| Experienced management, established track record of operations and wide distribution network
SPIPL has established presence of over a decade in PVC, CPVC trading industry since 2002. The key promotor Mr. Rohit Parmar has more than two decades of experience in the same line of business. The extensive experience of the key promoter and established presence in the industry has helped company in developing long standing relationship with its customers and suppliers. Further, the company is well supported by second line of management. The same is reflected through improvement in scale of operations which has grown at a CAGR of 38% during last three years from Rs.1195.60 Cr in FY2021 to Rs. 2290.47 Cr in FY2023. Additionally, the company has wide distribution network with 10 strategically located warehouses and port establishments with Pan-India presence. It has five major warehouses in the port areas of Nhava Sheva, Kolkata, Chennai, Mundra and Pipavav (Gujarat), while the other warehouses are located in New Delhi (catering to North Indian market), Indore (Madhya Pradesh), Daman (Gujarat), and Pune and Kolhapur (Maharashtra, OPaL warehouses). Further, the company has customers across the most remote places in India and reaching over 395 locations in 24 states. SPIPL uses its widespread port establishments to route shipment towards the required region of demand, efficiently managing its inventory and fulfilling customer orders.
Acuité believes the company will continue to benefit from the extensive experience of the promotors, and established business presence, in the near to medium term.
Revenue growth albeit inventory losses in FY23
The scale of operations of the company have increased to Rs. 2290.84 crore in FY23 registering a 36% growth from Rs. 1684.35 Cr in FY2022 on a consolidated level. The company sold around 2,27,470 MT quantity in FY2023 against 1,25,331MT in FY2022 marking an 81% increase in the volumes. The growth in volumes was moderated by decline in the average sales realisation mostly that of PVC, PE and PP that exhibited a 39 to 48% decline as compared to previous fiscal. Further, the company reported revenues of Rs. 1922.84 crore in 9M FY2024 mainly contributed by the increased volumes. The company is expected to report ~Rs.2400-2500 crore in FY24. Notwithstanding, the growth in the revenues, the company witnessed a decline in the profitability in FY23 and Q1FY24 due to the inventory losses emanating from the sharp decline in the polyvinyl chloride (PVC) prices. Though, the company’s margins recovered from Q2FY2024 as per provisional financials.
|
| Moderation in financial risk profile; operating cycle remains low
The financial risk profile of the company has moderated in FY2023 and Q1FY2024 led by the inventory losses due to steep decline in realisations of PVC and other products, following heavy dumping by China. The company reported net losses of Rs. 39.41 Cr. in FY2023 which resulted in the weakening of its debt protection metrics and the deterioration in the networth to Rs.106.32 Cr. as on March 31, 2023 from 146.56 Cr. as on March 31, 2022. The gearing of the company though increased stood comfortable at 0.75 times as on March 31, 2023 as the company mostly utilises the letter of credit for purchases. The total debt of Rs. 79.53 crore entirely consists of short-term debt and the company doesn’t has any long-term dues. Further, the working capital cycle of SPIPL are comfortable marked by Gross Current Assets (GCA) of 39 days as on March 31, 2023 declined from 56 days as on March 31, 2022 due to reduction in inventory and debtor days. However, the average non fund-based bank limits was utilized at around 85.5% for the last 11 months ended November 2023.
Low operating margins susceptible towards volatility in raw material prices
The operating profitability remains susceptible to volatility in the price of key raw material, PVC resin, which is linked to petrochemical prices and its raw materials. PVC resin accounts for majority of total cost and most of the raw material required for trading is imported, inventory related risks persist. The ability of company to pass on such price fluctuations to its customer remains key challenge in maintaining stable margins. For FY2021, the EBITDA margins stood at around 8.13 percent due to lower cost of raw materials while the margins were corrected during FY2022 and stood at 1.58 percent. In the FY2023, the company has reported operating and net losses mainly on account of decline in the domestic prices in India. The company remains exposed to forex fluctuation risk as it imports 50% of its raw materials. However, it has adequate cover in place to cover such forex fluctuation risk. From Q1FY24, the company has changed its business model from being inventory led business to order-backed model. In order backed model, the company takes the advance orders from their clients on a fixed price resulting in a holding inventory on old prices, this will mitigate the losses that occur due to the price fluctuation on holding stocks, if any during the voyage period. In 9MFY2024, the company reported an operating margin of 1.2% (provisional financials). Although, the interest cost in the current fiscal remains high due to increase in the debt in the subsidiary company which has moderated the key coverage ratios.
Cash flows susceptible to economic slowdown and sluggish demand in end user industry
SPIPL’s operations can be impacted by any economic slowdown, and sluggish demand in the end user industry like Infrastructure, construction, packaging and real estate. In the event of prolonged economic slowdown regular flow of orders and operating performance of players like SPIPL may get impacted. Also, competition in the industry from organized as well as midsize regional traders along with low entry barriers, further constrained by limited product portfolio and low value addition. However, SPIPL's wide network distribution mitigates the entry barrier risk to some extent.
|
