Long track record of operation and experienced management-
The directors of the company Mr. Vinod Kumar Jain, Mr. Vishal Kumar Jain, Mr. Arvind Kumar Jain and Mr. Pramod Jain have experience of more than a decade in the business of coal washeries through other group companies. The long-standing experience of the directors has helped the company to establish comfortable relationship with their customers such as Adani Power Maharashtra Limited, Birla Corporation Limited, JK Lakshmi Cement Ltd, Hindalco Industries Limited among others as well as suppliers such as South Eastern Coalfields Limited, MP Power Generating Company Limited among others.

Significant improvement in scale of operation coupled with healthy profitability margin
The revenue of the company has significantly improved to Rs.211.13 crore in FY2022 as compared to Rs.127.13 crore in the previous year. This improvement is on account of an increase in capacity utilization of coal washeries during FY2022 as against of the previous year. Further, the revenue has also increased due to the better price realisation coupled with increase in unit sold during FY2022 over FY2021. The increase in the turnover levels have led to enhanced accruals which have further resulted in strengthening the overall business risk profile of the company.  The company has also booked Rs.195.47 crore during H1FY2023 (Prov.) as compared to Rs.111.58 crore during the same period in the previous year. Going forward, Acuité believes that the revenue of the company will increase and remain healthy on account of steady demand from the domestic market and better price realization.

The operating profitability margin of the company has significantly increased to 15.51 per cent in FY2022 as compared to 4.55 per cent in FY2021. This significant improvement in operating profitability is on account of decrease in price of the coal during the period coupled with better price realisation due to the high demand from the domestic market. The operating profitability margin of the company stood at 13.45 per cent during H1FY2023 (Prov) as compared to 11.46 per cent during the same period in the previous year. Going forward, Acuité believes that the operating profitability margin of the company will sustain at a healthy level backed by steady demand and better price realisation. The net profitability margin of the company also stood healthy at 9.36 per cent in FY2022 as compared to 1.33 per cent in the pervious year.

Strong financial risk profile-
The financial risk profile of the company is marked by healthy net worth, low gearing and strong debt protection metrics. The net worth of the company stood healthy at Rs.122.48 crore in FY 2022 as compared to Rs 102.71 crore in FY2021. This improvement in networth is mainly due to the retention of profit during FY2022. The gearing of the company stood at 0.14 times as on March 31, 2022 when compared to 0.17 times as on March 31, 2021. Interest coverage ratio (ICR) is strong and stood at 16.86 times in FY2022 as against 4.95 times in FY2021. The debt service coverage ratio (DSCR) of the company also stood comfortable at 3.85 times in FY2022 as compared to 1.31 times in the previous year. The net cash accruals to total debt (NCA/TD) stood strong at 1.46 times in FY2022 (Prov.) as compared to 0.33 times in the previous year. Going forward, Acuite believes the financial risk profile of the company will remain healthy on account of steady net cash accruals and no major debt funded capex plan over the near term.

Logistical advantage
Cost and efficiency of logistical expenses play a key role in the coal beneficiation business. MCWPL has continuously invested and built their own logistical infrastructure for optimum utilization of available capacity. The company has 1 railway siding in Baloda used to transport coal to the coal washery. Having a railway siding is beneficial to the company as it provides an opportunity for delivery of coal in a time bound manner and save major cost of logistics thereby improving its operating margins. Further, the company also owns a large fleet of 150 trucks for coal transportation throughout the country.

Working capital intensive nature of operation
The working capital intensive nature of operation of the company is marked by high gross current asset (GCA) days of 169 days is FY2022 as compared to 170 days in the previous year. This high GCA days is mainly on account of high debtor days of 109 days in FY2022 as compared to 134 days in FY2021. The inventory holding period of the company stood comfortable at 23 days in FY2022 and in FY2021 respectively. Further, this high GCA days is also on account of high other current assets as on 31^st March 2022, which mainly consists of short term loans and advance to related parties and advance tax paid during the period. Going forward, Acuité believes that the ability of the company to manage its working capital operations efficiently will remain a key rating sensitivity.

End user sector challenges and high entry barriers
Coal washed, transported and traded by MCWPL find their end use by companies involved in power generation, cement manufacturing and steel and metal plants. The consumers that MCWPL caters to are also under high regulation from the government. Increasing cost of supply as against environmentally friendly and economically attractive options of solar and wind power has led to significant reduction in energy consumption from power plants, putting the power plants under financial distress. Loss of supply linkages between the cement industry and coal availability has been a developing challenge in India over lack of infrastructure. Further, capital intensive steel and metal plants have been under low potential utilization and have been experiencing reduced productivity amidst a global competition and slowdown in domestic economic conditions. Any policy changes affecting the highly regulated coal industry or its end users will impact the financial risk profile of MCWPL. The ability of MCWPL to grow in such conditions and maintain its profitability will be key monitorable in the future.

The coal beneficiation business in India is highly regulated and falls under the purview of Ministry of Coal, Government of India as well as Ministry of Environment, Forest and Climate Change, Government of India. Such high level of regulation from multiple government authorities creates entry barriers for new players. This provides an advantage to the existing players by keeping the competition low. With limited number of companies present in the coal washeries business, Acuité believes the existing players in the market will benefit from its established presence.