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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 11.87 | ACUITE BB- | Stable | Reaffirmed | - |
| Bank Loan Ratings | 20.00 | - | ACUITE A4+ | Reaffirmed |
| Total Outstanding | 31.87 | - | - |
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Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE BB-’ (read as ACUITE double B minus) and short-term rating of 'ACUITE A4+' (read as ACUITE A four plus) to the Rs.31.87 crore bank facilities of N Swarna Electrical and Contractors (NSEC). The outlook is ‘Stable’.
Rationale for rating The rating takes into account the stable operating and financial performance of NSEC marked by improved operating income, stable operating margins and moderate financial risk profile. The revenue of the firm stood at Rs.52.08 Cr. in FY2023 as against Rs.51.66 Cr. in FY2022. However, the revenue of the firm is estimated to decline in FY2024 to Rs.28.78 Cr. due to slow movement in the order book position primarily due to recent change in the Government of Telangana. Further, the operating and net profit margin recorded a improvement in FY2023 and is further expected to improve in FY2024. However, the rating is constrained due to NSEC’s working capital intensive and tender based nature of operations. |
| About the Company |
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Established in 2000, N Swarna Electrical and Contractors (NSEC) is a proprietorship firm, promoted by Ms. N Swarna. The firm is engaged in executing civil works related to irrigation and electrical works for the state government of Telangana.
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| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
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Acuité has taken the standalone view of the business and financial risk profile of NSEC to arrive at the rating.
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| Key Rating Drivers |
| Strengths |
| Experienced management and moderate order book position
The proprietor of N Swarna Electrical and Contractors, Ms. N Swarna has been in the industry for two decades. Long standing operations in the infrastructure industry helped the firm in successful bidding and completion of the work orders in stipulated time. The firm has a moderate order book position, as the unexecuted order value stood at Rs.122.28 Cr. as on as on April 23, 2024 i.e. 2.44x of FY2023 and 4.42x of FY2024 revenue. Order book consists of 80.92% of Civil projects, 8.86% of electrical projects and 10.22% of Transportation works. The turnover of the firm is stagnant for the last two years and stood at Rs.52.08 Cr. in FY2023 as against Rs.51.66 Cr. in FY2022. However, it is estimated to decline to Rs.28.77 Cr. in FY2024 on account of slow movement in the order book position primarily due to change in the incumbent Government of Telangana. The EBITDA margin is improving YoY and stood at 8.67 percent in FY2023 as against 7.19 percent and 6.44 percent in FY2022 and FY2021 respectively. PAT margin in the range of 4.00 -5.00 percent for the last years. The EBITDA and PAT margins are further estimated to improve in FY2024 to 12.82 percent and 3.18 percent respectively. Acuité continues to derive comfort from the long experience of the proprietor in the irrigation and electrical works for Telangana state government organisations and moderate order book position. Moderate financial risk profile albeit average networth The financial risk profile of the firm has remained moderate with an average networth, moderate gearing levels, and debt protection metrics. The net worth of the firm remained at Rs.13.63 Cr. and Rs.12.34 Cr. as on March 31,2023 and March 31, 2022 respectively. Total drawings for FY2023 is Rs.0.83 Cr. The gearing level moderated to 1.28 times as on March 31, 2023 as against 1.00 times as on March 31, 2022. The moderation in the gearing ratio is due to recurring capital withdrawals by the proprietor and an increase in the short-term utilisation in FY2023, resulting in a decline in the gearing ratio. The total debt of Rs.17.47 Cr. as on March 31, 2023 consists of long-term debt of Rs.3.88 Cr, Short-term debt of Rs.8.65 Cr, unsecured loan from directors/promoters of Rs.4.41 Cr. and the maturing portion of long term borrowings of Rs.0.53 Cr. The TOL/TNW stood at 2.11 times in the March 31, 2023 against 2.25 times in the March 31, 2025. Debt/EBITDA (Total debt to EBITDA) stands moderate at 3.77 times as on March 31, 2023 as against 3.22 times as on March 31, 2022 The debt protection metrics of the firm are moderate, with the Interest coverage ratio stood at 2.78 times as on March 31, 2023 as against 5.88 times as on March 31, 2022. Further, DSCR stood at 2.16 times as on March 31, 2023 as against 3.68 times as on March 31, 2022. NCA/TD (Net Cash Accruals to Total Debt) stands at 0.17 times as on March 31, 2023. Acuité believes that going forward, the financial risk profile of the firm will remain moderate in absence of any major debt-funded capex. |
| Weaknesses |
| Working capital intensive nature of operations
The working capital operations are intensive in nature, marked by high Gross Current Asset (GCA) days of 207 days as on March 31, 2023 as against 214 days as on March 31, 2022. The high GCA days are mainly due to high debtors and moderate inventory days. Inventory days stood at 75 days as on March 31, 2023 as against 106 days as on March 31, 2022. Subsequently, the debtor’s period stretched and stood at 84 days as on March 31, 2023 as against 52 days as on March 31, 2022 respectively. The payable days improved and stood at 228 days as on March 31, 2023 as against 433 days as on March 31, 2022. The average bank limit utilization in the last six months ended April 2024 remained at 94.44 percent for fund based and 68.96 percent for non-fund based facilities. ACUITE believes the working capital operations of the firm will continue to be intensive due to the nature of the operations. Tender based nature of operations Tender based operations limit pricing flexibility in an intensely competitive industry. Revenue and profitability depend entirely on the ability to win tenders. Entities in this segment face intense competition, thus requiring them to bid aggressively to procure contracts; this restricts the operating margin to a moderate level. Also, given the cyclicality inherent in the construction industry, the ability to maintain profitability margin through operating efficiency becomes critical. Acuité believes that the firm's business profile and financial profile can be adversely impacted on account of presence of stiff competition and has inherent risk of susceptibility to tender based operations. |
| Rating Sensitivities |
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| Liquidity Position: Adequate |
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The firm has generated adequate net cash accruals to service its debt obligations. The net cash accruals stood at Rs.2.96 Cr. in FY2023 as against the repayment of Rs.0.48 Cr. for the same period and is expected to generate cash accruals in the range of Rs.2.62-2.15 Cr. against CPLTD of Rs.0.53-0.54 Cr. over the medium term. The average bank limit utilization in the last six months ended April 2024 remained at 94.44 percent for fund based and 68.96 percent for non-fund based facilities. Unencumbered cash and bank balances stood at Rs.1.03 Cr. as on March 31, 2023. The current ratio of the company stood at 1.33 times as on March 31, 2023. Acuite believes that NSEC’s liquidity will remain adequate over the medium term backed by no further debt funded capex and improving accruals.
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| Outlook: Stable |
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Acuité believes that NSEC's outlook will remain stable over the medium term backed by experience of the proprietor and moderate order book position. The outlook may be revised to ‘Positive’ in case the firm registers healthy growth in revenues while achieving sustained improvement in operating margins and working capital management. Conversely, the outlook may be revised to ‘Negative’ in case of a deterioration in the firm’s financial risk profile and liquidity position or further deterioration in its working capital cycle.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 52.08 | 51.66 |
| PAT | Rs. Cr. | 2.12 | 2.20 |
| PAT Margin | (%) | 4.07 | 4.26 |
| Total Debt/Tangible Net Worth | Times | 1.28 | 1.00 |
| PBDIT/Interest | Times | 2.78 | 5.88 |
| Status of non-cooperation with previous CRA (if applicable) |
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Not Applicable
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| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Infrastructure Sector: https://www.acuite.in/view-rating-criteria-51.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.
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