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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 38.00 | ACUITE BB+ | Stable | Reaffirmed | - |
| Bank Loan Ratings | 14.00 | - | ACUITE A4+ | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 52.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long term rating of ‘ACUITE BB+’ (read as ACUITE double B plus) and the short term rating of ‘ACUITE A4+’ (read as ACUITE A four Plus) on the Rs. 52.00 crore bank facilities of Spartan Engineering Industries Private Limited (SEIPL). The outlook is ‘Stable’.
Rationale for Rating Reaffirmation The Rating is reaffirmed on account of SEIPL's consistent improvement in business and financial performance. The improvement in the business performance is reflected through the increase in scale of operation in FY2022 of Rs.130.67 Cr as compared to Rs.92.77 Cr in FY2021. The operating margins of the company reduced to 8.30 percent in FY2022 as compared to 11.09 percent in FY2021 as the input cost was high and also the pandemic affected the operations to an extent. Though, the PAT margins improved to 1.86 percent in FY2022 as against 0.97 percent in FY2021. In FY2023 (Prov), the company has generated income of Rs.176 Cr. Further, the operating margins is expected to remain in the range of 11-12 percent over the medium term. Also, the financial risk profile continues to be moderate marked by moderate net worth, moderate gearing, and modest debt protection metrics. The above mentioned rating strengths are partially offset by SEIPL's working capital intensive operations, competitive Industry and exposure to the cyclicality associated with end user industry. |
| About the Company |
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Mumbai-based Spartan Engineering Industries Private Limited (SEIPL), was incorporated in 1988. The company is engaged in the manufacturing and trading of construction equipment and machines. It sells products in India and abroad under various brands namely 'Spartan', 'Sky Plus', 'Elite Aviator' and 'Hercules'. The directors of the company are Mr. Mahendra Pranjivandas Mehta, Mr. Vikram Mahendra Mehta and Mrs. Hiral Vikram Mehta. SEIPL' manufacturing facility is located at Atgaon near Nashik.
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| Analytical Approach |
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For arriving at the rating, Acuité has considered the standalone business and financial risk profiles of Spartan Engineering Industries Private Limited (SEIPL).
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Key Rating Drivers
| Strengths |
| >Experienced management and establish track record of operations
Incorporated in 1988, SEIPL is promoted by Mr. Mahendra Mehta and family. The company started its manufacturing operations in 2006. Mr. Mahendra Mehta, a mechanical engineer by profession, is the founder and chairman of the company and possesses over four decades of experience in the industry. His son, Mr. Vikram Mehta, currently handles the overall business operations and possess over a decade experience in same line of business. The company is well supported by second line of Management. The company markets its construction equipment under the brand names 'Spartan', 'Sky Plus', 'Elite Aviator' and 'Hercules', which enjoy moderate market recognition. It has established longstanding relationships with many reputed customers and suppliers which facilitate favourable pricing terms as well as ensures timely delivery. However, the company's ability to procure raw materials at competitive prices and to pass on any adverse fluctuations in the same to customers continues to be a key determinant of profitability. Acuité believes that the company will continue benefitting from its experienced management and established track record of operations over the medium term. >Moderate financal risk profile The financial risk profile of the company stood moderate marked by moderate net worth, moderate gearing, and modest debt protection metrics. The tangible net worth stood at Rs.15.62 crore as on 31 March 2022 as against Rs.13.17 crore as on 31 March, 2021. The improvement is on account of accretion of profits to reserves. The total debt of the company stood at Rs.59.81 crore which includes Rs.25.56 crore of long-term debt, Rs.3.28 crore of CPLTD, Rs.5.47 crore of Unsecured loans and Rs.25.51 crore of short-term debt as on 31 March, 2022. The gearing (debt-equity) stood moderate at 3.83 times as on 31 March 2022 as compared to 4.50 times as on 31 March, 2021. Interest Coverage Ratio stood at 1.60 times for FY2022 as against 1.40 times for FY2021. Debt Service Coverage Ratio (DSCR) stood at 1.04 times in FY2022 as against 1.06 times in FY2021. Total outside Liabilities/Total Net Worth (TOL/TNW) stood at 7.13 times as on 31 March, 2022 as against 7.61 times as on 31 March, 2021. Net Cash Accruals to Total Debt (NCA/TD) stood at 0.06 times for FY2022 as against 0.03 times for FY2021.
Acuite expects that in the absence of any major capex plan, the financial risk profile of the SEIPL will continue to be remain moderate. >Geographically diversified operations and reputed clientele The company has pan India presence through branches and distributors. It has branch offices in Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, New Delhi, Noida and Pune. SEIPL also exports to Sri Lanka, Nepal and Dubai. And has warehouses at specific location to meet immediate orders. SEIPL's domestic customer profile includes some large players from the real estate and construction industries like Larsen & Toubro Ltd., Tata Projects, Shapoorji Pallonji and Oberoi Realty to name few which reduces counterparty risk and assure recurring flow of orders. Majority of the top ten customers and suppliers of SEIPL have been associated with it for more than a decade. Acuité believes that SEIPL will continue to benefit from its geographically well diversified operations and reputed clientele over the medium term. |
| Weaknesses |
| >Working intensive nature of operations
SEIPL’s operations are working capital intensive in nature marked by high Gross Current Assets (GCA) of 293 days as on March 31, 2022, as against 385 days as on March 31,2021. SEIPL’s inventory days stood at 112 days as on March 31, 2022, as against 157 days as on March 31. The debtor days stood at 160 days as on March 31, 2022, as against 190 days as on March 31, 2021. The average credit period allowed to customers is 90 days. The creditor days stood at 158 days as on March 31, 2022, as against 196 days as on March 31, 2021. The average credit period allowed by suppliers is 90-120 days. The fund based working capital limits remain utilized at an average of 97 percent for the last 06 months ending February 2023. The non-fund-based limits too remain fully utilized generally.
Acuite believes that further elongation in SEIPL working capital cycle will be a key rating monitorable.> Competitive Industry and exposure to the cyclicality associated with end user industry The construction equipment industry is characterised by intense competition both from unorganised players as well as organised and multinational manufacturers. Further this industry is significantly dependent on end user industries namely real estate and infrastructure industry. SEIPL’s operating scale remains range bound. The modest scale of operations limits SEIPL’s bargaining powers with its customers and make its vulnerable to adverse economic cycles. |
| Rating Sensitivities |
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| Material covenants |
| None. |
| Liquidity Position |
| Adequate |
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The company’s liquidity position is adequate, marked by sufficient net cash accruals against its maturing debt obligations. The company generated net cash accruals of Rs.1.54-Rs.3.87 Crore from FY2020-22 against the matured debt obligations of Rs.1.46-Rs.3.48 in the same period. In addition, it is expected to generate a sufficient cash accrual in the range of Rs.11.04-24.74 crore over the medium term against expected matured debt obligations of Rs.4.98-6.18 crore during the same period. The working capital management of the company is intensive marked by GCA days of 293 days in FY2022 as against 385 days in FY2021. The company maintains unencumbered cash and bank balances of Rs.1.66 crore as on March 31, 2022. The current ratio stands at 1.36 times as on March 31, 2022 as against 1.38 times as on March 31, 2021. The average utilization of fund based working capital limits remained highly utilized at approximately 97 percent for the trailing 6-month period until February 2023, while the non-fund-based facilities remain utilized at 100~ percent.
Acuité believes that the liquidity of SEIPL is likely to remain adequate over the medium term on account of adequate cash accruals against its maturing debt obligations |
| Outlook: Stable |
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Acuité believes that SEIPL will maintain a 'Stable' outlook and continue to benefit over the medium term from its experienced management and healthy relations with reputed clientele. The outlook may be revised to 'Positive' in case the company registers strong growth in revenues while improving its profitability,capital structure and working capital management. Conversely, the outlook may be revised to 'Negative' in case of any further stretch in its working capital management, leading to further deterioration of its financial risk profile and liquidity.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 130.67 | 92.77 |
| PAT | Rs. Cr. | 2.43 | 0.90 |
| PAT Margin | (%) | 1.86 | 0.97 |
| Total Debt/Tangible Net Worth | Times | 3.83 | 4.50 |
| PBDIT/Interest | Times | 1.60 | 1.40 |
| Status of non-cooperation with previous CRA (if applicable) |
| India Ratings vide its press release dated 3.6.2022, had rated the company to IND BB+/A4+; Issuer Not Cooperating. |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm • Trading Entitie: https://www.acuite.in/view-rating-criteria-61.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuité's categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.
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