Key Rating Drivers & Detailed Description

Strengths:

Established market position in niche segment

The extensive experience of the promoters and their presence in the industry for more than 4 decades have benefited the group as reflected in revenue grown at CAGR of 15% during past three years to over Rs 104 crore in FY22 (reflects y-o-y growth of 36%). The group started operations with small scale of operations and over the years, group has done product diversification and capacity expansion and subsequent successfully ramp up in scale of operations supporting overall business risk profile. Over the period, distributors/dealers network of group had strengthened with dealers of over 1500 as of now. Group also increased its presence on export market with revenue from export market increasing to around 30% in past three years ended FY22. 

Comfortable financial risk profile

Group has a comfortable capital structure with expected net worth and gearing of around Rs 47 crore and 0.73 times respectively as on March 31, 2022. Its moderate reliance on external borrowing and funding support from promoters with USL of Rs 7.6 crore as on March 31, 2022 has led to comfortable financial risk profile despite various capital expenditure (capex) in past years. The debt protection measures remain healthy with interest coverage and net cash accrual/ adjusted debt around 5.3 times and 32% respectively for FY22. In absence of large debt funded capex and lower reliance on external borrowings, the financial risk profile expected to strengthen over the medium term.

Weakness:

Susceptibility of margin to volatility in raw material prices and low value addition

The operating margins of group are susceptible to volatility in prices of raw material and power/fuel cost; however, its impact is limited on account of supply of gas at lower price. Since input price varies, operating margin have marginally declined to 18% in FY22 (against 22.7% in FY21). Operating margin of group exposed to volatile prices of power/fuel cost and raw materials over the medium term. However, group can pass on fluctuated price on customer to some extent.

Working capital intensive operations

The operations of group are working capital intensive as reflected in gross current asset (GCA) days of 204 days in FY22, although slightly declined from 240 days in FY21 due to decline in inventory days. Group has debtors of 62 days and an inventory of 157 days in FY22. Relaxed credit terms from suppliers supporting overall working capital requirement. Over the medium term, GCA days are expected to remain in range of 200-240 days.

Key Financial Indicators (Consolidated)

Annexure - Details of Instrument(s)

Annexure – List of entities consolidated

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