­Established track record, extensive industry experience of the promoters
SIL is a part of AM International group since 2006, headquartered in Singapore. Mr. Ashwin Muthiah is the founder and chairman of AM International group. AM International group diversified its operations into various sectors like Fertilizers & Supply Chain, Petrochemicals, Infrastructure Services, Medtech and Green Solutions. Its operations are spread across 8 countries in South East, South & West Asia and Europe. SIL is Chennai-based Company and engaged in trading of building material and Power & Control Systems, and also manufacture drums, cables, boat building and specialty chemicals. SIL is a single point of contact for supplying the building materials and it has a network of 15 sales offices cum warehouses across India. Present at multiple locations provides diversification in terms of geography as well as commodities to be handled based on the geographical demand. This shall enable the company to acquire new clients with better rate realisation and ensure steady business. SIL sources materials from different manufacturers and supplies to its customers. Major suppliers include Tata Steel BSL Ltd, Jindal Pipes Limited, Tata Steel Limited, Jindal Steel & Power Ltd, , Apl Apollo Tubes Ltd, Jindal (India) Limited, Finolex Cables Limited, Bhushan Power & Steel Limited, Maharashtra Seamless Limited while its customer base includes contractors, builders and industrial buyers. Acuité believes that the well-experienced directors and professional and experienced management in the building material supply industry, established relations with its stake holder's shall enable its future growth.

Stable and  diversified revenue stream with range bound operating margins:
Revenue of the stood at Rs.438.74Cr during FY23 which was marginally declined from Rs.442.84Cr of FY22 on account of low sales realisation during the year. SIL has reported revenue of Rs.229.19Cr till H1FY24 posting a growth rate of ~12 percent on previous year revenue of Rs.205.33Cr for the same period. This growth in current year is attributable to improved realisations in trading segment. SIL has a diversified stream of revenue with trading goods contributing around 84-86%, manufacturing goods contributing around 11-14 % and 2-3 % from services and other operating revenues to the total income in FY23 and FY22. Diversity in trading & manufacturing aids the company in reducing the concentration risks as well cyclicality associated with a particular commodity or industry to an extent.

The company's EBITDA margins are range bound at 3.4-3.8 percent over the past three years. During FY23 the company’s EBITDA margin has been marginally declined to 3.41 percent from 3.84 percent of previous year on account of low realisation rates. However, EBITDA margin is expected to improve slightly in FY24 on account of improved realisations during the H1FY24. PAT margin of the company has significantly improved during FY23 to 3.90 percent against 0.23 percent of previous year’s. The improvement is due to earlier advances writtenoff during the year. 

Healthy financial risk profile
SIL financial profile is healthy as marked by healthy capital structure, comfortable coverage indicators and healthy liquidity. The networth is healthy at around Rs 414.27 Cr as on March 31, 2023 as against Rs.406.20 Cr as on March 31, 2022, backed by steady accretion to reserves. The capital structure remains healthy with gearing of 0.11 times and Total outside Liabilities to Tangible Net Worth (TOL/ TNW) below 0.20 times for past three years through as on March 31, 2023 due to limited capex requirements and resulting in low external borrowings. The company's coverage indicators are comfortable indicated by interest coverage ratio (ICR) 6.85 times and Net Cash Accruals (NCA)/Total Debt (TD) stood at 0.49 times for FY23 vis-à-vis 0.23 times in FY2022. Debt service coverage ratio stood at 6.24 times during FY23 against 2.88 times of previous year.
Acuité believes that financial risk profile will remain healthy over the medium term, supported by healthy accrual, nil long-term debt, and adequate liquidity with no significant debt-funded capital expenditure plans in near future.

Moderate intensive working capital operations
The company's working capital is moderately intensive in nature as reflected by its Gross Current Asset (GCA) days of around 150-160 days during last 3 years ended with as on March 31, 2023. SIL offers credit period of around 45 -60 days to its customers during. Its inventory days stood at 42-57 days during last 3 years ended March 31, 2023. All its purchases are against payment only leading to moderate utilisation of its working capital limits at about 44 per cent for last 12 months ending October 2023. Acuité believes that with competitive and trading nature of operations, the company needs to maintain inventory while offering credit keeps the operations working capital.

Thin profit margins and intense competition in a fragmented and commoditised market
SIL’s OPM remains modest due to limited value addition and the intensely competitive nature of the business. Despite the expected improvement in FY24 due to inventory gains, the operating margin is expected to remain in the range of 3-5% in the near-to-medium term. The Company’s operations are trading of Building Materials such as Steel Pipes, Steel, PVC Pipes, Cables, Power & Control Equipment, Spares and others. As the market is highly fragmented and commoditised, it faces price-based competition that keeps the operating profitability under check.