Press Release October 01, 2024 SEWASINGH OBEROI AND CO Rating Reaffirmed

Product	Quantum (Rs. Cr)	Long Term Rating	Short Term Rating
Bank Loan Ratings	2.00	ACUITE BBB- | Stable | Reaffirmed	-
Bank Loan Ratings	21.00	-	ACUITE A3 | Reaffirmed
Total Outstanding	23.00	-	-
Total Withdrawn	0.00	-	-

Rating Rationale

Acuité has reaffirmed the long-term rating to ‘ACUITE BBB-’ (read as ACUITE triple B minus) and the short-term rating to 'ACUITE A3' (read as ACUITE A three) on the Rs.23.00 Cr. bank facilities of Sewasingh Oberoi and Co (SOC). The outlook is ‘Stable’. Rationale for rating The rating reaffirmation is primarily driven by a stable business risk profile with expected improvement in revenues in FY2024(Prov). The improvement in performance is primarily on account of improved work orders and execution. The rating is constrained by the fluctuations in the profitability levels in last 3 years and the elongated working capital cycle. However, the rating draws comfort from the above average financial risk profile of the firm backed by the comfortable capital structure and debt protection metrics.

About the Company

Sewasingh Oberoi and Co (SOC) was established in 1997 and is managed by Mr. Kanwaljit Singh Oberoi. The firm is based in Chhattisgarh and is engaged in the construction works of roads and bridges. SOC is a registered as a class A contractor with PWD, Chhattisgarh.

Unsupported Rating

­Not Applicable

Analytical Approach

Acuité has considered the standalone business and financial risk profile of SOC to arrive at the rating. ­

Key Rating Drivers

Strengths

Long track record of operations supported by experienced management The firm has established a long standing presence in the construction industry with operations starting in 1997. SOC is managed by the experienced partner Mr. Kanwaljit Singh Oberoi. The firm has successfully developed a strong customer base comprising of Public Works Department (PWD) and Chhattisgarh Rural Roads Development Agency (CGRRDA). The strong customer base aids in maintaining the regular order flow. Acuité believes that the extensively experienced management and the long operational track record of SOC will continue to benefit the firm going forward. Above average financial risk profile The above average financial risk profile of the firm is marked by improving net worth, low gearing and comfortable debt protection measures. The tangible net worth of the firm increased to Rs.67.27 Cr. as on March 31, 2024(Prov) as compared to Rs. 57.19 Cr. as on March 31, 2023 due to introduction of quasi equity of Rs. 3.58 Cr. and accretion of profits. Gearing of the firm stood below unity at 0.25 times as on March 31, 2024(Prov) as compared to 0.22 times as on March 31, 2023, whereas, Total Outside Liabilities/Tangible Net Worth (TOL/TNW) stood low at 0.54 times as on March 31, 2024(Prov) as against 0.53 times as on March 31, 2023. Moreover, the comfortable debt protection metrics is marked by Interest Coverage Ratio (ICR) at 4.04 times as on March 31, 2024(Prov), and the Debt Service Coverage Ratio stood comfortable at 3.21 times as on March 31, 2023. The Net Cash Accruals/Total Debt (NCA/TD) stood at 0.35 times as on March 31, 2024(Prov). Acuité believes that the financial risk profile of firm will remain above average over the medium term, in absence of any major debt funded capex plans. Improvement in the revenue levels The scale of operations of SOC witnessed slight improvement over the past two financial years. The revenues stood at Rs. 69.27 Cr. in FY2024(Prov) as compared to Rs.64.11 Cr. in FY2023 and Rs.45.91 Cr. in FY2022. In FY2024(Prov) & FY2023 the improvement in revenues is due to better work orders and execution of it. Going forward, the firm has an unexecuted orderbook to the tune of Rs.256.76 Cr as on June, 2024 which is expected to be completed in the next 03 to 60 months. Acuité believes that, going forward, improvement in the scale of operations coupled by timely execution of the orders will remain a key sensitivity factor.

Weaknesses

Fluctuating profitability margins albeit improvement from previous year The profitability margins of the firm improved and stood at healthy levels with operating margin at 9.38 percent in FY2024(Prov) as compared to 6.85 percent in FY2023 and 7.71 percent in FY2022. The fluctuating margins are due to difficulty in maintaining the predetermined margins due to fluctuating prices of 2 major raw materials i.e. cement & metal and also necessity of maintenance and repairs of roads for 3 years as per the contract. To mitigate this risk, the firm wants to enter into better margin fetching projects only. The PAT margin stood at 5.76 per cent in FY2024(Prov) from 5.49 percent in FY2023 and 4.34 per cent in FY2022. The RoCE level stood at 7.70 percent in FY2024(Prov) as against 6.87 percent in FY2023 and 5.71 percent in FY2022. Acuité believes that improvement in the profitability margins will remain key monitorable. Intensive Working Capital Cycle The working capital-intensive nature of operations of the firm is marked by high Gross Current Asset (GCA) days of 400 days as on March 31, 2024(Prov) as against 354 days as on March 31, 2023. The high GCA days are on account of significant advances provided to sub-contractors of Rs. 1.41 Cr. and security deposits of Rs.43.69 Cr. as on March 31, 2024(Prov). The inventory period increased to 142 days March 31, 2024(Prov) as against 91 days as on March 31, 2023. The inventory days were high in FY2024due to significant unbilled revenues combined with higher procurement of raw materials due to availability of better prices. The firm is able to stretch its creditors for raw materials as evident from its creditors days of 100 days as on March 31, 2024(Prov). Acuité believes that the working capital operations of the firm will remain around similar levels as evident from the high level of other current assets and moderately high inventory cycle over the medium term.

Rating Sensitivities

Increase in revenues while improving margin Delays in executing order book Elongation in the working capital cycle

Liquidity Position

Adequate

The liquidity position of the firm is adequate marked by steady net cash accruals of Rs. 5.87 Cr. in FY2024(Prov) against long term debt repayment of Rs. 0.50 Cr. over the same period. The current ratio stood comfortable at 2.76 times as on March 31, 2024(Prov) as compared to 2.60 times in FY2023. The fund based bank limit utilization stood at a high level of ~91 percent for the six months ended August, 2024. The unencumbered cash and bank balance stood at Rs. 0.16 Cr. as on March 31, 2024(Prov). Also, the working capital management of the firm is intensive in nature marked by high Gross Current Asset (GCA) days of 400 days as on March 31, 2024(Prov) as against 354 days as on March 31, 2023 due to significant security deposits maintained. Acuité believes that the liquidity of the firm is likely to remain adequate over the medium term on account of steady cash accruals and absence of any debt funded capex plans.

Outlook: Stable

Acuité believes that the outlook of the firm will remain 'Stable' over the medium term on account of the long track record of operations, experienced management and above average financial risk profile. The outlook may be revised to 'Positive' in case of significant growth in revenue while achieving sustained improvement in operating margins and working capital management. Conversely, the outlook may be revised to ‘Negative’ in case of decline in the firm’s revenues or profit margins, or in case of deterioration in the firm’s financial risk profile or delay in completion of its projects or further elongation in its working capital cycle.

Other Factors affecting Rating

­None

Key Financials

Particulars	Unit	FY 24 (Provisional)	FY 23 (Actual)
Operating Income	Rs. Cr.	69.27	64.11
PAT	Rs. Cr.	3.99	3.52
PAT Margin	(%)	5.76	5.49
Total Debt/Tangible Net Worth	Times	0.25	0.22
PBDIT/Interest	Times	4.04	5.41

Status of non-cooperation with previous CRA (if applicable)

Not Applicable

Any other information

­None

Applicable Criteria

• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Infrastructure Sector: https://www.acuite.in/view-rating-criteria-51.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm

Note on complexity levels of the rated instrument

­In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.

Rating History

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook 20 Oct 2023 Cash Credit Long Term 2.00 ACUITE BBB- | Stable (Downgraded from ACUITE BBB | Negative) Bank Guarantee (BLR) Short Term 21.00 ACUITE A3 (Downgraded from ACUITE A3+) 07 Oct 2022 Cash Credit Long Term 2.00 ACUITE BBB | Negative (Reaffirmed) Bank Guarantee (BLR) Short Term 21.00 ACUITE A3+ (Reaffirmed) 29 Jul 2021 Bank Guarantee (BLR) Short Term 21.00 ACUITE A3+ (Assigned) Cash Credit Long Term 2.00 ACUITE BBB | Stable (Assigned)

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Annexure - Details of instruments rated

Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Complexity Level Rating State Bank of India Not avl. / Not appl. Bank Guarantee (BLR) Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 21.00 Simple ACUITE A3 | Reaffirmed State Bank of India Not avl. / Not appl. Cash Credit Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 2.00 Simple ACUITE BBB- | Stable | Reaffirmed

Contacts

Mohit Jain Senior Vice President - Rating Operations Patel Sneh Associate Analyst - Rating Operations	Contact details exclusively for investors and lenders Mob: +91 8591310146 Email ID: analyticalsupport@acuite.in

About Acuité Ratings & Research

Acuité is a full-service Credit Rating Agency registered with the Securities & Exchange Board of India (SEBI). The company received RBI Accreditation as an External Credit Assessment Institution (ECAI) for Bank Loan Ratings under BASEL-II norms in the year 2012. Acuité has assigned ratings to various securities, debt instruments and bank facilities of entities spread across the country and across a wide cross section of industries. It has its Registered and Head Office in Kanjurmarg, Mumbai. Disclaimer: An Acuité rating does not constitute an audit of the rated entity and should not be treated as a recommendation or opinion that is intended to substitute for a financial adviser's or investor's independent assessment of whether to buy, sell or hold any security. Ratings assigned by Acuité are based on the data and information provided by the issuer and obtained from other reliable sources. Although reasonable care has been taken to ensure that the data and information is true, Acuité, in particular, makes no representation or warranty, expressed or implied with respect to the adequacy, accuracy or completeness of the information relied upon. Acuité is not responsible for any errors or omissions and especially states that it has no financial liability whatsoever for any direct, indirect or consequential loss of any kind, arising from the use of its ratings. Ratings assigned by Acuité are subject to a process of surveillance which may lead to a revision in ratings as and when the circumstances so warrant. Please visit our website (www.acuite.in) for the latest information on any instrument rated by Acuité. Please visit https://www.acuite.in/faqs.htm to refer FAQs on Credit Rating.