­Acuité has considered the consolidated business and financial risk profiles of Saiyyed Akhtar Ali (SAA), V R Construction (VRC), SMO Ferro Alloys Private Limited (SMO), Gharib Nawaz Infra (GNI), Owais Ali Overseas (OAO), SA Infrastructure (SAI) and M O Infra (MOI), together referred to as the SAA group. The consolidation is in view of common management, operational & financial linkages between the entities and similar line of business.

­Long track record and diversified business operations
The group has established a long track record of operations of around three decades. SAA group has started its business in 1995 and later formed a partnership firm in 2003 as M/s Saiyyed Aktar Ali. The business is managed by Mr. Saiyyed Aktar Ali, along with his three brothers and sons. The group has a diversified stream of operations with presence in civil construction which contributes around 20 per cent of the total revenues, manufacturing business around 40 per cent and trading of ferro alloys contributes nearly 40 per cent. The diversified revenue streams mitigate the impact of cyclicality and competitive pressures in any particular business segment. In addition, the group has 4 running leased quarry of stones in Madhya Pradesh. The group also has an oxygen manufacturing plant required for the manufacturing of ferro alloys where excess production is sold in the open market. Acuité derives comfort from the group’s diversified business operations and the long-standing presence in the industry.

Improving operating performance:
The scale of operations of the group increased to Rs.295.82 Cr. in FY23 from Rs. 205.95 Cr. in FY22. The revenue levels are supported by the group’s diversified stream of business marked by manufacturing, trading and civil construction works. The civil construction business achieved growth of 16 per cent in FY23 and the trading activities achieved growth of 7 per cent in FY23. Further the group has registered revenue of ~Rs.300 Cr. till February 2024. EBITDA margin of the group has improved in FY23 17.11 percent from 11.99 percent in FY22. This improvement is on account of change in product to Ferro silicon which has better realization rates. Going forward the group’s EBITDA margin is expected to remain in the similar range of 17-18 percent as the group is entitled to receive power cost subsidy from Madhya Pradesh government.

Moderate financial risk profile:
The group’s financial risk profile is moderate marked by the gradually improving networth, comfortable gearing and debt protection metrics. The adjusted tangible net worth of the group improved to Rs.185.07 Cr. as on 31st March, 2023 from Rs.132.27 Cr. as on 31st March, 2022 due to accretion to reserves. Acuité has considered unsecured loans of Rs.37.29 Cr. as part of networth as the loans are subordinate to the bank debts. Further, the gearing of the group stood comfortable at 0.89 times as on March 31, 2023 as against 0.64 times as on 31 st March, 2022. However, the slight moderation is due to increase in the total debt burden owing to rise in the working capital utilisation and the term debt over the same period. The Total Outside Liabilities/Tangible Net Worth (TOL/TNW) stood at a moderate level of 1.13 times as on March 31, 2023 as against 0.91 times as on March 31, 2022. The comfortable debt protection metrics of the group is marked by Interest Coverage Ratio at 3.17 times and Debt Service Coverage Ratio (DSCR) at 2.26 times as on March 31, 2023. NCA/TD stood low at 0.23 times in FY23. Acuité believes that, going forward, the gearing would witness moderations due to the ongoing capex, however, the financial risk profile of the company will remain above average backed by the steady accruals.

Working capital intensive nature of operations
The group’s working capital operations are intensive in nature marked by Gross Current Asset (GCA) of 247 days as on 31st March, 2023 as against 219 days as on 31st March, 2022. The rise in the GCA days are on account of the high inventory period due to maintaining huge inventory to support the diversified line of operations. Also, the group is required to maintain deposits arising out of contractual obligations. The inventory days rose to 202 days as on 31st March, 2023 from 160 days as on 31st March, 2022. The inventory period rose primarily due to the high stock of accumulated finished goods. However, the debtor days stood comfortable at 26 days as on 31st March, 2023 as against 36 days over the last year. The fund based limit utilisation stood at a moderate level of 80 per cent over the seven months ended February, 2023. The working capital requirement is partially supported by credit of around 42 days from the suppliers. Acuité believes that the working capital cycle of the group will remain around similar levels over the medium term due to the nature of operations.

Constitution as a partnership/proprietorship entity
SAA group comprising of total 2 partnership and 4 proprietorship entity, is exposed to inherent risk of the partners’ capital being withdrawn at time of personal contingency and entity being dissolved upon the death/insolvency of the partner. Furthermore, such entities have restricted access to external borrowing.