Experienced management and established relationships with Tata Motors
SMPL has over three decades of operational track record in auto dealership industry. Further, the promoter, Mr. Kailash Chand Gupta has over five decades of experience in automobiles and manufacturing of truck and bus bodies. The extensive experience of the management has helped the company to establish long-term relations with the Tata Motors. Their strong relationship with Tata Motors has also helped the company to build strong reputation in the market.
Acuité believes that the long operational track record of SMPL, promoters’ extensive understanding and expertise and established relationship with Tata Motors will benefit the company going forward, resulting in steady growth in the scale of operations.
Moderate business risk profile
SMPL posted revenue of Rs.326.86 Cr. in FY2024 registering an y-o-y growth of ~20 per cent from Rs.271.92 Cr. in FY2023. Further, the company registered a revenue of Rs. 138.81 Cr. in 6MFY2025. The increase in revenue is on the account of increased sales volume. However, the company ceased to operate in M/HCV segment since January’22 due to low margins and high working capital requirement in this segment. The company is focused to maintaining the existing segments of the business.
Going forward, Acuite believes, the revenue of the company will sustain at the healthy level backed by increasing demand for commercial vehicles.
The operating margin of the company improved moderately to 4.04 percent in FY2024 from 3.85 percent in FY2023 on account of cost rationalization and incentives received from TATA Motors for achieving the sales target. The PAT of the company declined to Rs. 0.77 Cr. in FY2024 as against Rs. 3.35 Cr. in FY23. The reason for this decline is loss incurred on the sale of company’s property of Rs. 2.87 Cr. along with the loss due to fire in one of company’s showroom of Rs. 0.33 Cr. These losses are exceptional and have not arisen from day-to-day business activities. The PAT margin stood at 0.24 percent in FY2024 as against 1.23 percent in FY2023. Acuité believes that the revenues derived from the higher margin segments including workshop income, sale of spares and accessories shall support the profitability to an extent.
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| Below average financial risk profile
The company’s below average financial risk profile is marked by modest net worth, moderate gearing and weak debt protection metrics. The tangible net worth of the company decreased to Rs.33.37 Cr. as on March 31, 2024 from Rs. 34.32 Cr. as on March 31, 2023 mainly on account of lower profitability which resulted in decline in the reserves and thus impacting the net worth. Gearing of the company stood at 1.63 times as on March 31, 2024 as against 1.42 times as on March 31, 2023. The reason for the increase in gearing as well as TOL/TNW is higher use of short-term debt and infusion of more USL. The Total Outside Liabilities/Tangible Net Worth (TOL/TNW) stood at 2.23 times as on March 31, 2024, as against 2.06 times as on March 31, 2023. The weak debt protection metrics of the company is marked by Interest Coverage Ratio at 1.36 times and Debt Service Coverage Ratio at 0.87 times as on March 31, 2024 as against 1.61 times and 0.90 times respectively as on March 31, 2023. The weak debt protection metrics is due to lesser profitability combined with the higher debt levels. The weak debt protection metrics indicates potential repayment issues however it is managed by timely infusion of unsecured loans in the company by the promoters. The Net Cash Accruals/Total Debt (NCA/TD) stood at 0.04 times as on March 31, 2024 as against 0.09 times in FY2023. This decline is due to the lower NCA in FY2024 and higher debt levels in FY2024. The company has capex plans in the near future to increase the production capacity of tip trailor trucks, the cost of which will be approximately Rs. 1.50 Cr to 2.00 Cr. Acuité believes that going forward sustainability of the financial risk profile of the company needs to be seen as the company has steady cash accruals and capex plan in the near future.
Working capital intensive nature of operations
The working capital operations of company have improved in last year as evident from gross current assets (GCA) of 89 days in FY2024 as compared to 100 days in FY2023. Debtor days improved to 54 days in FY2024 as compared to 60 days in FY2023. Inventory days improved and stood at 31 days in FY2024 as compared to 35 days in FY2023. The improvement is due to the better inventory management by the company. Creditors days have remained almost stable around 17 days in FY2024 as against 15 days in FY2023. The company receives the credit period of 15-20 days.
Acuité believes that the working capital requirement is likely to remain at similar levels in the near to medium term.
Exposure to competition in automotive dealership segment
The company's operations are dependent on Tata Motors Limited. Though, SMPL is an exclusive dealer of Tata Motor’s Limited's entire range of commercial vehicles (CVs) in Chhattisgarh, this does not prevent Tata Motors Limited from appointing any new dealer in the region. Automotive manufacturers normally encourage multiple dealers in the same area to improve market penetration. Moreover, manufacturers face competition in their respective segments, and tend to squeeze margins of dealers to reduce cost. Also, bargaining power against TML is low, which constraints operating profitability.
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