Key Rating Drivers & Detailed Description

Strengths:

Extensive experience of the promoters: The promoter, Mr. Sanjiv Kumar Ganeriwala and his family, have extensive experience in underground mine development and operations. The Burdwan (West Bengal)-based Ganeriwala family has been engaged in design and planning, exploration and development of underground mines for various metals for over one decade, and has developed strong expertise in the mining business. Strong project execution skills are reflected from the association with renowned entities such as Tata Steel Ltd, Hindustan Copper Ltd, Orissa Mining Corporation, and Hindustan Zinc. Within the drilling and exploration segment, the company renders resource consulting, pre-feasibility and feasibility studies, core drilling, specialized and large diameter drilling and rotary mud drilling services. Further, in the underground mining segment, MMPL has diversified into drilling and exploration of various metals and minerals, including copper, uranium, manganese, zinc, coal, bauxite and iron ore. The diversified revenue and customer profile mitigates risk related to any change in government policy in a specific segment, or in the business policy of any specific customers.

Sound operating efficiencies: Operating efficiencies are healthy, as reflected in operating margin of 36.5% and a healthy return on capital employed (RoCE) of 20.25%, estimated in fiscal 2021, driven by high economies of scale and an experienced management. Operating margin should improve going forward, with increased capital expenditure (capex) undertaken in previous years. The aggressive procurement policy and international partnerships have helped the company procure stores, spares, and machinery at very competitive rates.

Strong order book providing revenue visibility over the medium term: The strong unexecuted order book worth around Rs 1,235.08 crore as on March 18, 2021, offers healthy revenue visibility over the medium term. This includes contracts spread over various geographies, including Meghalaya, Tamil Nadu, Orissa, Arunachal Pradesh, Jharkhand, Karnataka, Maharashtra, Rajasthan, which also widen the overall geographical reach. Ability of the company to scale up its resources both in terms of machinery and manpower, for the successful execution of the current order pipeline, remains a key monitorable.

Healthy financial risk profile: Capital structure is marked by strong networth, low gearing and total outside liabilities to adjusted networth ratios of Rs.176 crores, 0.49 time and 0.58 time, respectively, estimated as on March 31, 2021, aided by lower reliance on external debt. Debt protection metrics are also comfortable, due to leverage and healthy profitability.  Interest coverage and net cash accrual to total debt ratios are estimated at 11.67 times and 0.60 time, respectively, for fiscal 2021.

Weakness:

Exposure to stringent regulations on the mining industry: The Indian Bureau of Mines and Ministry of Mines under the respective state governments, govern the domestic mining sector. The Indian Bureau of Mines approves the mining plan, decides the quantum of minerals that can be extracted each year, approves the areas that can be mined, and undertakes periodic inspections/examinations to check the lease holder’s adherence to terms and conditions. Any serious violation of the mining plan or non-compliance with lease terms can lead to a suspension/cancellation. The state government grants concessions, after receiving a prior approval from the central government. As a contractor, MMPL develops mines on behalf of the principal lease holder.

Working capital-intensive operations: Gross current assets (GCAs) were high between 246 and 278 days over the three fiscals ended March 31, 2021, and are estimated to be at 278 days as on March 31, 2021, led by large receivables and inventory. The company needs to extend a long credit period and hence, realization of payments from few parties takes more time. It also needs to hold large work-in-process and stores and spares inventory for smooth operations. Higher the number of sites where work is ongoing, higher are the inventory levels, and vice versa.

Customer concentration in revenue profile: MMPL faces significant customer concentration risk as it derives nearly 91% of sales from its top five customers. Clients include Atomic Mineral Directorate, Hindustan Zinc Ltd, Hindustan Copper Ltd, Tata Steels Ltd, Indian Metal & Ferro Alloys Ltd, MOIL, SMS Infrastructure Ltd, Orissa Mining Corporation, The Singareni Collieries Company Ltd, and Uranium Corporation of India Ltd.  High degree of concentration makes revenue and profitability of MMPL dependent on growth plans of these customers

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