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Established operations with experienced management
The group is promoted by Mr. P Sadanand Reddy, first generation entrepreneur with over three decades of experience in the explosive industry. Currently, he is supported by his sons, Mr. P Rajeev Kumar and Mr. P Rakesh Kumar. The group has a competent management supported by a team of well qualified and experienced second line personnel. Ideal group is an established player in the industrial explosives business with a long track record of operations of over 3 decades. The promoter's experience in the explosive industry has helped the group build healthy relationship with its suppliers and customers, to ensure a steady raw material supply and large offtake. Acuité believes that the promoters’ extensive experience has helped the group to establish long term relations with customers and suppliers and the same is reflected in steady growth in the scale of operations.
Improvement in Profitability of the Ideal group
The revenue of the group stood at Rs. 1,019.55 Cr. in FY2024 as compared to Rs.1,215.00 Cr. in FY2023. The decline in revenue is due to lower price realisations. EBITDA margin stood at 13.27 percent as on FY2024 as against 6.73 percent as on FY2023. The reason for the improvement in operating margin in FY2024 is mainly due to the low raw material costs as a per cent of sales, sale of high value products and value added services. The group EBITDA stood at Rs.135.32 Cr. as on FY2024 as compared to Rs. 81.82 Cr. as on FY2023. The PAT margins of the group have improved to 8.98 per cent in FY2024 in comparison to 3.98 per cent in FY2023. In the 8MFY2024, group has reported ~Rs.823 Cr. of the revenue. The group is planning to achieve the turnover of Rs.1200 Cr. – Rs.1300 Cr. in FY2025. Further, most of Ideal Group customers are large and reputed players in the mining and infrastructure industry, and the company has been able to secure repeat orders from them. Ideal Groups customer profile, comprising Coal India Limited (CIL) and its subsidiaries, Singareni Collieries Company Limited (SCCL), the Ministry of Defence (Government of India), etc. with whom it has developed strong relationship over the years. Further, the group has an unexecuted order book as of November 2024 of ~1950 Cr. which gives medium term revenue visibility.
Acuite believes that due to by healthy order book position and healthy relationship with reputed clientele will Ideal group is expected to support its scale of operations while improving profitability.
Healthy Financial Risk Profile
The financial risk profile of the company is marked by healthy net worth, debt-protection metrics and low gearing level. The tangible net worth of the company stood at Rs. 273.84 Cr. as on March 31, 2024 as against 188.53 Cr. as on March 31, 2023. The company follows conservative leverage policy as reflected in peak gearing level of 0.17 times as on March 31, 2024 as against 0.28 times as on March 31, 2023. The total debt of the company outstanding as on March 31, 2024 of Rs. 45.72 Cr. comprises of working capital borrowings of Rs. 41.62 Cr. Further, NCA/ TD stands at 2.29 times for March 31,2024 where NCA improved to Rs.104.59 Cr in FY2024 as compared to Rs. 58.24 Cr. in FY2023. The debt protection metrics of the company are healthy as debt service coverage ratio (DSCR) stood at 10.62 times in FY2024 as against 5.11 times in FY2023. The interest coverage ratio (ICR) stood at 26.68 times in FY2024 as against 10.62 times in FY2023.
Going forward, the Acuité believes that the financial risk profile of the company will remain healthy on account of augmentation of net cash accruals and absence of any major debt funded capex plan
Sound Working Capital Management
The working capital intensity of the of the group remained moderate marked by gross current asset (GCA) days of 78 days for FY2024 and 75 days for FY2023. The debtor days stood at 37 days in FY2024 as against 43 days in FY2023. The creditor days stood at 38 days in FY2024 as against 59 days in FY2023. The inventory holding period of the company stood at 21 days in FY2024 as against 23 days in FY2023. The group is not utilizing its fund-based facility, further the average utilization of the non-fund based facilities of the company remained low in the last six months ended November 2024. Acuité believes that the working capital operations of the group will remain comfortable over the medium to long term.
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| Vulnerability of profitability to raw materials
The Group’s major raw materials are pentaerythritol tetranitrate (PETN), ammonium nitrate, aluminium strips, copper wire, galvanised iron (GI) wires, PVC compound, etc. As most of its raw materials are metals and derivatives of oil and gas, the profitability remains vulnerable to adverse movement in their prices. Thus, Groups profitability will remain susceptible to volatility in raw material prices.
Exposed to regulatory risks
The explosive industry is regulated by the Petroleum and Explosives Safety Organisation, which continuously monitors the sale of explosives to avoid misuse of the finished products. The nature of the products and their usages are prone to abuse not only in India, but globally, which makes the industry highly sensitive and vulnerable. The Department of Explosives under the Government of India, located in Nagpur, Maharashtra, is the licensing authority for overseeing the safety of hazardous materials produced and marketed by the industry. Given the nature of the products and their hazardous raw materials, the vulnerability to accidents remains high, despite compliance with all mandated safety requirements. Though the group takes precautions at all stages of its process from manufacturing to delivering, it will remain susceptible to regulatory risks and intervention.
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