Experienced management and long track record of operation-
The company was incorporated in 2013 and the directors of the company Mr. Udya Aditya Goswami and Mrs. Ankita Chaliha Goswami have two decades of experience in similar industry. The company has a long presence in this sector and has established a healthy relationship with customers for more than a decade. The timely execution of the projects has helped the company to improve its market presence in state of Assam. Acuité believes that the company will continue to benefit from its promoter’s extensive industry experience and established relationship with customers over the medium term. Further, the company mainly caters directly to the government entity such as Assam Public Works Department (APWD) including PWD(Roads), PWD(Building), among others which will benefit the company to mitigate the counter party risk.

Healthy scale of operation coupled with stable profit margins-
The revenue of the company stood healthy at Rs.199.29 crore in FY2022 (Prov.) as compared to Rs.117.36 crore in the previous year. This improvement in revenue is on account of increase in project execution during the period backed by steady order flow from the various departments. Acuité believes the revenue of the company will be increase going forward based on the healthy unexecuted order book in hand.

Though the operating profitability margin of the company has declined during FY2022 (Prov.) but still stood comfortable at 10.44 per cent in FY2022 (Prov.) as compared to 12.76 per cent in the previous year. This decrease in operating profitability margin is on account of increase in the input cost for the new projects started during FY2022 along with the existing projects. Acuité believes that the profitability margin of the company will sustain at the same level backed by in-built price escalation clause that provides cushion for covering the increased input cost. Further, the contracts of the company with the govt. authorities are suitably guarded against the fluctuation in the raw material prices owing to the built - up price escalation clause. This helps the company from any large variation in the raw material prices, thus protecting the operating margins to a certain extent. The net profitability margin of the company stood healthy at 5.93 per cent in FY2022 (Prov.) as compared to 5.74 per cent in the previous year. Acuité believes the profitability margin of the company will be sustained at healthy levels over the medium term on account of availability of adequate price escalation clause with the counter party.

Healthy financial risk profile-
The financial risk profile of the company is marked by moderate net worth, low gearing and healthy debt protection metrics. The net worth of the company stood moderate at Rs.51.65 crore in FY 2022 (Prov.) as compared to Rs. 39.18 crore in FY2021. This improvement in networth is on account of retention of profit by the company during the period. Further, Acuité has also considered unsecured loan of Rs.14.66 crore as quasi equity as the same amount is subordinated with the bank debt. The gearing of the company stood low at 0.26 times as on March 31, 2022 (Prov.) when compared to 0.25 times as on March 31, 2021. Interest coverage ratio (ICR) of the company stood strong at 8.28 times in FY2022 (Prov.) as against 5.06 times in FY 2021. The debt service coverage ratio (DSCR) of the company stood healthy at 2.55 times in FY2022 (Prov.) as compared to 1.65 times in the previous year. The net cash accruals to total debt (NCA/TD) stood at 1.12 times in FY2022 (Prov.) as compared to 1.01 times in FY2021. Going forward, Acuité believes the financial risk profile of the company will improve on account of increase in net cash accruals and no major debt funded capex plan over the near term.

Working capital intensive nature of operation
The operation of the company is working capital intensive marked by moderate gross current asset days of 137 days in FY2022 (Prov.) and in the previous year respectively. The inventory days of the company has improved to 26 days in FY2022 (Prov.) as compared to 64 days in the previous year. However, the debtor days of the company has increased to 51 days in FY2022 (Prov.) as compared to 06 days in the previous year though it is a year end phenomenon. Further, the GCA days is also emanates from the high other current asset of Rs.24.11 cr. in FY 2022 (Prov.), which mainly consists of balance with revenue authorities, TDS receivables, advance given to directors, security deposits among others.

Competitive and fragmented nature of industry coupled with tender based business
The company is engaged as a civil contractor and the particular sector is marked by the presence of several mid to big size players. The company faces intense competition from the other players in the sectors. Risk becomes more pronounced as tendering is based on a minimum amount of bidding of contracts and hence the company has to make bid for such tenders on competitive prices; which may affect the profitability of the company. However, this risk is mitigated to an extent as the company is operating in this environment for the last twelve years.