| Established track record of operations and healthy order book position providing medium term revenue visibility:
SEPL is promoted by Mr. Venkata Krishna Mohan Yelamanchi, who has more than 3 decades of experience in civil construction business. SEPL is a special class contractor and undertakes civil construction activities primarily engaged in supplying of ballast to Indian railways and road and rail contract works. The company is involved in execution of contract works for government departments such as Roads & Buildings (R&B) department, irrigation department of Andhra Pradesh, Panchayat Raj, municipal corporations, Rail Vikas Nigam Limited, Ministry of Road Transport & Highways (MORTH), National Highway Authority of India (NHAI). Promoters’ extensive experience and established track record of operations and past track record of completion of projects has helped the company in bidding and awarding the government projects. Currently, SEPL has an unexecuted order book position of Rs.680 Cr as on June 30, 2023 to be executed in 12-24 months which is ~2.7 times of FY23 revenue providing adequate revenue visibility over the medium term..
Stable growth in operations with range bound operating margins:
The scale of operations of the company have been improving over the period. The revenues stood at Rs.251.90 Cr in FY23(Prov.) against Rs.215.29Cr in FY22. The growth in revenue is on account of presence of healthy order book throughout the year. EBITDA margins are in the range of 10-12 percent during the past 3 years. During FY23 (Provisionals) the company has reported EBITDA margin of 12.68 against 10.43 percent during FY22. Improvement in EBITDA margin is on account of execution of National highway works and cost efficiencies due to availability of key raw material i.e ballast in-house.
SEPL has reported revenue of Rs.164Cr during the first 5 months of FY24 (April to August) and expected to register revenue in the range of Rs.350-375Cr by the end of FY24. This significant growth in revenue is mainly on account of timely execution of the Railway and National highway works. Delayed monsoon has helped in timely execution of the works during the first 4-5 months of FY24. Operating margins are expected to be around 12.5 to 13 percent for FY24 as the company has an advantage of cost control through supply of its own ballast for the highway works.
Moderate Financial risk profile:
The financial risk profile of the company has remained moderate with moderate capital structure and debt protection metrics. The net worth of the company stood at Rs.61.89 Cr and Rs.49.91 Cr as on March 31, 2023(Prov.) and 2022 respectively. Improvement in net worth is primarily on account of accretion of profits to the reserves and infusion of equity capital of Rs.2.20 Cr during the year. The gearing of the company remained healthy over the last 2 years, SEPL’s gearing marginally deteriorated, as it rose to unity as on March 31, 2023(Prov) against 0.80 times of previous year. The deterioration is due to increase in long term debt. The company availed long term debt of Rs.30 Cr in FY2023 towards procurement of equipment. Debt protection metrics – Interest coverage ratio and debt service coverage ratio stood at 3.46 times and 1.63 times as on March 31, 2023(Prov.) respectively as against 3.19 times and 1.06 times as on March 31, 2022 respectively. The improvement in debt protection metrics is on account of improved EBITDA during FY23. TOL/TNW stood at 1.52 times and 1.40 times as on March 31, 2023(Prov.) and 2022 respectively. The debt to EBITDA of the company stood at 1.74 times as on 31 March, 2023(Prov.) as against 1.72 times as on 31st March, 2022.
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| Moderate Working capital management:
The working capital management of the company remained moderate with moderate GCA days at 129 days as on March 31, 2023(Prov.) as against 112days as on March 31, 2022. Inventory days stood at 47 days as on 31st March, 2023(Prov) as against 13 days as on 31 March, 2022. Inventory majorly consist of work-in-progress. Subsequently, the payable period stood at 88 days as on 31st March, 2023(Prov.) as against 133 days as on 31st March, 2022 respectively. The debtor day stood at 39 days as on 31st March, 2023(Prov.) as against 72 days as on 31st March, 2022. Further, the average bank limit utilization in the last six months ended June, 23 remained at ~89 percent for fund based and 57 percent for non-fund based. Acuite believes that working capital operations of the company will remain moderately intensive over the medium term.
Tender based nature of operations and Competitive and fragmented industry
SEPL participates in tenders w.r.t work related to Indian Railways. No Earnest Money Deposit (EMD) or Bank Guarantee (BG) to be submitted while quoting the tender. Once the tender is awarded, 1 percent of the performance guarantee is to be submitted. After allocating the work to the company, it is eligible for 5 percent mobilization advance and 5 percent machinery advance. In ballast segment supply, a depo will be called for a tender for 3 to 4 years for supplying of 3 lakh cubic metres of ballast supply. After raising the bill, the company receives payment in a week after deducting 5 percent as retention money, this is to ensure that the party will be supplying the tender quantity over the remaining period of time. This retention money is released at the time of last bill raised. Whereas for the road and railway works; 7.50 percent is held by the authority. 5 percent is released at the time of last bill and 2.50 percent after the defective liability period. The company is engaged as a civil contractor. The particular sector is marked by the presence of several mid to big size players. The company faces competition from the other players in the sectors. Risk becomes more pronounced as tendering is based on a minimum amount of bidding of contracts. However, this risk is mitigated to an extent as the promoter has been operating in this industry for the last 3 decades.
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