- Experienced management; established track record of operations
SPCPL is promoted by Mr. Duggi Reddy, who has more than three decades of experience in the civil construction business. SPCPL is registered as a ‘Special Class’ contractor for the state governments of Andhra Pradesh and Telangana, and as a ‘Class-I’ contractor for the Karnataka state government. The promoters’ extensive experience and established track record of operations, along with their experience of project completion in the past, have helped the company in bidding for and being awarded government projects. Notably, SPCPL is one of the major contractors for the prestigious Yadagirigutta Narasimha Swamy Temple project, now known as Yadadri, for the Telangana Government. While most of the projects are from the governments of Telangana, Andhra Pradesh, and Karnataka, the company ensures that it bids for and executes only funded projects. Acuité believes that the promoter's extensive industry experience will aid SPCPL's business risk profile over the medium term.
- Moderate financial risk profile
The financial risk profile of the company is moderate, marked by healthy net worth, moderate debt protection metrics, and low gearing. The net worth of the company stood at Rs.90.92 Cr. and Rs.78.56 Cr. as on March 31, 2024, and 2023 respectively. The improvement in the net worth is on account of accretion of reserves. The gearing of the company improved to 0.82 times as on March 31, 2024, against 1.07 times as on March 31, 2023. The improvement in the gearing is on account of decrease in long term debt portion and moderate bank limit utilization levels as on March 31 2024. Debt protection metrics – Interest coverage ratio and debt service coverage ratio stood at 3.01 times and 1.59 times as on March 31, 2024, respectively as against 4.11 times and 2.00 times as on March 31, 2023, respectively. TOL/TNW (Total outside liabilities/Total net worth) stood at 2.93 times and 4.17 times as on March 31, 2024, and 2023 respectively. The debt to EBITDA of the company stood at 1.91 times as on March 31, 2024, as against 1.67 times as on March 31, 2023. Acuité believes that the financial risk profile will remain moderate in the absence of any major debt funded capital expenditure plan in the near term.
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- Revenue decline and slow moving orders
SPCPL registered revenue of Rs. 222.34 Cr. in FY2024, a decline of 39.28 percent compared to revenue of Rs. 366.75 Cr. in FY2023. The decline in revenue is primarily due to delays in the execution of some orders during the year and changes in the state government. Further, the operating profit margin declined to 11.95 percent in FY2024 compared to 12.55 percent in FY2023. During the current year, the company registered revenue of Rs. 165 Cr. until January 31, 2025, and is expected to close the year with revenue of Rs. 195-205 Cr. The company has an unexecuted order book position of Rs. 985.15 Cr. as of January 31, 2025, which comprises of slow-moving orders. The order book position is expected to show relatively slower movement over the medium term. Acuité believes that significant progress in order executions will be a key factor in scaling up operations in the near to medium term.
- Working capital intensive operations
SPCPL’s working capital operations are intensive, as reflected by its gross current assets (GCA) of 475 days in FY2024, compared to 331 days in FY2023. The elongation in GCA days is due to high work in progress, resulting in inventory days of 88 days in FY2024 compared to 49 days in FY2023. The GCA days also includes other current assets portion in the form of EMD deposits, retention money receivables and advances to suppliers, which further take it to elongated levels. The debtor day stood at 78 days in FY2024 as against 58 days in FY2023. Subsequently, the payable period stood at 381 days in FY2024 as against 275 days FY2023 respectively. Furthermore, the reliance on bank limits utilization remained high with almost full utilization of fund-based working capital limits and 44 percent for the non-fund-based limits for the past ten months ending in Feb 2025. Acuité believes that the working capital cycle will continue to remain in a similar range over the medium term, considering the nature of the industry.
- Tender based nature of operations and Competitive and fragmented industry
SPCPL primarily executes tender-based projects from state governments. Once a tender is allotted, an EMD of approximately 1-2.5 percent is deposited along with the performance guarantee. Since the nature of operations is tender-based, the business depends on the ability to bid for contracts successfully. SPCPL’s revenue and profitability are susceptible to risks inherent in contract-based operations. Additionally, tender-based operations limit pricing flexibility in an intensely competitive industry. This sector is marked by the presence of several mid to large-sized players, and the company faces competition from other players in the sector. The risk becomes more pronounced as tendering is based on the minimum amount of bidding for contracts. However, this risk is mitigated to an extent as the promoter has been operating in this industry for the last three decades and has achieved geographical diversification.
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