­Long track record of operation and experienced management-
SEL is an Odisha based company, which was incorporated in 1972 as a partnership firm, and constitution was changed in 2008. The entity since inception has been engaged in design, supply, erection, commission and testing of electrical substations for various government organizations. The entity was promoted by Mr. Sudhansu Sekhar Palo who has more than four decades of experience in transmission tower and electrical sub-station business. The other directors Mr. Sidhartha Palo and Mrs. Madhuri Palo also have more than two decades experience in aforementioned industry. The longstanding experience of the management and long track record of operations have helped the company to establish relationship with reputed clients such as Power Grid Corporation of India, OPTCL etc. The company has a long presence in this sector and has established a healthy relationship with customers for more than a decade.

Healthy Profitability margin
The operating profitability margin of the company stood healthy at 14.16 per cent in FY2022 as compared to 14.75 per cent in FY2021. This slight deterioration in operating profitability is on account of increase employee cost and administrative cost during the period. Going forward, Acuite believes the profitability margin of the company will be sustained at a healthy level over the medium term backed by their focus on the bottom line and bid in project accordingly. Further, the operating profitability margin of the company also stood healthy at 16.78 percent during 9MFY2023.

The net profitability margin of the company stood healthy at 5.02 per cent in FY2022 as compared to 5.57 per cent in FY2021.

Above average financial risk profile
The financial risk profile of the company is marked by modest net worth, low gearing and moderate debt protection metrics. The net worth of the company stood modest at Rs.56.12 crore in FY2022 as compared to Rs.51.27 crore in FY2021. This improvement in networth is mainly due to the retention of profit during FY2022. The gearing of the company stood at 0.76 times as on March 31, 2022 when compared to 0.58 times as on March 31, 2021. Interest coverage ratio (ICR) is comfortable and stood at 2.05 times in FY2022 as against 2.04 times in FY2021. The debt service coverage ratio (DSCR) of the company also stood comfortable at 1.28 times in FY2022 as compared to 1.76 times in the previous year. The net cash accruals to total debt (NCA/TD) stood moderate at 0.13 times in FY2022 as compared to 0.19 times in the previous year. Going forward, Acuite believes the financial risk profile of the company will remain comfortable on account of moderate net cash accruals and no major debt funded capex plan over the near term.

­Moderate scale of operation –
The revenue of the company stood moderate at Rs.94.65 crore in FY2022 as compared to Rs.93.78 crore in the previous year. Currently the company has booked Rs.87.98 crore till 31st December 2022 (prov). Going forward, Acuite believes that the revenue of the company will be maintained at moderate level backed by a healthy orderbook of Rs.247.62 crore as on November 2022.

Working capital intensive nature of operation –
The working capital management of the company is marked by high gross current asset (GCA) days of 414 days in FY2022 as compared to 327 days in the previous year. This high GCA days is on account of high debtor days of 314 days in FY2022 as compared to 244 days in the previous year. The inventory days of the company stood high at 107 days in FY2022 as compared to 89 days in the previous year. This high inventory is due to work-in- progress inventory pile up during the year end. Acuité believes that the ability of the company to manage its working capital operations efficiently will remain a key rating sensitivity.