| Established presence in the industry with considerable experience of promoters
RWSI enjoys the leadership position in the Indian market on account of specialized technology in potable water and water quality improvement solutions. The company is promoted by Mr. Vinayak Gan (Chairman & MD) with over three decades of experience in entrepreneurship and business management. In the past, he has been associated with Candy Filters (I) Private Limited as a project engineer for design and erection of water treatment plants and Steel Authority of India Limited for seven years. Mr. Vinayak Gan is supported by his son, Mr. Abhijeet Gan (CEO).
Acuité believes with its leadership position through specialized technology in potable water and water quality improvement solution, the group will able to establish new centers in various states.
Improvement in operations and profitability of the group
The revenue from operations of the group improved to Rs. 77.14 Cr in FY22 as compared to Rs. 71.86 Cr reflecting a growth of 7.34% during the period. Furthermore, the group also registered sales of Rs. 120.50 Cr (Provisional) in FY23. The growth was majorly on account of higher execution of orders during the period. The group currently has an unexecuted order book position of Rs.378.33 Cr and around Rs.200 Cr are on pipeline from the govt. Furthermore, the operating profit margin of the group stood at 21.38 percent in FY22 as compared against 24.54 percent for FY21. However, the operating profit margin improved to ~33.36% in FY23 (Prov.) on account of higher execution of & commissioning of Electro chlorination systems (EC). Also, the PAT margins of the group remained at 20.29% in FY22 as compared to 19.46% in FY21. The company has achieved EBITDA of Rs. 33.36% from April – March 2023.
Acuité believes that RWSIPL will continue to benefit from extensive experience of the promoters and healthy order book position of the company over the medium term.
Healthy Financial Risk Profile
The group has a healthy financial risk profile marked by moderate net worth, low gearing and strong debt protection metrics. The tangible net worth of the group stood high at Rs. 71.48 Cr in FY22 as compared to Rs. 55.45 Cr in FY21. The gearing of the group remained low at 0.17 times in FY22 and 0.20 times in FY21 on account of low dependence of borrowings. The total debt of the group stood at Rs. 11.94 Cr as on 31st March 2022 as against Rs. 10.83 Cr as on 31st March 2021. The debt outstanding of the company comprises of long-term debt of Rs. 0.18 Cr and Rs. 11.76 Cr of short-term debt. The TOL/TNW also stood at 0.46 times as on 31st March 2022 as against 0.52 times as on 31st March 2021. The debt protection metrics remained comfortable with debt service coverage ratio of 12.60 times in FY22 and interest coverage ratio stood at 13.62 times in FY22.
Acuité believes that the financial risk profile of RWSIPLis expected to remain healthy on account of steady margins and conservative financial policy.
Debt Repayment and Change in organisation's structure
Samridhi Fund [SF], an Impact Fund [in which the investors were FCDO [90%] and SIDBI [10%]] had invested in the company an amount of Rs.20 crores in two rounds. In FY22 (June 2021), the Company redeemed Rs. 6 Cr. of 8% Debentures (along with redemption premium), which were invested by SF in the 2nd round. Samridhi Fund had a life of 7 years and asked the Company to buy-back/redeem their outstanding securities in Rite Water [Equity/CCPS/Debentures]. The Company submitted its offer to SIDBI in month of October 2022, which was modified in February 2023, the same was mutually agreed at an aggregate value of Rs.19 crores for total exit. The company paid the entire amount from internal accruals rather than any external borrowings. When SF had invested into the company, they had through SIDBI Venture Capital Limited [the investment manager], appointed one nominee director by the name Mr. R.V. Dilip Kumar. After the exit approval letter, he also tendered his resignation from the Board of Company w.e.f. 31st March, 2023. Currently, 100% shareholding remains with the original promoters of the group.
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| Working Capital intensive in nature with elongated receivable days
The operations of the group are working capital intensive in nature marked by high GCA days of 310.09 days for FY22 as compared against 227.63 days for FY21. The high GCA days is majorly on account of high receivable days of 227 days for FY22 as against 189 days in FY21. The inventory levels of the company stood at 19 days during the same period compared against 16 days for FY21. The creditor days of the group stood at 182 days for FY22 as against 143 days for FY21. The working capital-intensive nature of operations also led to high reliance on working capital funding from lenders.
Acuité believes that the operations of the company will continue to remain intensive on account of high inventory days over the medium term.
Susceptibility to tender-based operations
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 company’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.
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