­Experienced management and established track record of operations
Mumbai based SVWSPL was incorporated in 1979 by Mr. Binod Bhagat along with his family who have an experience of more than three decades in the aforementioned industry. The extensive experience and their in-depth understanding of the industry has helped the company in developing long-term relationships with its customers and sole supplier Jindal Stainless Limited. Acuité believes that the company will continue to benefit from its extensive experience of the promoters and healthy relationship with its sole supplier i.e. JSL over the medium term.

Working capital efficient operations
The company’s operations are working capital efficient as evident from the GCA days of 83 as on March 31, 2023 (Prov) as against GCA days of 66 as on March 31, 2022. The inventory days stood at 25 days for FY23 as against 25 days for FY22. The average inventory holding period is around 30 days The debtors’ days stood at 34 days for FY23 as against 30 days for FY22. The average credit period allowed to the customers is around 30-35 days. The creditors days stood at 21 days for FY23 against 4 days for FY22. The average credit period received from JSL is around 7 days. The average utilization of the CC limits are around 95 percent for six months ending March ‘2023. Acuité believes that the ability of the company to maintained efficient working capital management will remain a key rating sensitivity.

Moderate financial risk profile
The company has a moderate financial risk profile marked by moderate net worth, low gearing and healthy debt protection metrics. The tangible net worth of the company stood at Rs.51.57 crore as on March 31, 2023(Prov), as against Rs.43.33 crore as on March 31, 2022. The increase in the net worth is due to accretion of profits to reserves. The gearing of the company improved and stood at 0.43 times as on March 31, 2023(Prov), as against 0.51 times as on March 31, 2022. The total debt of the company consists of short-term debt of Rs.21.96 crore as on March 31, 2023(Prov). The company does not have any long-term loans as on March 31, 2023. The interest coverage ratio stood at 10.94 times as on March 31, 2023(Prov), as against 6.13 times as on March 31, 2023. The DSCR stood at 8.41 times as on March 31, 2023(Prov), as against 4.86 times as on March 31, 2022. Acuité believes that the financial risk profile is likely to remain moderate in medium term on account of no major debt funded capex plan of the company.

­Deterioration in the profitability margins
The profitability margins of the company are susceptible to volatility in steel prices. Significant changes in steel prices due to import pressures and over-supply impact the margins of the company. The operating margins have declined and stood at 2.56 percent in FY2023 as against 3.42 percent in FY2022. The margins declined due to increase in the raw material costs as well as increase in the employee costs in FY23. Acuité believes that profitability of the company will remain susceptible to volatility in steel prices in the near to medium term.

Susceptibility to cyclicality nature of industry and competitive nature of industry with supplier concentration
The steel consumption is majorly dependent on the economic activities taking place in and around the country. The end user industry being infrastructure and real state, any significant slowdown in these industries will impact the revenues of steel players. Further, the company competes with various players in the organized and unorganized segments in the steel trading industry and also faces the supplier concentration risk as its procurements are 100% from JSL, thus limiting the pricing power.