­­Experienced management with an established track record of operations and reputed clientele
SEPL (earlier operating in SE- partnership firm) has an overall operational track record of more than three decades. Mr. Ajay Balagopal and Mr. Sanjiv Balagopal are the promoters of the company, having  extensive experience of over three decades in the engineering and auto ancillary industry. They are supported by seasoned professionals in managing the daily operations. These factors have enabled SEPL establishing a healthy relationships with reputed clienteles like - Lucas TVS Ltd, SEG Automotive Group, Bosch Group, Schaeffler Group, Valeo India Private Limited, Subros Ltd. amongst the others.

Acuité believes that SEPL will continue to benefit from its experienced management and established relationships with reputed clientele.

Improved operating performance
The company's revenue improved to Rs.463.94 Cr. in FY2025 (Prov.) up from Rs.426.59 Cr. in FY2024. Operating profit margin improved to 12.80% in FY2025 (Prov.) against 11.70% in FY2024, and PAT margin increased to 5.38% in FY2025 (Prov.) against 3.50% in FY2024. The growth was driven by new orders, and establishment of two new manufacturing plants.   The company also secured seven new customers, including Mitsubishi Electric and Mitsuba.

Going ahead, the ability of the company to sustain improvement in its operating performance will remain a key monitorable.

Moderate financial risk profile
SEPL has a moderate net worth, gearing level and debt coverage indicators. The tangible net worth  stood at Rs.54.44 crore as on 31 March 2025 (Prov.) as against Rs.29.51 crore as on 31 March 2024. The net worth has improved on account of accretion of profits to reserves. The gearing level stood at 2.88 times as on 31 March 2025 (Prov.) as against 4.58 times as on 31 March 2024. The total debt of the company stood at Rs.156.68 crore as on March 31, 2025 (Prov.).

Debt protection metrics of the company are moderate marked by Interest Coverage Ratio (ICR) of 3.87 times in FY2025(Prov.) against 3.84 times in FY2024. Debt Service Coverage Ratio (DSCR) of 2.25 times in FY2025(Prov.) against 1.48 times in FY2024. The total outside liabilities to tangible net worth (TOL/TNW) of the company stood high though improved to 5.44 times as of March 31, 2025(Prov.), as against 10.01 times as of March 31,2024. The Debt/EBITDA levels stood at 2.64 times as of March 31, 2025(Prov.), as against 2.63 times as of March 31,2024.

Acuité believes that SEPL’s financial risk profile will improve over the medium term on account of absence of any major debt-funded capex and expected health accruals generation.

­Working capital intensive operations
SEPL working capital operations improved, yet remained intensive in nature, marked by the Gross Current Asset (GCA) of 135 days in FY2025 against 167 days as on March 31, 2024. The inventory days stood at 55 days in FY2025 (Prov.) against 57 days in FY2024. The debtor days stood at 74 days in FY2025 (Prov.) against 78 days in FY2024. The creditor days stood at 84 days in FY2025 (Prov.) against 130 days in FY2024. Further, the average utilization of the bank limits of the company stood high at ~97.52 % in last 6 months ended Jan 2025.

Acuité believes that  SEPL’s to improve and maintain an efficient working capital cycle over the medium term will remain a key rating sensitivity factor.

Competitive nature of auto ancillary business and its susceptibility to cyclicality in automotive industry
SEPL operates in a highly fragmented industry, subjected to intense competition due to the low-entry barriers, which limits the margins and scale. . Further, the automobile industry is highly cyclical with demand moving with larger economic cycle, customer preferences, government policies etc. Acuite believes that SEPL will continue to remain exposed to the volatility in demand for the products and dependency on OEMs.