Established track record of operations supported by experienced management
Established in 1994, Shankar Ramchandra Earthmovers Private Limited (SREPL) is registered as class 1A contractor with Government of Maharashtra and has established presence in executing projects related to construction and maintenance of roads and bridges for Public Works Department, NHAI and Central Railway. SREPL is promoted by Mr. Ramchandra Kad and Mr. Anant Kad who hold more than two decades of experience in civil construction industry. SREPL has demonstrated strong execution capability and has successfully executed projects worth more than Rs.420.00 Cr. over the last five years. Such projects also includes a road construction project which was taken up under its special purpose vehicle (SPV) PCIL HAM Bhele Shikrapur Private Limited (PHBSL) with a project cost Rs. 240 Cr. The project was executed under Hybrid Annuity mode and the SPV has started receiving annuity for the project.
Acuité believes the company will benefit from its established presence and experienced management over the medium term.
Moderate Working Capital Management
Working capital operations of the company are moderate marked by GCA days of 125 as on March 31, 2023 as against 273 days on March 31, 2022. Debtor collection period stood at 92 days as on March 31, 2023 as against 237 days on March 31, 2022. Creditor days stood at 144 days on March 31, 2023 as against 118 days on March 31, 2022. The current ratio stood at 0.98 times on March 31, 2023 against 1.74 times on March 31, 2022.
Healthy Order Book Position
SREPL has shown significant growth in its operations during 11MFY2024. In 11MFY2024, the company has recorded revenue of Rs.149.65 crore and is estimated to close the year in the range of Rs. 200-215 Cr. driven by comparatively higher billing in the month of March. The company a has healthy order book position with unexecuted orders in hand worth of around Rs. 815.55 Cr. as on March, 2024 crore which are to be executed in the upcoming two to three years, thereby providing revenue visibility over the near to medium term.
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Below Average Financial Risk Profile
The company’s financial risk profile is below average marked by increased overall gearing, moderate net worth and debt protection metrics. The tangible networth of the company stood at Rs.47.88 crore as on March 31, 2023, as against Rs.46.17 crore as on March 31, 2022. The gearing ratio stood at 2.03 times on March 31, 2023 as against 0.93 times on March 31, 2022.
This is due to significant rise in the debt levels of the company. The total debt of the company was Rs. 97.34 crore on March 31, 2023 compared to Rs. 42.72 crore on March 31, 2022. The total debt of the company as on March 31, 2023 consists long term debt of RS. 11.77 crore (PY Rs.0.78 Cr), Rs.67.52 crore USL from directors/promoters or group entities (PY Rs. 35.22 Cr), short term debt of Rs.10.94 crore (PY Rs. 4.27 Cr.) and CPLTD of Rs.7.10 crore (PY Rs. 2.46 Cr). The debt service coverage ratio and interest coverage ratio stood at 1.43 times and 2.19 times in FY2023 as against 1.70 times and 4.63 times in FY2022 respectively. Debt/EBITDA stood at 8.58 times on March 31, 2023 as against 2.23 times on March 31, 2022.
Competition in construction segment, and to tender-based operations
Although the company has a long-standing presence of more than 25 years in the industry, as almost all its sales are tender based, the revenue depends on the company's ability to bid successfully for tenders. SREPL specialises in civil works related to construction and maintenance of roads and bridges projects mainly for Central Railway, Public Works Department (PWD) and NHAI. The company faces competition from large players, as well as many local and small unorganised players, adversely affecting the profitability. Currently majority of their projects are situated in Maharashtra. This increases the geographical concentration risk significantly. Nonetheless, the company is bidding for projects in new territories and has recently received contracts in Rajasthan, which is has mitigated the geographic concentration risk to some extent.
Susceptibility of operating margin due to volatility in input material prices and labour charges.
The basic input materials for execution of construction projects and works contracts are steel, stone chips, cement, and structures etc. The prices of which are highly volatile. However, currently government agencies’ work contracts have price escalation clause which mitigate price volatility risk to some extent. Furthermore, the operating margin of the company is exposed to sudden spurt in the input material prices along with increase in labour prices being in labour intensive industry.
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