| Experienced management
The promoter of the Samarth group (SG) 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 group has moderate financial risk profile marked by moderate net worth, below average gearing and average debt protection metrics. The tangible net worth of the group increased to Rs. 144.38 crore as on March 31, 2024(Prov.), as against Rs. 139.61 crore as on March 31, 2023. The group’s gearing stood at 1.77 times as on March 31, 2024(Prov.), as against 1.79 times in the March 31, 2023. The total debt of Rs. 256.14 crore as on March 31, 2024(Prov.), consists of long-term borrowings of Rs.98.28 crore and short-term debt borrowings of Rs.157.86 crore against the total debt of Rs. 249.76 Crore as on March 31, 2023. The long-term borrowings majorly consist of the loan taken for capacity expansion of SREJPL. The interest coverage ratio stood at 2.14 times in FY24(Prov.) as against 2.37 times in FY23. The DSCR stood at 1.43 times in FY24(Prov.) as against 1.49 times in FY23. 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 317 days as on March 31, 2024(Prov.), as against 229 days as on March 31, 2023. The inventory days stood at 212 days as on March 31, 2024(Prov.), as against 163 days as on March 31, 2023. The inventory is high in FY24 since the group had stocked up a large variety of PP bags for varied specifications like cement type, brand names etc to support their rolling stock requirement and for smooth order execution. The debtor days stood at 97 days as on March 31, 2024(Prov.), as against 57 days as on March 31, 2023, and the creditors days stood at 96 days as on March 31, 2024(Prov.), as against 23 days as on March 31, 2023. Working capital requirement is funded through bank lines, the average fund-based utilisation of bank facilities is ~68.66 percent for 6 months ended as on August’2024 for the group.
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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