| 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.
Acuité believes that SEPL will continue to benefit from its experienced management and established relationships with their reputed clientele.
Improving operating performance
SEPL has demonstrated a steady improvement in its scale of operations, with revenue increasing to Rs.503.66 Cr. in FY2026 (Prov.) from Rs.457.69 Cr. in FY2025, supported by higher business from existing customers and addition of new customers. The company has strengthened its customer base to around 65-70 customers and onboarded reputed clients such as Hero Motors Limited and Royal Enfield. Further, the operating margin improved to 12.45 percent in FY2026 (Prov.) from 10.03 percent in FY2025, aided by value engineering initiatives, resource optimization and reduction in power costs through captive renewable energy facilities.
Acuité believes that SEPL's revenue growth and profitability are expected to remain supported by customer additions, capacity utilization improvements and commissioning of ongoing projects.
Strategic capex undertaken towards capacity expansion and operational efficiency
SEPL has undertaken sizeable capital expenditure over the last three years towards establishment of captive renewable energy facilities, heat treatment facilities and capacity expansion across its manufacturing units. The investments have strengthened the company's manufacturing capabilities, improved operational efficiencies and reduced power costs, thereby supporting profitability. Further, the company is commissioning the Garrett Motion project, which is expected to commence commercial production by September/October 2026 and cater primarily to export markets, providing additional growth avenues. Going forward, the company plans to incur capex of around Rs.80 Cr. till FY2028 towards machinery, hot forging and capacity enhancement, which is expected to be largely funded through internal accruals, with the balance supported by unsecured loans from promoters.
Acuité believes that the benefits arising from the completed and ongoing capex are likely to support SEPL's growth prospects, operational profile and competitiveness over the medium term.
Moderate financial risk profile
SEPL has a moderate financial risk profile marked by improving net worth, moderate gearing levels and debt protection metrics. The tangible net worth stood at Rs.70.78 Cr. as on 31st March 2026 (Prov.) against Rs.46.30 Cr. as on 31st March 2025. The improvement in the net worth is attributable to accretion of profits into reserves.
The total debt of the company stood at Rs.203.81 Cr. as on March 31, 2026 (Prov.) against Rs.156.68 Cr. as on March 31, 2025. Despite the increase in debt levels, the gearing improved and stood at 2.88 times as on March 31, 2026 (Prov.) against 3.38 times as on March 31, 2025, supported by improvement in net worth. The debt protection metrics stood comfortable with interest coverage ratio of 3.93 times in FY2026 (Prov.) against 2.70 times in FY2025 and debt service coverage ratio of 1.77 times in FY2026 (Prov.) against 1.84 times in FY2025. Further, TOL/TNW improved to 4.71 times as on March 31, 2026 (Prov.) against 6.40 times as on March 31, 2025. The Debt/EBITDA improved to 3.24 times as on March 31, 2026 (Prov.) from 3.33 times as on March 31, 2025.
Going forward, the financial risk profile is expected to remain moderate on account of expected healthy cash accrual generation, albeit constrained by the debt-funded capex undertaken during the last few years.
|
| Intensive working capital operations
The company has intensive working capital operations as reflected by gross current asset days of 132 days as on March 31, 2026 (Prov.) against 134 days as on March 31, 2025. The inventory days stood at 59 days in FY2026 (Prov.) against 55 days in FY2025, while debtor days improved to 67 days in FY2026 (Prov.) from 70 days in FY2025. Creditor days stood at 85 days in FY2026 (Prov.) against 91 days in FY2025. The company's working capital requirements remain elevated on account of the nature of its operations and the credit period extended to customers. The average utilization of the fund-based working capital limits remained high at around 97.05 percent during the last six months ended July 2026, indicating limited liquidity buffer.
Acuité believes that the working capital operations are likely to remain intensive over the near to medium term considering the nature and scale of operations.
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.
|
