Key Rating Drivers & Detailed Description

Strengths:

• Established market position and distribution network

SIPL has an established position in the distribution of computer hardware- and software-related solutions for the government sector. It trades in all the well-known computer hardware and software brands in the market. The company is a vendor of reputed brands, such as Oracle, HP, Samsung, Microsoft and Adobe. It has also established healthy relationships with local distributers, which it leverages to expand its business. Also, the promoters have experience of more than a decade in the industry.

SIPL has decade-long relationships with its top customers, which makes it a reliable vendor. Also, it has had almost the same suppliers as the ones since its inception, which implies that they are also dependable and reduces supply risk. Additionally, SIPL has over 1,000 government clients and is witnessing year-on-year growth in orders from its top customers, which provides a stable revenue stream. It undertakes manpower-driven maintenance projects, which creates a regular and recurring annual source of revenue, as these are mid-term contracts that are regularly renewed. The top five customers contributed 37.5% to the total revenue in fiscal 2022.

• Average, albeit improving, financial risk profile

The improving financial risk profile stems from moderate net cash accrual (over Rs 11 crore in fiscal 2022) and increase in networth (Rs 58.07 crore as on March 31, 2022 from Rs 18 crore as on March 31, 2018). Progressive debt repayment is expected to improve the gearing to 1.63 times as on March 31, 2022, from 2.72 times as on March 31, 2017. Debt protection metrics were average, indicated by interest coverage and net cash accrual to total debt ratios of 2.48 times and 0.11 time, respectively, in fiscal 2022.

Net cash accrual is expected to almost double to Rs 21 crore in fiscal 2025, and long-term debt is expected to be replaced with short-term debt, which would lead to interest cost declining to 8.5-9% in next fiscal from 11.3% in the current fiscal. This would result in reduction in total debt and improvement in the total outside liabilities to tangible networth (TOLTNW) ratio to 1.75 in fiscal 2025 from 4.71 in fiscal 2018. Interest coverage ratio is expected to improve to 5 times by fiscal 2025.

Weakness:

• Modest scale of operations in the intensely competitive ITES industry

Revenue of SIPL was just over Rs 400 crore in fiscal 2022, which is not on par with average revenue in the large and competitive ITES industry. Also, revenue declined by 9% in fiscal 2022 compared with fiscal 2020 on account of the Covid-19 pandemic and global semi-conductor chip shortage. However, considering the strong order book, with orders worth Rs 425 crore already received for the ongoing fiscal, the scale of operations is expected to improve over the medium term.

• Large working capital requirement

Operations are highly working capital intensive, as reflected in gross current assets of 212 days in the past five years, driven by receivables of 85-142 days. The company is yet to build working capital and channel financing capabilities, and sanction of the new limit yet to be seen.

Key Financial Indicators

Annexure - Details of Instrument(s)

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