term borrowings. Interest Coverage Ratio (ICR) stood healthy at 26.99 times for FY2024 against 15.16 times for FY2023. Debt Service Coverage Ratio (DSCR) also stood healthy at 12.18 times for FY2024 against 6.32 times for FY2023. The Debt/EBITDA levels improved to 0.73 times as of March 31, 2024, as against 1.38 times as of March 31,2023.
Acuite believes that DEL’s financial risk profile is likely to strengthen in the near term on account of increase in the net worth from the IPO proceeds and absence of any debt funded capex plan.
Improving Operating Performance
DEL’s revenue improved to Rs.279.78 Cr. in FY2024 against Rs.256.19 Cr. in FY2023. The marginal improvement in the revenue is primarily on account of increased sales volume during the year. Further, the revenue of DEL for H1FY2025 stood at Rs.145.73 Cr. The operating profit margin improved to 14.58 per cent in FY2024 compared against 11.94 per cent in FY2023 primarily on account of decline in the raw material prices. The PAT margin of DEL also improved to 11.01 percent in FY2024 compared to 8.64 percent in FY2023.
Acuite believes, that DEL’s ability to sustain the growth in scale of operations and improve margins over the medium term will remain a key rating monitorable.
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| Intensive working capital operations
DEL’s operations are working capital intensive marked by GCA days of 190 days in FY2024 as against 196 days in FY2023. The inventory days stood at 81 days in FY2024 when compared against 84 days in FY2023. Since DEL is into manufacturing of heavy engineering products which have high lead time, the inventory holding period is expected to remain in the similar range. The debtor days stood at 100 days in FY2024 as compared against 108 days in FY2023. The creditor days stood at 72 days in FY2024 as against 58 days in FY2023. The average utilization of the bank limits of the company stood moderate. For fund-based limits it stood at ~61.39% and for non-fund-based limits stood at ~55.49% for the last 06 months ending November 2024.
Acuite believes that the group's working capital will remain intensive over the medium term.
Susceptibility to fluctuations in raw material prices
DEL’s profitability is susceptible to fluctuations in prices of key raw material, i.e., steel (~65-70 per cent of total raw material cost). DEL’s inability to pass on sudden rise in steel prices to its consumers could impact the company’s overall operating performance.
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