­Promoters’ extensive experience; established track record of operations
DCPL, a special class civil contractor, has established presence in executing projects related to primarily roads & bridges, irrigations, buildings amongst others for both public and private sector. Mr. Desai Madan Mohan Reddy, the managing director of DCPL, has more than 3 decades of experience in the line of civil construction.  With the promoters’ extensive industry experience and timely execution of its past projects, DCPL has been able to establish long-standing relationship with various government divisions such as Roads & Building divisions (Anantapur), Panchayat Raj (Anantapur), Roads & Building divisions (Chittoor) amongst others. Acuité believes that the promoters’ extensive industry experience, established relation with its principal contractors and healthy order book will aid DCPL's business risk profile over the medium term.

Moderate financial risk profile:
DCP’s financial risk profile is moderate, marked by moderate net worth, low gearing and above average debt protection metrics. The company’s net worth stood at Rs.48.24 Cr. as on March 31, 2024 against Rs.40.37 Cr. as on March 31, 2023. The improvement in net worth is due to accretion of profits to reserves during the period. The overall debt level of the company increased to Rs.40.51 Cr. as on March 31, 2024 from Rs.16.33 Cr. as on March 31, 2023. Consequently, the gearing and total outside liabilities to tangible net worth (TOL/TNW) levels deteriorated to 0.84 times and 2.02 times as of March 31, 2024 respectively compared to 0.40 times and 1.40 times as on March 31, 2023 respectively. The debt protection metrics stood above average with DSCR and ICR of 3.72 times and 5.50 times respectively as on March 31, 2024. Debt to EBITDA also deteriorated to 2.91 times as on March 31, 2024 from 1.42 times as on March 31, 2023. Acuite believes that the financial risk profile of the company will improve over the medium term supported by improving EBITDA levels.

­Revenue decline amid profit growth:
DCPL registered revenue of Rs.209.19 Cr. in FY2024 against revenue of Rs.218.13 Cr. registered in FY2023. The decline in revenue is majorly due to delay in execution of few orders during the year. However, the operating profit margin has improved to 6.27 percent in FY2024 from 5.04 percent in FY2023, as the company has migrated to execution of works on its own instead of subcontracting. Despite the increase in interest costs during the year, the PAT margin improved marginally to 3.75 percent from 3.24 percent in FY2023. During the current year the company registered revenue of Rs.153Cr till February 28, 2025 and expected to close the year with the revenue of Rs.190-200 Cr. Further the operating profit margin is expected to improve marginally due to reduced dependency on subcontracting works. Acuite believes that, the revenue moderation is likely to continue over the medium term in absence of new works orders.

Moderately intensive nature of working capital operations:
The working capital operations of the company are moderately intensive as reflected by the gross current asset (GCA) days of 186 days in FY2024 against 131 days in FY2023. The elongation in GCA days is due to high work in progress, resulting in inventory days of 56 days in FY2024 compared to 70 days in FY2023. The GCA days also includes other current assets portion in the form of earnest money deposits (EMD) deposits, retention money receivables and advances to suppliers, which further take it to elongated levels. The company receives bills within 20-25 days, resulting in lower debtor days of 15 days as on March 31, 2024. The creditor days stood at 59 days in FY2024 against 42 days in FY2023. The moderate intensive working capital operations have led to moderate dependency on the fund based working capital limits, which were utilized at an average of 70 percent over the past 12 months ending January 2025.
Acuite believes that the working capital operations of the company will remain moderately intensive on account of the nature of the business.

Susceptibility to tender-based operations:
Revenue and profitability depend entirely on the ability to win tenders. Entities in this segment face intense competition, thus requiring them to bid aggressively to procure contracts; this restricts the operating margin to a moderate level. Also, given the cyclicality inherent in the construction industry, the ability to maintain profitability margin through operating efficiency becomes critical. Acuité believes that the company’s business profile and financial profile can be adversely impacted on account of presence of stiff competition, and has inherent risk of susceptibility to tender based operations.