| Extensive experience of the management, established track record of operations and reputed clientele
RSSPL was incorporated in 1991, thus the company has an operational track record of around three decades in industrial machinery segment. The second generation of Goel family, Mr. Prayas Goel (Managing Director) and Mr. Prerak Goel (Director) have an experience of over two decades in the same line of business. The long track record of operations and extensive experience of the management has helped the company create an established market position in the waste-water management segment and develop healthy relationships with its customers and suppliers. Company caters to some of the reputed clientele which includes names like Jubilant Life Sciences Limited, Lupin Limited, Grasim Industries etc. Apart from this, company also caters to government entities like ONGC and Indian Navy as well.
Acuité believes that RSSPL will sustain its existing business profile on the back of established track record of operations and diversified clientele.
Continued source of income supported by diverse revenue streams
RSSPL provides environmental engineering solutions with focus on waste-water recycling, desalination and industrial solid waste management. The company is engaged in researching, developing, manufacturing and installing of Advanced Membrane Module Technology Based Separation Systems for recovery and reuse of difficult wastewater. Along with manufacturing of recycling plants the company is also involved in trading and replacement of spare parts used in its treatment plants. Furthermore, RSSPL also provides after sale and maintenance services on a monthly contract basis which includes specialised manpower services to operate and maintain (O&M services) the commissioned plants at client site. This helps the company in generating a continued source of income. In FY2024, the revenue from manufacturing & trading segment stood at Rs. 238.95 Cr. and O&M segment stood at Rs.107.71 Cr. The diverse stream of revenues gives some mitigation against any volatility in revenue from new orders. Further, the company caters to diversified industries and reputed clientele which includes government as well as corporate customers.
Acuité believes that RSSPL will benefit from its diverse sources of revenues over the medium term.
Healthy Financial Risk Profile
The healthy financial risk profile of the company is supported by increasing net worth and comfortable debt protection indicators. The tangible net worth of the company stood at Rs.120.05 Cr. on March 31, 2024 as against Rs. 110.00 Cr. on March 31, 2023. Increase in net worth is on account of accretion of profit to reserves. The gearing increased marginally to 0.74 times on March 31, 2024 as against 0.62 times on March 31, 2023. The increase in gearing is on account of higher utilisation in the working capital limits. Going forward the gearing is expected to remain in a similar range as the company has availed additional working capital limits in FY2025. TOL/TNW stood at 1.65 times on March 31, 2024 as against 1.64 times on March 31, 2023. Debt-EBITDA stood higher at 2.34 times on March 31, 2024 as against 1.75 times on March 31, 2023 due to increase in the debt levels of the company.
The debt protection indicators stood comfortable with Interest Coverage Ratio at 3.23 times in FY2024 as against 2.75 times in FY2023 and Debt Service Coverage Ratio at 2.52 times in FY2024 as against 2.24 times in FY2023.
Acuité believes that the financial risk profile of the company is expected to remain stable in absence of any major debt funded capex in near to medium term.
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| Working Capital Intensive Operations
The intensive working capital operations of RSSPL are reflected through high Gross Current Assets (GCA) of 277 days on March 31, 2024 as against 259 days on March 31, 2023. GCA days are supported by debtor days and inventory days. The inventory days stood at 122 on March 31, 2024 as against 118 days on March 31, 2023. The company is also involved into trading of spares and accessories and needs to maintain a stock of spares at disposal which contributes to higher inventory holding period. The debtor days stood at 130 on March 31, 2024 as against 112 days on March 31, 2023. For manufacturing segment, the company receives payment in tranches (15% on advance, 10% on drawing submission, 35% before dispatch, 30% post-dispatch / completion of commissioning and 10% on submission of performance bank guarantee). For O&M and Trading business, the company provides a credit period of 60 to 90 days. Further, significant revenue is generated in the last quarter, elongation of working capital cycle is also attributed to this year end phenomenon. On the other hand, the company receives an average credit period of 90 – 120 days from its suppliers. The average bank limit utilisation stood at 89 for six months ended August 2024.
Going forward, the company’s ability to restrict further elongation of working capital cycle will be a key monitorable.
Declining profitability margins
There has been a declining trend in the operating profitability of RSSPL for the past three years. The EBITDA margin declined to 8.47 percent in FY2024 from 10.86 percent in FY2023 from 13.19 percent in FY2022. The company generates substantial revenues from its manufacturing segment which is its primary business and accounts for around 50 percent of its total revenue. Increase in the material costs and relatively lower profitability in overseas orders, has led to the decline in the EBITDA margin of the company over the years. Along with that, every treatment plant is customised and manufactured basis client requirement and specification, which increases the cost. Going further, the ability of the company to improve the operating profitability will be a key monitorable.
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