| Extensive experience of promoters with an established position in the material handling system with a diversified clientele
Mecgale group is one of the major players in the material handling system and has been undertaking turnkey projects for pneumatic conveying systems and provide end to end solutions for manufacturing Ash Handling System, Pneumatic Conveying System, Coal Handling Systems, etc. The promoters, Mr. Tapas Sarkar and Mr. Taritkumar Sarkar have experience of three decades in this industry. The extensive experience of the promoters helps the company to maintain an longstanding relation with the reputed customer base which includes Maharashtra State Power Generation Group, Lafarge India Pvt. Ltd., NALCO, ACC Limited, NTPC Limited, ISGEC Heavy Engineers Limited, Thermax Limited etc. The Mecgale group draws repeat business through its long-standing relationships with clients. The group has a team of 250 trained people consists of more than 100 qualified and experienced engineers including strong in-house design team for ash handling, bulk material handling systems, etc. which further strengthens execution capabilities.
Acuité believes that Mecgale group will continue to benefit from its experienced management, established relations with its customers and suppliers along with long track record of operations.
Steady growth in operations amidst healthy orderbook position:
The group has shown steady improvement in its operating performance in FY23 and same has been sustained in the current year. The group has registered revenue of Rs.238.76Cr by posting a growth rate of 11 percent during FY23. The improvement in revenue is on account of strong order book position coupled by increasing demand for conveying systems. Mecgale group has a healthy order book position of Rs. 702.07Cr as on February 29, 2024 providing a healthy revenue visibility over the medium term. Such orders comprise of Rs.136.21Cr of ongoing orders and Rs.565.86Cr of orders where the execution is yet to be started. The growth is also reflective of the company’s long-term relationship with reputed clients like NTPC, Thermax, JSW Energy, Maharashtra State power generation company limited among others. Further the company has reported revenue of Rs.207.98Cr till March 10, 2024 and expected to register revenue in the range of Rs.245-250Cr by the end of the year.
The EBITDA margin of the group remained range bound between 13.5-14.5 percent during past 3 years. The EBITDA margin has improved to 14.39 percent in FY23 from 13.82 percent of FY22. Growth in EBITDA margin is mainly on account of low raw material and low manpower cost during the year. The group sustained similar growth in margins at 14.36 percent till March 10, 2024. Further PAT margin has increased to 10.21 percent in FY23 against 9.81 percent of FY22. Acuite believes that the operations of the group will further improve over the medium term on account of presence of healthy order book.
Healthy financial risk profile:
Financial risk profile of the group is healthy marked by healthy net worth, capital structure and debt protection metrics. Group’s net worth stood at Rs. 140.87 Cr as on March 31, 2023 as compared to Rs. 118.45Cr as on March 31, 2022. Improvement in net worth is on account accretion for profits to reserves. Mecgale group’s capital structure is comfortable marked with healthy gearing and total outside liabilities to total net worth (TOL/TNW) of 0.06 times and 0.49 times respectively as on March 31, 2023 as against 0.05 times and 0.56 times as on March 31, 2022. The coverage indicators were moderate with DSCR of 18.52 times as on March 31st 2023 as against 16.60 times as on March 31st 2022. Interest coverage stood at 24.21 times as on March 31st 2023 as against 21.77 times as on March 31st 2022. Debt to EBITDA is continued to remain healthy at 0.25 times during FY23 from 0.20 times during previous year.
Acuite believes that the financial risk profile of the company will remain comfortable for FY24 as well on account of healthy net worth position.
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| Intensive nature of working capital operations
The working capital operations of the company are intensive in nature marked by GCA days of 273 days in FY23 as against 261 days in FY22. The high GCA days are driven by higher debtor collection period. the debtor collection period stood at 193 days in FY23 as against 198 days in FY22. The group also has various government entities such as NTPC and Maharashtra State power generation company where the payment is usually delayed. Debtors of the group stood at Rs. 127.97Cr as on 31st March 2023 and Rs. 118.02Cr as on 31st March 2022. The company has to maintain retention money of 10 percent of the project cost for the defect liability period, which is 12- 18 months. Such retention balance is included in the total receivables. As on 31st March 2023, approx. Rs.40-45Cr. of retention money is included in the receivables.
Major raw material of the company includes steel which is procured locally with a credit period of 45-60 days. For certain suppliers an LC is opened with a duration of 90 days. Creditor days stood at 131 days in FY23 as against 133 days in FY22. Inventory days of the company stood at 43 days in FY23 as against 39 days in FY22. The company’s reliance on fund bases and non-fund bases limits remains moderate. The average utilization of fund based working capital limits stood at 63.4 percent for 12 months ended December 2023 and bank guarantee limits remained utilized at 81 percent as on December 2023. Acuite believes that working capital operations of the group will remain intensive over the medium term on account of its nature of business.
Cash flows dependent on receipt and timely execution of orders
The group’s cash flows are exposed to economic spending and receipts of orders. The group is partly dependent on successful bids and the tenders being released in the financial year. However, with the current order book position, the group exhibits healthy revenue visibility for near to medium term. Further, some projects have elongated execution period from 6 months to 18 months thus faces the challenge of timely execution of orders.
Acuité believes that it is critical for the group to execute orders in hand within stipulated timelines for sustained performance.
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