| 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 undertakes 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 more than three decades in this industry. The extensive experience of the promoters helped the company in maintaining 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 around 250 trained people consists of more than 100 qualified and experienced engineers including 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 operating performance with estimated improvement in FY2025:
The group’s revenue in FY2024 has improved by ~8.5 percent to Rs.256.36 Cr. compared to FY2023 revenue of Rs.236.19 Cr. Further, it is estimated to register a strong growth in revenue for FY2025 with revenue around Rs.395 Cr –Rs.410 Cr. This growth in revenue during FY2025 is due to strong order book position coupled with increasing demand for conveying systems. The growth is also reflective of the company’s established long-term relationships with reputed clients like NTPC, Thermax, JSW Energy, Maharashtra state power generation company limited among others. Additionally, the EBITDA margin of the group has remained healthy with marginal improvement year-on-year. The margin is estimated to be in the range of 15-15.3 percent in FY2025, compared to 15.27 percent in FY2024. The stable margins are on account of presence in niche engineering solutions and integrated operations. Further PAT margin is also estimated to remain stable in the range of 11-11.3 percent FY2025, compared to 11 percent in FY2024.
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 comfortable net worth, healthy capital structure and strong debt protection metrics. Group’s net worth stood at Rs. 163.19 Cr. as on March 31, 2024 as compared to Rs. 140.87 Cr. as on March 31, 2023. Improvement in net worth is on account accretion of profits to reserves. Mecgale group’s total debt, which primarily consists of short-term debt stood nominal at Rs.8.99 Cr. as on March 31, 2024 against Rs.8.85 Cr. as on March 31, 2023. This resulted in a healthy gearing level at 0.06 times as on March 31, 2024 and total outside liabilities to total net worth (TOL/TNW) of 0.45 times as on March 31, 2024 as against 0.06 times and 0.44 times as on March 31, 2023. The debt protection metrics stood healthy with debt service coverage ratio (DSCR) of 20.04 times and interest coverage ratio of 26.43 times in FY2024. Further, Debt to EBITDA is continued to remain healthy at 0.22 times during FY2024 compared to 0.25 times during previous year.
Acuite believes that the financial risk profile of the company will remain healthy over the medium term despite expected debt infusion for capex.
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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 288 days in FY2024 as against 268 days in FY2023. The high GCA days are driven by higher debtor collection period. Debtors of the group stood at Rs. 138.89 Cr. as on 31st March 2024 and Rs.122.76 Cr. as on 31st March 2023. 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 2024, approx. Rs.55 Cr. of retention money is included in the receivables. The group also has various government entities such as NTPC and Maharashtra State power generation company where the payment is usually delayed and hence the debtor collection period stood at 194 days in FY2024 as against 186 days in FY2023. Major raw material of the company includes steel which is procured locally with a credit period of 45-60 days. For certain suppliers like Jindal Steel an LC is opened with a duration of 90 days. Inventory days of the company stood at 44 days in FY2024 as against 43 days in FY2023. Creditor days stood at 120 days in FY2024 as against 118 days in FY2023. The company’s reliance on fund based and non-fund based limits stood moderate at 81 percent for 6 months ended March 2025.
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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