| Long track record of operations and experienced management
The group has an experience of more than 25 years in manufacturing of transformers. The group is promoted by partners Mr. V. Ramesh, Mrs. E. Mahalaxmi, and Ms. N. Fatima Sumaiya, who possess experience spanning more than two decades in the manufacturing and sale of transformers. The extensive experience of promotors has helped the group establish long-term relationships with TANGEDCO and suppliers for repeat orders. HG manufactures 16KVB, 63KVB, 100/11 KVB, and 100/22 KVB transformers on tender-based orders from TANGEDCO, with billing cycles ranging from 120 days to 160 days. The nature of billing is order-based, and thus it has low business risk in terms of the billing cycle. The revenue of the group has declined from Rs. 63.70 crore in FY 2022 to Rs. 60.70 crore in FY 2023, which has further declined to Rs. 57.93 crore in FY24 (Prov) due to decline in order flow from TANGEDCO. The operating margins of the group are range-bound and remained in the range of 6-8% through the last 3 years.
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| Moderate Financial risk profile
HG’s financial risk profile is moderate, marked by a moderate capital structure, moderate gearing, and coverage indicators. The group’s net worth stood at Rs 4.98 crore as of March 31st, 2023, against Rs 11.35 crore as of March 31st, 2022. The decline in net worth is due to the withdrawal of capital during the year. The group follows a moderately aggressive financial policy, reflected through its peak gearing of 2.63 times as of March 31, 2023, as opposed to 2.54 times as of March 31, 2022. The total outside liabilities to tangible net worth (TOL/TNW) stood at 5.50 times as on March 31st, 2023 as against 3.58 times as on March 31st, 2022. The company's debt protection metrics remain moderate, with an interest coverage ratio of 1.29 times as on March 31st 2023 as against 1.34 times as on March 31st 2022, and a and a debt service coverage ratio (DSCR) of 1.21 times as on March 31st 2023 as against 1.34 times as on March 31st 2022. The net cash accrual (NCA) to total debt (TD) is 0.06 times as of March 31, 2023, and 0.04 times as of March 31, 2022.
Working Capital Intensive operations
Working capital operations of the group are intensive, marked by high gross current asset (GCA) days of around 169 to 268 days during the last 3 years through FY2023. The group maintains an inventory of about 80 to 88 days and gives credit periods of 75–151 days to its customers during the last 3 years through FY2023.It’s inventory days stood at 80 in FY2023 against 88 days in FY2022. The debtor days stood at 76 days in FY2023 against 151 days in FY2022. Its creditor’s days stood at 52 to 113 days during the last 3 years through FY2023.
High customer and supplier concentration risk
The group is a manufacturer of transformers utilized for electrical distribution. HG manufactures and sells transformers to Tamil Nadu Generation and Distribution Corporation (TANGEDO), Transformers are made as per the specifications of TANGEDCO. Orders are acquired through participation in the tender process announced by TANGEDCO for yearly orders. TANGEDCO alone contributes 100 percent of total revenue, indicating a higher customer concentration risk. Further, the top ten suppliers contributed 100 percent of total purchases during the past three years, indicating a high supplier concentration risk.
Vulnerability of profitability owing to volatility in commodity prices
The profitability margins of the group are susceptible to volatility in commodity prices. Significant changes in commodity prices will impact the margins of the group.
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