| Experienced promoters and long track record of operations
Incorporated in December 2004, SEIPL is a part of Shraddha Group which is led by Mr. Shivaji Bhaganwanrao Jadhav who is having more than 40 years of experience in engineering, procurement and construction (EPC) and wind mill power generator and around 2 decades of experience in sugar industry. The group currently has 3 sugar manufacturing units located each at Jalna, Parbhani and Jalgaon district of Maharashtra with a total installed capacity of 10,500 TCD. The extensive experience of management has helped the group in getting wide acceptance among local farmers, facilitating adequate and timely cane procurement, ensuring an adequate crushing period which has helped the group improve its scale of operations over the years. Further, the group holds an order book of Rs 1,058.84 Cr. as on December 01, 2024 in the EPC segment and has tied up its wind power capacity with Maharashtra State Electricity Distribution Company Limited (MSEDCL) at a tariff rate of Rs.2.65 per unit till 2029.
Acuite believes that the group will continue to benefit from its established track record of operations and experience of its management team.
Diversified revenue streams and stable margins dominated majorly by integrated nature of sugar operations
The group earns majority of its revenue from sugar and its integrated business (85 % of FY24 revenue) followed by the EPC business (6.75%) and wind power (3.7%). Furthermore, the group’s foray into ethanol business at total capex of Rs. 214.67 Cr. (Rs 183.47 Cr. incurred till December 27, 2024) is expected to increment revenues from March 2025.
The operating revenue of the group declined to Rs. 685.18 Cr. in FY24 compared to Rs. 1,071.99 Cr. in FY23 on account of ban on export sales of sugar and low stock availability from ESY 2022-23. However, the operating profit margin of the group improved significantly to 21.34 percent in FY24 as against 13.94 percent in FY23 due to the improvement in the realisation prices of sugar. Going forward, the group is expected to earn margins between 16-17%.
Acuite believes that the group's scale of operations will continue to improve through the enhanced utilization of its existing capacity, onset of distillery unit and support by favourable government measures.
Comfortable Financial risk profile
The financial risk profile of the group remained comfortable marked by a healthy net worth, moderate gearing and debt protection metrics. The net worth of the group stood at Rs. 380.48 Cr. as on March 31, 2024 as against Rs. 398.49 Cr. as on March 31, 2023. Further, the gearing ratio remained low at 0.85 times as of March 31, 2024, compared to 0.77 times on March 31, 2023. However, this is expected to increase to 0.97 times as on March 31, 2025 on account of additional debt of Rs. 85.2 Cr. being drawn by the group for the distillery unit. The debt protection metrics remained moderate with DSCR and interest coverage ratio standing at 1.85 times and 4.99 times respectively as on March 31, 2024 as against 1.38 times and 3.83 times respectively as on March 31, 2023.
The capital structure and debt servicing indicators are expected to remain comfortable in the medium term supported by healthy cash accruals and no significant debt funded capex.
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| Intensive Working capital operations of the group
The working capital operations of group remain intensive, as indicated by gross current asset days (GCA) of 245 days in FY24 compared to 157 days in FY23. These are primarily impacted by increase in inventory days which rose to 233 days in FY24 from 135 days in FY23. This higher inventory level as of March 31, 2024, was a result of stock holding due to ban on export sales. Further, the debtor’s days of the group stood at 28 days in FY24 as compared to 18 days in FY23. The group receives advance payment from its dealers for the sale of sugar, whereas for EPC and wind turbine it receives payment in ~30-45 days. The creditors days for the group stood at 173 days in FY24 as compared to 94 days in FY23.
Acuite believes that working capital operations of the group may continue to remain intensive considering the nature of business.
Susceptibility to regulatory changes and inherent volatility in sugar prices
The sugar industry is susceptible to movements in sugarcane and sugar prices which results in volatile profitability. While the government policy of Fair and Remunerative Price for sugarcane has brought some amount of stability and predictability in input price, open market sugar price remains dependent on the demand-supply scenario. Besides this, the government also regulates domestic demand-supply through restrictions on imports and exports, sugar release orders and buffer stock limits. Government interventions will remain a key driver for the profitability of sugar mills and continue as a key rating sensitivity factor.
Agro climatic risks and cyclical trends in the industry
Profitability of sugar mills will remain vulnerable to the agro-climatic risks related to cane production. Being an agricultural product, the sugarcane crop is dependent upon weather conditions and is vulnerable to pests and diseases that may not only impact the yield per hectare but also the recovery rate. These factors can have a significant impact on the group’s revenue and profitability.
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