| 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 of more than two decades in manufacturing and sale of transformers. The extensive experience of promotors has helped the group in establishing long term relationship with TANGEDCO and suppliers for repeat orders. HG manufactures 16KVB, 63KVB, 100/11 KVB, 100/22 KVB transformers on tender based orders from TANGEDCO with billing cycle ranging between 120 days to 160 days. The nature of billing is order based and thus it has low business risk in terms of billing cycle. The revenue of the group has increased in FY 2022 and stood at Rs 63.70 Cr as against Rs 40.17 Cr and Rs 25.37 Cr in FY 2021 and FY 2020 respectively. However, the revenue is moderated in FY 2023 (Prov) and stood at Rs 59.01 Cr. The operating margins of the group are range bound and are in the range of 7-8% through last 4 years.
Acuité believes that the group will continue to benefit from its experienced management and established relationships with both customer as well as suppliers in the medium term.
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| Working Capital Intensive operations
Working capital operations of the group are intensive marked by increasing high GCA days. The GCA days of the group stood at 268 days in FY 2022 as against 186 days in FY 2021 and 117 days in FY 2020.The higher GCA days are majorly constitutes of high debtor days, which increased to and stood at 151 days in FY 2022 as against 87 days in FY 2021 and 29 days in FY 2020. The general credit period allowed is of 75-120 days to its customers. The group maintains an inventory of about 85 to 90 days Its creditor’s days stood at 75 to 120 days during last 3 years through FY2022. However, working capital limit utilization remained moderate at about 59 percent over the past 12 months ended March 2023 for Hindustan transformers and 50 percent for Sri Tirumala fabricators.
Acuite’ believes that working capital operations of the group may continue to remain intensive considering the higher credit period allowed and high inventory level requirements.
Moderate financial risk profile
HG’s financial risk profile is moderate marked by moderate capital structure, moderate gearing and coverage indicators. Group’s net worth stood at Rs.11.35 Cr as on March 31, 2022 as against Rs.6.45 Cr as on 31 March, 2021. The increase in net worth is majorly due to accretion of profits to the reserves. The group follows a moderately aggressive financial policy reflected through its peak gearing of 2.54 times as on 31 March, 2022. The debt-equity ratio of the company remains high at 2.54 as on 31 March, 2022 as against 1.08 as on 31 March, 2021. The Total outside liabilities to Tangible net worth (TOL/TNW) stood at 3.58 times for FY2022 as against 2.75 times in FY2021. Company's debt protection metrics remains moderate with an Interest coverage ratio stood at 1.40 times as on 31 March, 2022 and 1.27 times as on 31 March, 2021, debt service coverage ratio(DSCR) stood at 1.34 times for FY2022 as against 1.20 times for FY2021. The net cash accrual(NCA) to total debt(TD) is 0.04 times as on 31 March, 2022 and 0.08 times as on 31 March, 2021.
Acuité believes that the financial risk profile of the group may continue to remain moderate in the absence of any major debt funded capex in near to medium term.
High customer and supplier concentration risk
Group is a manufacturer of transformers utilized for electrical distribution. HT 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 depicting higher customer concentration risk. Further, top ten suppliers contribute to 100 percent of total purchases during past 3 years depicting 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. Acuité believes that profitability of the group will remain susceptible to volatility in commodity prices in the near to medium term.
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