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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 4.50 | ACUITE BB | Reaffirmed & Withdrawn | - |
| Bank Loan Ratings | 2.00 | ACUITE BB | Stable | Assigned | - |
| Bank Loan Ratings | 20.00 | ACUITE BB | Stable | Reaffirmed | - |
| Bank Loan Ratings | 6.00 | - | ACUITE A4+ | Assigned |
| Bank Loan Ratings | 13.00 | - | ACUITE A4+ | Reaffirmed |
| Bank Loan Ratings | 3.50 | - | ACUITE A4+ | Reaffirmed & Withdrawn |
| Total Outstanding Quantum (Rs. Cr) | 41.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 8.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE BB’ (read as ACUITE double B) and the short term rating of ‘ACUITE A4+’ (read as ACUITE A four plus) on the Rs.33.00 crore bank facilities of Spectron Engineers Private Limited (SEPL). The outlook is ‘Stable’.
Acuité has also assigned the long-term rating of ‘ACUITE BB’ (read as ACUITE double B) and the short term rating of ‘ACUITE A4+’ (read as ACUITE A four plus) on the Rs.8.00 crore bank facilities of Spectron Engineers Private Limited (SEPL). The outlook is ‘Stable’. Acuité has also reaffirmed and withdrawn the long-term rating of ‘ACUITE BB’ (read as ACUITE double B) and the short term rating of ‘ACUITE A4+’ (read as ACUITE A four plus) on the Rs.8.00 crore bank facilities of Spectron Engineers Private Limited (SEPL). The rating is being partially withdrawn on account of request received from the client and No dues certificate received from the banker. The rating withdrawal is in accordance with Acuité's policy on withdrawal of rating. Rationale for rating reaffirmation The rating reaffirmation takes into account SEPL’s moderate financial risk profile along with experienced management and established track record of operations. The rating also draws comfort from company’s reputed clientele over the years. The rating is however constrained by the company’s stagnant revenue for the last two years with declining operating profitability and highly working capital intensive operations. Nonetheless, the ability of the company to improve its scale of operations while improving its operating profitability and efficient management of working capital cycle over the medium term will continue to remain a key rating sensitivity factor going ahead. |
| About the Company |
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SEPL incorporated in the year 1995, is engaged in undertaking operation and maintenance of oil and gas fields, fabrication of industrial-grade equipment, installation and maintenance of security and surveillance systems and waste management services. The company has its registered office located in Mumbai, Maharashtra.
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| Analytical Approach |
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Acuité has considered the standalone business and financial risk profiles of the SEPL to arrive at this rating.
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Key Rating Drivers
| Strengths |
| Experienced management with an established track record of operations and reputed clientele
SEPL has an established track of operations of more than two decades and it is led by Mr. O K Varghese, Chairman & Managing Director, who possess over three decades of experience in the oil and gas industry. He is further supported by other directors and its well experienced technical team in each department. The company started its operations in oil & gas industry and later expanded its operations into manufacture of surveillance products and waste management services. The company is maintaining long standing relations with some of its reputed clients namely Oil India Limited, ONGC, Bharat Electronics Limited, Nuclear Power Corporation of India Limited amongst others. Acuité believes that SEPL’s experienced management with an established track record of operations and its reputed clientele are expected to support in improvement of its business risk profile over the medium term. Moderate financial risk profile Financial risk profile of SEPL is moderate marked by moderate networth, low gearing and average debt protection metrics. The networth of the company has improved and stood moderate at Rs.21 Cr as on 31 March, 2022 as against Rs.18 Cr as on 31 March, 2021 on account of moderate accretion to reserves. The gearing (debt-equity) improved yet remain moderate at 1.35 times as on 31 March, 2022 as against 1.54 times as on 31 March, 2021. The gearing of the company is however expected to improve and remain low over the medium term on account of absence of any debt funded capex plans in the future. The total debt outstanding of the company stood at Rs.28 Cr as on 31 March, 2022 which majorly consists of long term bank borrowings of Rs.13 Cr and short term bank borrowings of Rs.15 Cr. The interest coverage ratio remains moderate at 2.49 times for FY2022 as against 2.36 times for FY2021 while the DSCR stood deteriorated to 1.71 times for FY2022 as against 2.03 times for FY2021. The Net Cash Accruals to Total debt stood at same level of 0.14 times for FY2022 and FY2021. The Total outside liabilities to Tangible net worth stood improved at 2.20 times for FY2022 as against 2.56 times for FY2021. Acuité believes that the financial risk profile of SEPL will remain moderate over the medium term on account of low debt levels vis-à-vis moderate tangible net worth and average debt protection metrics. |
| Weaknesses |
| Stagnant revenue and declining operating profitability
SEPL reported stagnant revenue of Rs.74.38 Cr for FY2022 and Rs.73.99 in FY2021, on account of executing less orders during the year considering the impact of covid induced restrictions. Due to the same, the supply of various equipments like Gas meters, Gas detectors and other security and surveillance systems which are imported from countries like USA, Israel & China were affected and due to which the company was not in a position to complete the required orders of installation and maintenance of these equipments at various sites of its projects. In addition to this, the site clearance issues and pending major civil works of company’s clients has also resulted in executing less orders during the year. The unexecuted order book of the company as on 31st October 2022 stands at Rs.165 Cr which provides moderate revenue visibility over the near term. Further, the operating margin of the company also declined to 10.28 percent in FY2022 as against 11.45 percent in FY2021 on account of subsequent increase in employee and service costs during the year. On the other hand, the net profit margin of the company improved to 4.07 percent in FY2022 as against 3.76 percent in FY2021 on account of marginal decline in the depreciation and interest cost during the year. Acuité believes that SEPL’s ability to improve its scale of operations and operating profitability in near to medium term will remain a key rating sensitivity factor. Working capital intensive operations The operations of SEPL are working capital intensive in nature marked by high Gross Current Assets (GCA) of 215 days for FY2022 as against 202 days for FY2021. The high GCA days is majorly on account of high receivables days during the same period which stood at 126 days for FY2022 as against 130 days for FY2021. In general, the company provides credit period of upto 60 to 90 days to its customers for making the payment, however depending upon the nature of the work and the site clearance issues of the various projects, the realisation of receivables was impacted. Due to which the creditors also get stretched and it stood at 210 days for FY2022 as against 101 days for FY2021. On the other hand, the inventory cycle of the company stood lower at 8 days for FY2022 as against 10 days for FY2021. Acuité believes that SEPL’s ability to improve its working capital cycle over the medium term will remain a key rating sensitivity factor. |
| Rating Sensitivities |
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| Material covenants |
| None |
| Liquidity position - Adequate |
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SEPL has adequate liquidity position marked by adequate net cash accruals (NCA) to its maturing debt obligations. The company generated cash accruals in the range of Rs.3 Cr to Rs.4 Cr during FY2020 to FY2022 against its repayment obligation in the range of Rs.1 Cr to Rs.2 Cr during the same period. Going forward the NCA are expected in the range of Rs.4 Cr to Rs.5 Cr for period FY2023-FY2024 against its repayment obligation of upto Rs.2 Cr for the same period. The working capital operations of the company are highly intensive marked by its gross current asset (GCA) days of 215 days for FY2022 as against 202 days for FY2021 on account of high receivables cycle during the same period. The average bank limit utilization for 6 months’ period ended September 2022 stood moderate at ~63 percent. Current ratio stands at 1.29 times as on 31 March 2022. The company has maintained cash & bank balance of Rs.5 Cr in FY2022.
Acuité believes that the liquidity of SEPL 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 SEPL will maintain 'Stable' outlook over the medium term on account of its experienced management with an established track record of operations and its reputed clientele. The outlook may be revised to 'Positive' in case of significant and sustained growth in revenue and profitability while effectively managing its working capital cycle and keeping the debt levels moderate. Conversely, the outlook may be revised to 'Negative' in case of lower than expected growth in revenue or deterioration in the financial and liquidity profile most likely as a result of higher than envisaged working capital requirements.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 74.38 | 73.99 |
| PAT | Rs. Cr. | 3.02 | 2.78 |
| PAT Margin | (%) | 4.07 | 3.76 |
| Total Debt/Tangible Net Worth | Times | 1.35 | 1.54 |
| PBDIT/Interest | Times | 2.49 | 2.36 |
| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Service Sector: https://www.acuite.in/view-rating-criteria-50.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. Acuite’ 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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