- Experienced management; established track record of operations and healthy order book position providing medium term revenue visibility
SPCPL is promoted by Mr. Duggi Reddy, who has more than 3 decades of experience in civil construction business. SPCPL is registered as a ‘Special Class’ contractor for the state of Andhra Pradesh and Telangana state governments and is registered as a ‘Class-I’ contractor for Karnataka state government. Promoters’ extensive experience and established track record of operations and past track record of completion of projects has helped the company in bidding and awarding the government projects especially, SPCPL being one of the major contractor for the prestigious project of Telangana Government i.e., Yadagirigutta Narasimha Swamy Temple — now Yadadri. The company has an unexecuted order book position of Rs.885.90 Cr as on June 30, 2022 which is 3.24 times of FY2022 revenue on provisional basis. This provides strong revenue visibility for the next 2-3 years. Out of the aforementioned order book, the company is planning to execute Rs.600-700 Cr in next two years. While most of the projects are from Government of Telangana, Andhra Pradesh, and Karnataka, the company ensures that it bids 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.
- Improvement in operations and healthy order book
SPCPL’s scale of operations is moderate, with revenue improving from Rs.88.25 Cr in FY2020 to 273.63 Cr in FY2022(Prov.) along with sustained operating margin of ~12 to 13 percent across all years. The revenue growth is on account of continuous execution of its order book while improvement in margins is attributable to a comparatively lower sub-contracting and focus on government funded high-margin yielding orders. The company having an unexecuted order book position of Rs.885.90 Cr as on March 31, 2022. The company is planning to execute around Rs.600-700 Cr in FY2023-FY2025. The outstanding order book is 3.24x of the FY2022 revenue.Acuité believes that the revenue is expected to improve backed by its healthy order book position and profitability margins are expected to remain satisfactory over the medium term.
|
-
Moderate financial risk profile
The company’s financial risk profile is marked by a moderate net worth, gearing and moderate debt protection metrics. The net worth of the company stood at Rs.47.79 Cr and Rs.36.45 Cr as on March 31, 2022(Prov.) and 2021 respectively. The gearing of the company deteriorated and stood high at 2.23 times as on March 31, 2022(Prov.) against 0.78 times as on March 31, 2021.The deterioration in the gearing is because increase in debt portion. Debt protection metrics – Interest coverage ratio and debt service coverage ratio stood at 4.56 times and 3.31times as on March 31, 2022(Prov.) respectively as against 3.58 times and 2.41times as on March 31, 2021 respectively. Debt service coverage ratio(DSCR) is improved on the account of improved cash accruals. TOL/TNW (Total outside liabilities/Total net worth) stood at 5.62 times and 4.11 times as on March 31, 2022(Prov.) and 2021 respectively. The debt to EBITDA of the company stood at 3.22 times as on 31 March, 2022(Prov.) as against 1.07 times as on 31st March, 2021. Acuité believes that the financial risk profile of the company is expected to remain moderate over the medium term on account of moderate cash accruals and no significant debt-funded capex plans.
- Working capital intensive operations
SPCPL's operations are working capital intensive operations marked by gross current assets (GCA) days at 246 days as on March 31, 2022(Prov.) as against 249 days as on March 31, 2021. Inventory days stood at 19 days as on March 31, 2022(Prov.) as against 39 days as on March 31, 2021. Subsequently, the payable period stood at 390 days as on March 31, 2022(Prov.) as against 392 days as on March 31, 2021 respectively. The debtor day stood at 68 days as on March 31, 2022(Prov.) as against 79 days as on March 31, 2021. Further, the average bank limit utilization in the last six months ended August, 2022 remained at 93 percent for fund based limits and 65 percent for non-fund based. Acuité believes that the operations of the SPCPL will remain moderate in the medium term too.
- Tender based nature of operations and Competitive and fragmented industry
SPCPL executes majorly tender-based projects from state government. Once the tender is allotted, EMD of ~1-2.5 per cent is deposited along with the performance guarantee. The company raises bills on monthly basis and the payment is received in 30-45 days. The retention money is usually 5-10 per cent of the contract value which is released after a defect liability period of 2-3 years. 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. Also, Tender based operations limit pricing flexibility in an intensely competitive industry. The particular sector is marked by the presence of several mid to big size players. The company faces competition from the other players in the sectors. Risk becomes more pronounced as tendering is based on a minimum amount of bidding of contracts. However, this risk is mitigated to an extent as the promoter has been operating in this industry for the last 3 decades and geographical diversification.
|
