| Extensive experience of management and established track record of operations
SOEPL is based out of Maharashtra and was incorporated in 1992 reflecting its long track record of operations in the Maritime sector. The promoters of the company, Mr. Kamalkant Coudhury, Mr. Sadhna Choudhury and Ms. Devahuti Choudhury have been working in the aforementioned industry for over three decades. The operations of the company are managed by its promoters who are ably supported by a qualified and well experienced senior management team. The experience of the promoters and long track record of operations in the Maritime sector has helped the company to improve the company’s business risk profile over the years and maintain healthy and long-term relationships with both its customers and suppliers. Key customers of the company include namessuch as Indian Coast Guard, Goa Shipyard, Mazgaon Dock Shipbuilders Ltd among others.
Acuité believes SOEPL will continue to benefit over the medium term from its longstanding association with its key customers as well as suppliers.
Augmentation in business risk profile
SOEPL has recorded a strong growth in its operating income with a CAGR of 15.34 percent over the last three years. The operating income stood at Rs.55.66 crore in FY23 (Prov.) as against Rs.38.78 crore in FY22 and Rs.31.90 crore in FY21. Such improvement in operating income comes at the back of increased orders received by the company for ship repairs. The company generates 70-80 percent of its revenue from the ship repair segment. In addition to the ship repair segment, SOEPL’s shipbuilding segment has also improved gradually over the last three years. Revenue from ship building segment stood at Rs.12.63 crore for 11MFY23 as against Rs.7.48 crore in FY22 and Rs. 4.98 crore in FY21. Operating margins of the company have remained range bound between 7 to 7.50 percent. The operating margin of the company stood at 7.34 percent in FY22 as against 7.44 percent in FY21 and 11.05 percent in FY20. PAT margins have also remained in the range of 5 to 5.50 percent over the last three years. The operating margins are expected to improve in the near to medium term on account of likely increase in share of the ship building segment.
Acuite believes that the company’s ability to improve its scale of operations while maintaining profitability will remain a key rating sensitivity.
Moderate financial risk profile
The financial risk profile of the company is moderate marked by moderate networth, low gearing and healthy debt protection metrics. The tangible networth of the company is moderate marked by networth of Rs. 5.58 crore as on March 31, 2022 as against Rs. 5.51 crore as on March 31, 2021 and Rs. 5.05 crore as on March 31, 2020. The total debt of the company stood at Rs. 5.48 crore as on March 31, 2022 as against Rs. 5.21 crore as on March 31, 2021 and Rs. 6.36 crore as on March 31, 2020. The gearing of the company marginally increased as on March 31, 2022 on account of GECL loans availed by the company. The gearing stood at 0.98 times as on March 31, 2022 as against 0.95 times as on March 31, 2021 and 1.26 times as on March 31, 2020. The company in FY23 has availed working capital term loan of Rs. 5 crore to meet the requirements of additional orders received by the company. Further, the incremental working capital requirements are likely to increase in the near to medium term on account of the growing shipbuilding segment which will be met through working capital limits. TOL/TNW (Total outside liabilities to Tangible networth) of the company stood at 2.31 times as on March 31, 2022 as against 1.75 times as on March 31, 2021 and 2.31 times as on March 31, 2020. The Debt Service Coverage Ratio (DSCR) stood stable at 2.26 times in FY22 as against 2.08 times in FY21 and 3.35 times as on FY20. Interest coverage ratio (ICR) of the company stood at 3.60 times in FY22 as against 3.54 times in FY21 and 3.35 times in FY20.
Acuite believes that the financial risk profile of the company is likely to remain moderate in the near to medium term despite the incremental working capital requirements on account of likely increase in scale of operations.
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| Intensive working capital operations
SOEPL’s working capital operations are intensive evident from GCA days of 110 days in FY22 as against 126 days in FY21 and 154 days in FY20. The GCA days are majorly driven by the elongated debtor collection period. Majority of the customers of SOEPL are government shipbuilding companies like Goa Shipyard, Mazgaon Dock shipbuilders Ltd and the average credit period extended by the company is 30-60 days. In some cases the recovery from the government clients are delayed. The debtor collection period of the company improved at 58 days in FY22 as against 91 days in FY21 and 124 days in FY20. Inventory of the company includes spares, paint and steel as per orders with the company. Inventory holding period of the company stood at 30 days in FY22 as against 3 days in FY21 and 1 day in FY20. Higher inventory holding in FY22 is on account of higher orders for shipbuilding at the end of financial year. The creditor days of the company stood at 94 days in FY22 as against 69 days in FY21 and 96 days in FY20.
Acuité believes that the working capital management of the company will continue to remain a key rating sensitivity going ahead.
Exposure to risks related to cyclicality of the industry and customer concentration
The ship repairs and ship building orders depend on the demand sentiments in the economy. Further, the operations of the company are tender based in nature and highly dependent on the tenders floated by the government shipping companies. Hence, the operating performance of the company is susceptible to successful award of tenders and the cyclicality in industry due to weak economic sentiments. Additionally, SOEPL also faces a customer concentration risk as ~50 percent of the revenue of the company is contributed by top three customers over the last three years.
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