| Extensive experience of the promoters, long track record of operations?
Incorporated in 1983 by Mr. K.A. Menon, EHTPL is currently managed by the second generation of the family, Mr. Mahesh Menon and Mr. Manoj Menon. The promoters have an industry experience of more than twenty-five years. Over its vintage, EHTPL has forged long standing relationships with reputed clients and suppliers. It has been associated with reputed clientele like Cummins India Limited, Kirloskar Pneumatic Company Limited for more than two decades. Further, EHTPL receives regular orders from companies like L & T Limited, Reliance Industries, Tata Projects Ltd, BPCL & HPCL to name a few. Acuité believes that EHTPL will continue to benefit from the extensive experience of its promoters and long track record of its operations.
Augmentation in the scale albeit a modest scale
The company's operating income stood at Rs. 81.24 cr. in FY2023, marking a modest increase in revenues by 3.51% from the previous year at Rs. 78.48 in FY2022. In FY2024, the company reported growth of 35% in FY2024 with an operating income of Rs.110 Cr. Acuité believes that, going ahead the operations of EHTPL is expected to exhibit a healthy growth, however, the profitability would remain exposed to the volatility in the raw material prices.
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| Working capital intensive nature of operations
EHTPL’s operations are working capital intensive in nature. The company is involved in the manufacturing of heat transfers and radiators, which are designed and made as per orders. This results in the stretched working capital cycle with the Gross Current Asset (GCA) days of 201 days as of March 31, 2023, compared to 195 days as of March 31, 2022 due to decline in the creditor days. The inventory days stood at 89 days, which is relatively high because company as the company maintains raw material inventory of 2 months to serve the orders. Additionally, the company’s debtor days stood at 101 in FY23 reflecting the stretched collection period in line with its delivery terms, particularly given its made-to-order production cycle with dispatch periods ranging from 9 to 12 months. EHTPL’s ability to secure a credit period of 45-90 days from its suppliers helps manage its cash flow, providing some buffer against the longer debtor cycle. Acuité believes EHTPL’s ability to maintain its working capital cycle without further elongation will remain a key rating sensitivity.
Profitability susceptible to changes in raw material prices
EHTPL's major raw materials include Aluminium Strips / Sheets, Seamless Tubes, P H R Sheets/Plates/Angles etc. The company performance remains vulnerable to changes in the prices of aluminium and steel sector as demand for the same depends on the performance of the end user segments. The EBITDA margins declined to 6.38 percent in FY2023 against 8.71 percent in FY2022 mainly on account of an increase in the raw material price. The operating margin of the company is thus exposed to fluctuations in the prices of raw materials as well as realization from finished goods.
Moderate financial Risk Profile
The company’s capital structure continues to remain comfortable with a gearing ratio of 0.67 times as of March 31, 2023 (0.66 times as of March 31, 2022). Due to the decline in the profitability, the coverage ratios of the company were impacted as reflected by the interest coverage ratio of to 2.03 times in FY2023 as against 2.39 times in FY2022 and debt service coverage ratio (DSCR) from 1.28 times during FY2023 as against 1.66 times as FY2022.
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