| Experienced management
The promoter of the Samarth group has a business experience of more than a decade in the plastic packaging business. The group has a strong customer base which includes leading cement companies and oil marketing company such as ACC Limited, Ultratech Cement Ltd, Indian Oil Corporation Ltd among others. Apart from supplying Woven sacks/PP bags to cement and OMC sectors, the group caters to government agencies on tender basis. The group has been associated with their key customers almost since inception. Acuité believes that the extensive experience of the promoter would continue to help in the business risk profile of the group going forward.
Moderate financial risk profile
The tangible net worth of the group increased to Rs. 139.61 crores as on March 31, 2023, as against Rs. 131.24 crore as on March 31, 2022. The net worth includes quasi equity of Rs.22.00 crore for FY23. The group’s gearing stood at 1.79 times as on March 31, 2023, as against 2.01 times in the March 31, 2022. The gearing was high in FY22 on account of the debt addition for capacity expansion. The total debt of Rs.249.76 crore as on March 31, 2023, consists of long-term borrowings of Rs.120.71 crore, unsecured loan of Rs.12.77 crore and short-term debt borrowings of Rs.103.04 crore. The debt coverages ratios are moderate with interest coverage ratio at 2.37 times in FY2023 as against 2.44 times in the previous year 2022. The DSCR stood at 1.49 times in FY2023 as against 1.24 times in FY2022. Acuité believes that the financial risk profile of the group is likely to remain moderate in medium term on account of no major debt funded capacity expansion.
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| Working capital intensive operations
The operations of SG are working capital intensive reflected by Gross Current Assets (GCA) of 229 days as on March 31, 2023, as against 196 days as on March 31, 2022. The inventory days stood at 163 days as on March 31, 2023, as against 108 days as on March 31, 2022. The average inventory holding period of the group is around 120 days. The inventory is high in FY23 since the group had stocked up a large variety of PP bags for smooth order execution. The debtor days stood at 57 days as on March 31, 2023, as against 53 days as on March 31, 2022. Average credit period allowed to the customers are around 45-60 days. The creditors days stood at 23 days as on March 31, 2023, as against 15 days as on March 31, 2022. Majorly advance payments are done to the suppliers. Working capital requirement is funded through bank lines, the average utilisation of bank facilities is ~82 percent for 6 months ended as on December’2023 for the group. Acuité believes that the ability of the group to improve the working capital operations will remain key rating sensitivity in medium term.
Susceptibility of margins to raw material price fluctuation
As SG is engaged in the manufacturing of PP bags, the major raw materials required to manufacture such products are polypropylene granules, which is a derivative of crude oil, and the prices of crude oil are directly affected by various macroeconomic factors. Similarly, the prices of such raw materials are also volatile in nature, and such fluctuations in the major raw material prices may impact the operating profit margin of the company. However, such risks are mitigated to some extent due to raw material escalation clause included in the contracts by the group.
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