| Satisfactory financial performance in FY22
The financial performance of the entity improved in FY22, wherein the total operating income increased from Rs.41.44 crores in FY21 to Rs.69.37 crores in FY22 (Prov.). The operations of the entity remained subdued in FY21 led by COVID induced lockdown. However, the same increased in FY22 led by relaxation in COVID norms. Hence, in line with total operating income, the operating profit also increased to Rs.9.16 crore in FY22 vis-à-vis Rs.6.70 crore in FY21. The net profit increased to Rs.9.16 crore in FY22 (Prov.) as against Rs.7.94 crores in FY22 on an account of lower capital charge (interest and depreciation). Consequently, PAT margin also increased to 9.16% in FY22 vis-à-vis 7.94% in FY22. Acuite believes, that albeit the performance of the company has improved, the company is yet to achieve the pre COVID revenue and profitability. The ability to achieve the same would be key monitorable factor.
Comfortable financial risk profile
The capital structure of the firm as represented by debt –equity ratio improved to 0.46 times as on March 31, 2022 (Prov.) vis-à-vis 0.81 times as on March 31, 2021. The improvement in led by decline in total debt coupled with increase in tangible net worth. In line with increase in operating profit, the interest coverage ratio also improved to 3.12 times during FY22 as against 2.12 times in FY21. Similarly, the total outstanding liability to tangible net worth also improved to 0.92 times in FY22 as against 1.15 times in FY21. The net cash accruals to total debt increased by 34bps in FY22 from 0.16 times in FY21.
Acuite believes that the financial risk profile is expected to improve going ahead led by accretion of profit to reserves, Further, the firm is not planning to avail any additional term loan.
Satisfactory order book position
The order book of the firm remained at Rs. 259.67 crore as on September 2022, thereby translating into order book to gross billing ratio of 3.0 times and also provides medium term revenue visibility. The order book is spread across 7 active orders with ticket size ranging between Rs.1.0 crore-130.0 crore. The firm executes majority of orders for State Government entities. The firm has also been adding orders on year on year basis, thereby maintaining the revenue visibility. The firm also received mobilization advances of 10% of total project cost for Kolkata Project. The retention amount ranges between 3%-10% for bills raised.
Improved working capital management
The Gross Current Asset days of the company improved to 207 days in FY22 vis-à-vis 411 days in FY21. The improvement is led by decline in current assets in the form of debtors and inventory coupled with increase in total operating income in FY22. The debtor days remained at 41 days in FY22 (122 days in FY21). As per discussion with management, the company raises bill every 30-45 days and is realized within 15 days. The major material involves cable which is procured locally. The creditor days remained at 53 days in FY22 as against 99 days in FY21. The materials are purchased against 90 days LC. The average working capital utilsation for the past 9 months ending June 2022 remained at ~74%. Acuite believes that timely realization of receivables is important to maintain the working capital management.
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| Geographical and clientele concentration
The firm executes majority of orders for State Government entities. In addition to this, there is also concentration of order book with top three orders constituting to ~83% of active order book. Further, there is also client concentration wherein 49% of order is being executed for ‘West Bengal State Electricity Distribution Limited’. In addition to this, there is also concentration of order book with top three orders constituting to ~83% of active order book. Hence, timely execution of same is critical from rating perspective.
Tender based operation
The industry is unorganized and highly competitive and hence, the revenue generation is dependent on ability of company in succeeding in receiving tenders.
Withdrawal of capital
As MMB is a partnership firm, there is also a risk of capital withdrawal which can impact financial risk profile of the firm. However, there has not been any major withdrawal in last three years.
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