| Experienced management and established relationship with customers
The promoter, Mr. Ankur Agarwal has more than a decade of experience that helped them to establish comfortable relationships with the key suppliers and reputed clients with high credit worthiness in the domestic market. Some of the key customers of the company are Trafigura India Pvt Ltd, Essar Power Gujrat Ltd, Shyam Steel Industries Ltd to name a few. Acuité derives comfort from the long experience of the management and believes this will benefit the company going forward, resulting in steady growth in the scale of operations.
Significant improvement in scale of operation
The company has achieved revenues of Rs. 810.87 Cr in FY2022 as compared to revenues of Rs 263.97 Cr in FY2021. The growth in FY21 was limited due to the disruption in operation during the pandemic outbreak and also the demand for electricity was low which led to the decline in demand for coal. However, the top line improved significantly in FY22, mainly driven by both improvement in volume and realizations. The growth in revenue was driven by high demand from end user industry like iron and steel, power cement, etc. Further, the company has already achieved revenues of Rs ~1050.39 Cr in FY 2023(Prov).
The coal prices have significantly increased in FY23, largely due to greater fuel and electricity demand, as the countries were slowly liberated from the stringent coronavirus restrictions, and the repercussions of the Russia-Ukraine war. As many European countries moved to restricting gas imports from Russia, coal has become the alternative choice to fulfill the power supply gap, upswinging the prices. The company recorded revenue of Rs 260.33 Cr (provisional) in Q1FY24. However, Acuité expects some moderation in the coal prices over the medium term, but backed by increasing demand for coal in the domestic market, the company is expected to sustain its performance going forward.
The EBITDA per tonne has been consistently increasing since FY2022. However, the EBITDA margin of the company moderated in FY23 to 2.46 per cent (provisional) as compared to 4.26 per cent in the previous year, due to increasing input prices, high freight cost for transportation of coal, on account of volatility in diesel prices and higher commission expenses. The PAT margins also declined to 1.46 per cent in FY2023 (provisional) as against 2.83 per cent as on FY2022, due to substantial increase in finance cost. But the ROCE levels are expected to remain at comfortable level in FY2023, benefitting from the healthy profitability and asset-light nature of the business. Acuité believes that the stable market position and diversified clientele will mitigate the impact of decline, (if any) in demand in the sectors. While coal trading volume will be supported by continued demand from the power sector, sustenance of the coal trading volumes will remain key monitorable.
Above average financial risk profile
The company’s financial risk profile is marked by modest networth base, comfortable gearing and strong debt protection metrics. The tangible net worth of the company improved to Rs. 50.43 Cr as on March 31, 2022 from Rs.27.46 Cr as on March 31, 2021, aided by sizeable accretion to reserves and infusion of equity by the promoters. Acuité has considered unsecured loans to the tune of Rs.21.67 Cr as on March 31, 2022 as part of networth as these loans are subordinated to bank debt. This kept the capital structure conservative, as reflected by gearing of 0.42 times as on March 31, 2022. The promoters have extended significant financial support to the company, via unsecured loans to cover working capital and debt obligations. However, the Total outside Liabilities/Tangible Net Worth (TOL/TNW) stood high at 3.41 times as on March 31, 2022, on account of significant advances received from the customers reflecting strong demand and healthy order pipeline. The strong debt protection metrics of the company is marked by Interest Coverage Ratio at 7.97 times and Debt Service Coverage Ratio at 6.13 times as on March 31, 2022. The surge in earnings in FY2022 supported by high demand and higher accruals led to further improvement in the credit metrics. Net Cash Accruals/Total Debt (NCA/TD) stood healthy at 1.09 times as on March 31, 2022. Acuité believes that NRPL’s financial profile has strengthened further in FY2023 and the same is likely to sustain going forward, supported by healthy internal accrual generation and in absence of any major debt funded capex plans.
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| Negative Cashflow from the operations
Despite strong growth in operating income and operating margin in FY 2022, the cash conversion (cash flow from operations / EBITDA) has been weak, and cash flow from operations has been negative in FY 2022 on account of significant increase in advances to suppliers and security deposits kept with the suppliers to support the increase in inventory level, which in turn has stretched the fund based utilization. However, working capital management of the company has been moderate, which is reflected from improved GCA days of 85 days as on March 31, 2022 as compared to 172 days as on March 31, 2021. This is supported by low debtor period of 23 days as on March 31, 2022, since the company majorly sells to the reputed clientele and follows an efficient collection mechanism. Further, the inventory holding improved and stood comfortable at 36 days in 31st March 2022 as compared to 61 days as on 31st March 2021, benefitting from a low lead time for procurement of the domestic coal. Acuité expects the cash flow from operations to improve in FY23 and turn positive in FY24 on account of a likely improvement in EBITDA and supported by regularity in collection mechanism and comfortable inventory holding period.
Competition space and stressed end user industry
Coal traded and transported by NRPL find their end use by companies involved in power generation, manufacturing of cement, iron & steel. Increasing cost of supply as against environment friendly and economically attractive options of solar and wind power, that has led to significant reduction in energy consumption from power plants, putting the power plants under financial distress. Any policy changes affecting the highly regulated coal industry or its end users will impact the financial and business risk profile of the company. As per the present Import policy, coal can be freely imported under the Open General License by the consumers themselves considering their needs based on their commercial prudence, thus enabling entry of many players into the sector and leading to intense competition in the sector.
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