| Experienced management and established track record of operations
Mr. G. Uma Sai Prasad, proprietor of SST, has nearly three decades of experience in the transport, warehousing and manpower supply services. The proprietor’s vast experience has enabled the firm to expand the scope of operations over the years. SST’s operations are spread across 130 locations in 11 states with total employee strength of around 7,000. The firm has 8 offices situated across Hyderabad, Chennai, Bengaluru, Bhubaneshwar, Kolkata, Guwahati, Delhi and Cochin.
Initially, the firm was majorly providing transportation and warehousing services, however, from 2009 onwards, the firm also started catering to manpower service requirement of corporate clients on a contractual basis. The firm’s established track record has helped to build strong relationship with its clients comprising of reputed names like Reliance Group, Spencer Retail, More Retail (erstwhile Aditya Birla Retail), amongst others.
Acuité believes that going ahead SST’s ability to build customer relations along with proprietors’ vast experience will benefit the firm to generate healthy revenues.
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| Stagnant revenue growth and declining profitability margins
The revenue growth of the firm has been stagnant over the past years, with the firm generating a revenue of Rs. 112. 25 Cr. in FY24 as against Rs. 109.60 Cr. in FY23 and Rs. 103.74 Cr. in FY22. A declining trend has also been observed in the profitability margins of the firm wherein the EBITDA margin stood declined at 4.29 percent in FY24 from 4.43 percent in FY23 and 4.99 percent in FY23. This is mainly on account of increase in the employee cost.
Acuite believes that the onboarding of new customers is crucial for revenue growth and improved profitability for the firm.
Below average financial risk profile
The financial risk profile of SST remains below average marked by average networth, high gearing and below average debt protection metrics. The networth declined to Rs. 9.12 Cr on March 31, 2024 as against Rs. 10.00 Cr on March 31, 2023 on account of withdrawal of funds by the proprietor which was deployed in group companies. This led to deterioration in the gearing, which stood at 3.44 times on March 31, 2024 as against 3.30 times in the previous year, despite marginal decline in the overall debt levels. The TOL/TNW also stood declined at 5.29 times on March 31, 2024 as against 4.31 times on March 31, 2023. The Debt-EBITDA continues to remain high at 6.22 times on March 31, 2024 as against 6,57 times on March 31, 2023.
The ability of the firm to prevent further deterioration in the financial risk profile will be a key rating sensitivity
Working Capital Intensive Operations
The operations of the firm are working capital intensive as evident from GCA of 125 days in FY24 as against 120 days in FY23. These are mainly only account of higher inventory days, which stood at 78 in FY24 as against 50 days in FY23. The debtor days stood at 39 days in FY24 as against 60 days in FY23. The company usually has a payment cycle of 45-60 days with its customers. Delay in payments from the customer's side, makes the firm highly reliant on working capital limits to manage their day to day operations.
Customer concentration risk
SST caters to reputed clientele comprising players like Reliance Group, Mobis India, More Retail (erstwhile Aditya Birla Retail), Spencers Retail, amongst others. However, Reliance Group and Mobis India accounted for over 80 percent of SST’s total revenue.
Acuité believes that the ability of SST to expand its customer base in order to mitigate the revenue concentration risk will remain a key rating sensitivity factor.
Highly competitive and fragmented industry
SST operates in a highly competitive and fragmented industry marked by the presence of large number of organized and unorganized players because of low entry barriers and moderate capital requirements which restricts pricing power of players like SST.
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