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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 8.00 | ACUITE BB+ | Reaffirmed & Withdrawn | - |
| Bank Loan Ratings | 34.00 | - | ACUITE A4+ | Reaffirmed & Withdrawn |
| Bank Loan Ratings | 6.00 | - | Not Applicable | Withdrawn |
| Total Outstanding | 0.00 | - | - |
| Total Withdrawn | 48.00 | - | - |
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Rating Rationale |
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Acuité has reaffirmed and withdrawn the long-term rating of ‘ACUITE BB+’ (read as ACUITE double B plus) and the short-term rating of ‘ACUITE A4+’ (read as ACUITE A four plus) on the Rs. 42.00 Cr. bank facilities of Sheth Construction Company (SCC). Further, Acuite has withdrawn the short-term bank facility on Rs. 6.00 Cr. of Sheth Construction Company without assigning any rating as it is a proposed facility. The withdrawal is in accordance with Acuite's policy on withdrawal of rating as applicable to the respective facility / instrument. The rating is being withdrawn on account of request received from the company, and NOC (No Objection Certificate) received from the banker.
Rationale for rating reaffirmation The rating reaffirmation of SCC takes into account the firm’s experienced partners with an established track record of operations and moderate financial risk profile. The partners’ extensive experience is also reflected through the healthy order book position of the firm of Rs. 129.86 crore as on June 30, 2024 to be executed in the next 24 to 36 months. Further, the revenue stood stable at Rs.54.36 Cr. in FY2024(Prov.) against Rs.58.28 Cr. in FY2023 and Rs.53.07 Cr. in FY2022. The rating is however constrained by the firm’s highly intensive working capital operations and the susceptibility of profitability to volatility in raw material prices and also presence in highly fragmented and competitive industry. |
| About the Company |
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SCC established in the year 1975 is a Mumbai based partnership firm that undertakes civil construction contracts for Municipal Corporation of Greater Mumbai (MCGM) and Surat Municipal Corporation (SMC) for construction of roads, buildings, storm water drainage/sewerage, water supply arrangement, garden development, club/swimming pool construction, pumping station and reservoirs. The firm is promoted by Mr. Shashikant Sheth, Mrs. Usha Sheth, Mr. Pankaj Sheth, Mr. Ashish Sheth, Mr. Pratik Sheth, Mr. Miral Sheth and Mr. Abhay Sheth. SCC is registered as a Class IA contractor with MCGM and Class AA contractor with SMC.
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| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
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Acuité has taken a standalone view of the business and financial risk profile of SCC to arrive at the rating.
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| Key Rating Drivers |
| Strengths |
| Experienced management and established track record of operations
SCC has been executing civil construction contracts in Mumbai and Surat for more than four decades. The promoter, Mr. Shashikant Khimchand Sheth, possesses more than three decades of experience in the civil construction industry. Before promoting SCC, the promoter was an Assistant Engineer at Municipal Corporation of Greater Mumbai (MCGM). He was later joined by Mrs. Usha Sheth, Mr. Pankaj Sheth, Mr. Ashish Sheth, Mr. Pratik Sheth, Mr. Miral Sheth and Mr. Abhay Sheth as partners in the firm. The partners’ extensive experience is also reflected through the healthy order book position of the firm of Rs.129.86 crore as of June 30th, 2024 to be executed in the next 24 to 36 months. Moderate Financial Risk Profile Sheth Construction Company has a moderate financial risk profile marked by moderate net worth, low gearing and moderate debt protection metrics. SCC’s net worth stood improved to Rs. 24.14 crore as of March 31, 2024(Prov) against Rs. 21.03 crore as of March 31, 2023 on account of accretion of profits to partners’ capital accounts. The company’s gearing stood at 1.35 times as on March 31,2024 (Prov.) as against 1.32 times as on March 31, 2023. The company’s total debt as on March 31,2024 (Prov.) stood at Rs. 32.62 crore as compared to Rs. 27.67 crore as on March 31, 2023; comprising of long-term debt of Rs. 0.88 crore, short-term debt of Rs. 7.92 crore and Unsecured loans from promoters/directors of Rs. 23.82 crore. TOL/TNW stood at 1.97 times as on March 31, 2024 (Prov.). The interest coverage ratio of the company stood at 3.69 times in FY24 (Prov.) against 2.62 times in FY23. DSCR stood at 3.69 times in FY2024 (Prov.) against 2.05 times in FY2023. |
| Weaknesses |
| Highly Intensive Working capital operations
Sheth Construction Company has highly intensive working capital operations with average gross current asset (GCA) days standing over 339 days during FY22 to FY24. GCA days increased to 411 days in FY2024 (Prov.) against 339 days in FY2023. Inventory days stood at 8 days in FY2024 (Prov.) against 10 days in FY2023. The debtor days stood at 273 days for FY24 (Prov.) against 173 days for FY23. Majority of the work is executed by the firm during the third and fourth quarter of the year due to which the firm generates higher revenue during the last quarter of the year and in addition to this, the retention money which are held in various contracts also forms a part of the overall receivables due to which the receivables cycle of the firm generally remains higher. The creditor days of the firm stood at 248 days for FY24 (Prov.) as against 190 days for FY23. Highly competitive and fragmented industry The firm operates in a highly fragmented and competitive civil construction industry with large number of players executing small and mid-sized projects, because of low entry barriers. Further, the contracts are awarded through competitive bidding or tender process leading to pressure on the volume of the work or winning number of projects, pricing and profitability of the firm. Tender based business The nature of business is tender based and the firm faces intense competition in the industry. The firm’s success ratio of winning the bids is to the tune of 40-50 percent. The firm generates most of its revenue from government projects. |
| Rating Sensitivities |
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Not Applicable
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| Liquidity Position |
| Adequate |
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Liquidity is adequately backed by SCC’s net cash accruals, which stood at Rs. 5.63 Cr. as on March 31, 2024 (Prov.), against no maturing debt repayment obligation for the same period. The cash and bank balances of the firm stood at Rs. 0.13 Cr. as on March 31, 2024 (Prov.). The current ratio stood at 3.01 times as on March 31, 2024 (Prov.). However, the working capital operations of the company are highly intensive marked by its gross current asset (GCA) days of 411 days for FY2024 (Prov.) as against 339 days for FY2023. Current ratio stands at 3.01 times as on 31 March 2024 (Prov.). The firm has maintained cash & bank balance of Rs. 0.13 Cr. in FY2024 (Prov.).
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| Outlook: Not Applicable |
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| Other Factors affecting Rating |
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None
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| Particulars | Unit | FY 24 (Provisional) | FY 23 (Actual) |
| Operating Income | Rs. Cr. | 54.36 | 58.28 |
| PAT | Rs. Cr. | 5.15 | 2.86 |
| PAT Margin | (%) | 9.46 | 4.91 |
| Total Debt/Tangible Net Worth | Times | 1.35 | 1.32 |
| PBDIT/Interest | Times | 3.69 | 2.62 |
| Status of non-cooperation with previous CRA (if applicable) |
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Not Applicable
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| Any other information |
| None |
| Applicable Criteria |
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• 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 |
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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
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