| 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 group has diversified business across the international markets to Latin America, Africa, Europe and derives the revenue to the tune of ~20 percent through export sales. 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.
Healthy order book position coupled with augmentation in business risk profile
Mecgale group’s revenues have grown at a CAGR of around 4.63 percent for the period under study from FY2020-FY2022. The group has registered revenues of Rs.216.65 crore in FY2022 as against Rs.182.47 crore in FY2021 and 189.12 crore in FY2020. Over the years, the group has built a wide network and healthy trade relations with domestic as well as overseas clients. The group has healthy order book position of Rs.320 crore as on November, 2022.
The group has also added a new segment of revenue for designing and construction of sewage treatment systems. The group currently has orders of Rs. 24 crores for such systems. The management expects this segment to grow in the near to medium term on account of increased focus of the government on developing smart cities. The management also sees a huge scope in the Flue Gas Desulphurisation (FGD) System for Thermal Power Plant & Fossil Fuel Fired Boiler. With the governments increased focus on avoiding global warming the need for reduction of pollutant gases from the power plant through FGD system will be in huge demand. The group currently has various FGD projects of Rs. 80 crores at various stages of execution.
Acuité expects that the group will record healthy revenue growth over the medium term on account of strong order book comprising private and government sector projects.
Healthy financial risk profile albeit modest networth
The financial risk profile of the group is healthy with a moderate networth, low gearing and comfortable debt protection metrics. Tangible Networth of the group stood at Rs. 118.45 crore as on 31st March, 2022 as against Rs. 97.19 crore as on 31st March 2021. Tangible networth of the group has strengthened over the years on account of increase in accretion of profits to reserves. Total debt of the group stood at Rs. 6.23 crore as on 31st March 2022 as against Rs. 3.53 crore as on 31st March 2021. Debt profile of the group comprises of Rs. 0.21 crore of unsecured loans and Rs. 6.02 crore of short-term loans. Gearing of the group stood low at 0.05 times as on 31st March 2022 and 0.04 times as on 31st March 2021. Debt protection metrics of the group remained comfortable with interest coverage ratio of 21.77 times as in FY22 as against 12.21 times in FY21.
Acuité believes the financial risk profile of Mecgale group would remain healthy over the medium term on account of healthy scale of operations of the group,
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| Intensive nature of working capital operations
The working capital operations of the group are intensive in nature marked by GCA days of 275 days in FY22 as against 289 days in FY21. The high GCA days are driven by higher debtor collection period. Debtors of the group stood at Rs. 120.05 crore as on 31st March 2022 and Rs. 98.97 crore as on 31st March 2021. The group has to maintain retention money of 10 percent of the project cost for the defect liability period which is 12-18 months. The group also has orders from various government entities where the payment are usually delayed and hence the debtor collection period stood at 201 days in FY22 as against 196 days in FY21. Creditor days stood at 133 days in FY22 as against 162 days in FY21. Inventory days of the group improved and stood at 39 days in FY22 as against 46 days in FY21.
Acuité believes that the working capital management for the group will remain a key rating sensitivity over the medium term.
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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