Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

* Promoters’ experience in the steel industry: The promoters have experience of around 4 decades in the steel, electromechanical and infrastructure industries. Mr. Ravi Uppal (key promoter) is the former Managing Director and Chief Executive Officer of Jindal Steel & Power Ltd (JSPL). Prior to that he was Director, Larsen & Toubro Ltd, Managing Director & CEO, L&T Power Ltd, Executive Vice President and Member of Executive Committee of ABB Group Worldwide, President, Asia Pacific for ABB, MD & CEO of ABB India and served as country head of Volvo India. Mr. K. Rajagopal is a chartered accountant by profession with experience of 35 years in manufacturing industries. Prior to this venture, he was Group Chief Financial Officer of JSPL, Global Chief Accountant for ABB Group Worldwide, Chief Financial Officer, ABB Switzerland and ABB India. Mr. Niladri Sarkar also has experience of more than 3 decades in civil, structural design and manufacturing. Prior to promoting SISCOL, he was Chief Marketing Officer of JSPL, Fedders Lloyd Corporation, and Geodesic. Together, the three promoters bring rich experience in all the domains of the steel industry and Project Management. This rich experience and personal relationships with top industry players have helped SISCOL gain knowhow of the steel fabrication industry. This has helped in quickly scaling up the business and collaborating with top players, while getting quick regulatory certifications. It is expected that SISCOL will continue to benefit from its promoters’ experience.

* Healthy growth in revenue and operations: SISCOL started its operations in fiscal 2019 when it recorded revenue of Rs 94.51 crore, which doubled to Rs 208 crore in fiscal 2020. In fiscal 2021, the revenue decline slightly to Rs 196.89 crore. However, the scale of operations (by volume) was higher by around 7%. The decline in revenue was only because some projects were executed using materials provided by the client. In the first quarter of fiscal 2022, the company has already recorded revenue of ~Rs 64 crore and is expected to surpass the previous year’s revenue by above 40%.

* Strong operating efficiency: Supported by rich promoter experience and operating with asset light model of manufacturing and deployment of contemporary electronic management tolls, the management has been able to achieve healthy operating efficiency. This is reflected in robust operating profitability of 11.28% in fiscal 2021, which has improved from 9.15% in the previous year with expectation of around 11% operating margin, going forward. Also, the return on capital employed (RoCE) has been robust at around 28% and 27% in fiscals 2021 and 2020, respectively. The working capital cycle is efficiently managed.

* Reputed customer base: Since inception, the company has been working with top reputed engineering, procurement, and commissioning (EPC) companies, such as Larsen & Toubro Ltd, Tata Projects Ltd, Tata Steel Limited, Dilip Buildcon Ltd, KNR Constructions Ltd, L&T Hydrocarbon Engineering Ltd, Shapoorji Pallonji Group, Towell Engineering International, SHREM Airport Hotel Pvt Ltd and Multinational EPC companies such as Technimont, Technip, ThyssenKrupp. Toyo Engineering etc. It has done exports to Bangladesh and Indonesia through Indian EPC contractors. It has operations in all three segments in the fabrication industry - industrial fixed assets, public infrastructure (flyovers and bridges) and buildings. It has worked on prestigious projects, such as the Delhi International Airport, Bengaluru (Bengaluru) International Airport, Dwarka convention Center in Delhi, refinery projects, mines, power plants steel plants and many complex rail bridges /road Bridges

* Proximity to raw material producing belt: The manufacturing location of SISCOL is near JSPL and Steel Authority of India Ltd’s Bhilai steel plant along with other steel producers in the states of Chhattisgarh and Jharkhand. This helps SISCOL in getting timely delivery of raw material as per manufacturing requirements. This also helps the company to carry exceptionally low or zero non-order- backed inventory.

* Geographically diversified service base and diversified projects support: Though SISCOL’s manufacturing facility is in Bhilai, Chhattisgarh, it has supplied to projects across different states in India and abroad. Its corporate office is in New Delhi with design office in Bengaluru, Karnataka, and marketing offices in Mumbai, Hyderabad, and Chennai along with an installation office in Chennai. This has helped SISCOL to supply fabricated products to various locations, including the difficult terrain of extreme northeast (Arunachal Pradesh). It also provides full support across the value chain of the industry. They provide designing, engineering, procurement, fabrication, installation, and erection services as well. This helps to attract more customers.

Weaknesses:

* Risk related to tender-based nature of business: SISCOL secures most of its tender based orders from large EPC players who in turn get their tenders majorly from government entities. Though decision to award a tender is not always based on lowest price but various qualitative factors and track record it will continue to remain exposed to the risk of tender based business to some degree. Additionally, the engineering and capital goods industry is cyclical as its performance is linked to the overall economy. The company’s business risk profile will remain susceptible to cyclicality in the industry.

* Risk related to competition from domestic and established players: The industry is dominated by large players, such as JSPL, JSW Steel Ltd and TATA Steel Growth Shop along with other players. The industry has 11-15 lakh tonne of demand per annum for fabricated products in the organized sector. Also, some contribution is made from the unorganized segment. This has also attracted lot of competition in the domestic market. Old players in the market have longstanding experience and client base and, therefore, they will continue to provide healthy competition to fresh players and constrain new entrants’ ability to make above-average profitability.