Shirdi Sai Electricals Ltd

Transcription

1 Ratings Shirdi Sai Electricals Ltd Facilities Amount (Rs. crore) Ratings 1 Remarks Long-term Bank Facilities 40 (enhanced from 15) CARE BBB+ (Triple B Plus) Revised from CARE BBB (Triple B) Short-term Bank Facilities 40 (enhanced from 15) CARE A2 (A Two) Revised from CARE A3+ (A Three Plus) Long/Short-term Bank Facilities 144 (enhanced from 74) Total Facilities 224 CARE BBB+ / CARE A2 (Triple B Plus / A Two) Revised from CARE BBB / CARE A3+ (Triple B / A Three Plus) Rating Rationale The revision in the ratings assigned to the bank facilities of Shirdi Sai Electricals Ltd (SSEL) takes into account the improvement in scale of operations of the company during FY14 (refers to the period April 1 to March 31), technical tie-up with Metglas Inc and improved order book position as on July 1, The ratings continue to derive strength from the established and long track record of the promoters in the business, in-house manufacturing of transformers, presence of price-escalation clause in contracts and geographically diversified order book position with most orders being funded either under central government schemes or by international agencies. The ratings are, however, constrained by marginal deterioration in capital structure and a decline in operating margin during FY14. The ability of the company to execute the outstanding order book by sustaining the profitability and ability of the company to maintain its capital structure are the key rating sensitivities. Background Shirdi Sai Electricals Ltd (SSEL) was established as a partnership firm in the year 1994 by Mr N Visweswara Reddy along with his family members to carry out the business of repairing of distribution transformers. Subsequently, the company started manufacturing distribution transformers and power transformers and also started executing (Engineering, Procurement and Construction (EPC) contracts for High Voltage Distribution System (HVDS), for rural electrification under Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), construction of sub-stations and connected lines under Accelerated Power Development & Reform Programme (APDRP) funded by Rural Electrification Corporation (REC), Kreditanstalt fur Wiederaufbau (KFW) Development Bank of Germany and Japan International Corporate Agency (JICA) and Backward Region Grant Fund (BRGF). In December 2012, SSEL also bagged a license from Metglas Inc to import amorphous ribbons and engage in manufacture of core loops which is used in manufacture of Amorphous Metal Core Distribution Transformers (AMDT). Accordingly, SSEL has setup a new unit to manufacture an AM core (which was commissioned in April 2014) at its plant in Kadapa. Credit Risk Assessment Experienced promoters and established track record SSEL is promoted by Mr N Visweswara Reddy, chairman and managing director. He graduated in mechanical engineering and has more than two decades of experience in the transformer industry. He successfully pioneered the company from business of repairing of distribution transformers to manufacturing of distribution transformers and power transformers and subsequently entered into execution of turnkey contracts for High Voltage Distribution System (HVDS), rural electrification and construction of sub-stations. He is ably supported by other management team who has vast experience in the transformer manufacturing industry. SSEL has executed several projects for Southern Power Distribution Company of AP Limited (APSPDCL) and Central Power Distribution Company of AP Limited (APCPDCL) in the last few years. Numerous projects involving conversion of Low Tension (LT) network into High Voltage Distribution System (HDVS) has been executed and implemented by the company. Healthy and diversified order book As on July 1, 2014, SSEL had an order book of Rs.601 crore which is expected to be executed in FY15 & FY16. The order book mainly consists of EPC contracts for HVDS projects and sub-station works constituting orders worth of around Rs.509 crore and the remaining orders worth of Rs.92 crore are for supply of distribution transformers. During April 2014, SSEL bagged orders worth Rs.170 crore from South Bihar Power Distribution Company Limited (SBPDCL) which reduced the concentration of order book from Southern Power Distribution Company of AP Limited (APSPDCL) & Central Power Distribution Company of AP Limited (APCPDCL). The concentration of orders from Andhra Pradesh state discoms decreased from 90% (out of Rs.495 crore order 1 Complete definitions of the ratings assigned are available at and other CARE publications 1

2 book as on August 1, 2013) to 60% (out of Rs.601 crore order book as on July 1, 2014). The remaining 40% orders are from Bihar, Karnataka state discoms and ICOMM Tele Limited. As on July 1, 2014, the order book to sales ratio (for FY14) was around 1.93x. Orders funded through central government grants and international funding agencies minimizing counter party risk Out of Rs.601 crore worth of orders on hand as on July 1, 2014, Rs.458 crore (76% of total outstanding order book) worth of orders are funded through central government agencies like Backward Region Grant Fund (BRGF Scheme), Rural Electrification Corporation (REC Scheme) or by international funding agencies like Japan International Cooperation Agency. The company has an order of Rs.170 crore from SBPDCL funded under BRGF scheme. An order worth Rs crore from APCPDCL in agriculture sector is funded through Japan International Corporation Agency Official Development Assistance (JICA, ODA) loan scheme. The company also has orders worth Rs.169 crore from APSPDCL which were funded under REC Scheme. All the funds pertaining to the projects are under escrow account to ensure the funds are utilised for the allocated projects. The payment terms typically include 10% as mobilization advance on submission of guarantee, 80% on supply and completion of work as per milestones and the remaining 10% is kept as retention money. Long term technical tie-up with Metglas Inc (wholly owned subsidiary of Hitachi Metals America Limited) Unique Green Energy Technologies Private Limited (UGET), group company of SSEL, entered into an agreement for technology transfer with Metglas Inc, a wholly owned subsidiary of Hitachi Metals America Ltd. UGET is the only company licensed by Metglas Inc, to manufacture and market amorphous core loops across India and certain other Asian Nations. Till FY14, SSEL used to purchase amorphous core loops from UGET s Bangalore plant to manufacture amorphous metal core distribution transformers. In December 2012, SSEL also bagged a license for manufacturing of Amorphous Metal core Distribution Transformers (AMDT) for captive purpose. SSEL will import amorphous ribbons from Metglas Inc and engage in manufacture of core loops which is used in manufacture of AMDT. Accordingly, SSEL has setup a new unit to manufacture an AM core (which was commissioned in April 2014) at its Kadapa plant. With in-house manufacturing of AMDT, SSEL can manage raw material lead time and improve the operational efficiency. In-house manufacturing facilities & price escalation clause SSEL derives revenues primarily from two streams, ie, EPC contracts in power distribution & rural electrification and manufacturing of transformers with revenue contribution of around 75% from EPC and 25% from transformers sales. Generally, the company executes turnkey projects involving conversion of low tension distribution lines to high voltage distribution system. Distribution transformers constitute 60% of the project cost in such projects. SSEL have in-house capacity of manufacturing distribution transformers, which results in better margin from EPC contracts and an edge over its competitors. SSEL undertakes turnkey contracts mainly form APCPDCL, APSPDCL and SBPDCL, and most of these contracts have price escalation clause (70% of order book from EPC segment) which shield company to certain extent from fluctuations in raw material prices. The maximum price escalation allowed for supply of transformers is about 30% and for projects it is around 30-50%. Growth in scale of operations and comfortable capital structure SSEL witnessed growth of 32% in its operations during FY14. With better project execution capabilities and sustained growth in order book, the operating income has grown at a CAGR of 11.32% over the last three years period ending FY14. The increase in operating income during FY14 is on account of increase in revenue from project execution division which increased from Rs crore in FY13 to Rs crore in FY14. During FY14, SSEL utilized most of the transformers for their turnkey projects (captive purpose) which led to decrease in sale of transformers from Rs.132 crore in FY13 to Rs.80 crore in FY14. With decline in revenue from manufacturing of transformers and increase in site handling expenses from Rs.2.71 crore in FY13 to Rs crore in FY14, the PBILDT margin declined marginally by 82 bps. Site expenses as a percentage of turnkey revenue increased from 3% in FY13 to 5% in FY14. Despite the decline in PBILDT margin, the PAT margin improved marginally from 3.55% in FY13 to 3.57% in FY14 on account of low interest cost. Though the overall gearing deteriorated from 0.34x as on March 31, 2013 to 0.64x as on March 31, 2014 on account of increase in working capital borrowings, the same continues to remain at comfortable level. Operating cycle of SSEL is comfortable at 41 days, during FY14 as compared with 31 days in FY13 on account of repayment to creditors. The average working capital utilization levels have remained at about 84% for the 12 month period ended August During H1FY15, SSEL achieved operating income of Rs crore with a profit before tax of Rs crore. Exposure to group companies SSEL extended unconditional and irrevocable corporate guarantee to bank facilities of Unique Green Energy Technologies Private 2

3 Limited to total exposure of Rs crore. Overall gearing of SSEL adjusting for the corporate Guarantee extended for UEGT bank loans has deteriorated marginally from 0.94x as on March 31, 2013 to 1.10x as on March 31, UGET has achieved operating income of Rs crore (Rs crore in FY13) in FY14 and PAT of Rs.1.20 crore (Rs.0.69 crore in FY13) in FY14. Prospects The prospects of the company depend on timely execution of orders on hand and ability to improve its profitability on back of in-house manufacturing of transformers. Furthermore, the ability to increase the scale of operations, maintain the capital structure, with an efficient working-capital management, would be crucial. Financial Performance (Rs. Cr) For the period ended / as at March 31, (12m, A) (12m, A) (12m, A) Working Results Net Sales Total Operating income PBILDT Interest Depreciation PBT PAT (after deferred tax) Gross Cash Accruals Financial Position Equity Capital Networth Total capital employed Key Ratios Growth Growth in Total income (%) Growth in PAT (after D.Tax) (%) (9.54) Profitability PBILDT/Total Op. income (%) PAT (after deferred tax)/ Total income (%) ROCE (%) Solvency Long Term Debt Equity ratio (times) Overall gearing ratio(times) PBILDT / Interest (times) PBIT/Interest (times) Term debt/gross cash accruals (years) Total debt/gross cash accruals (years) Liquidity Current ratio (times) Quick ratio (times) Turnover Average collection period (days) Average Inventory (days) Average Creditor (days) Operating cycle (days) A: Audited 3

4 Analyst Contact Name: Ms Jumana Badshah Tel: (This follows our brief rational for entity published on 10 November 2014) Disclaimer: CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. 4

5 CONTACT Head Office Mumbai Mr. D.R. Dogra Mr. Rajesh Mokashi Managing Director Dy. Managing Director Mobile: Mobile: Ms. Meenal Sikchi Mr. Ankur Sachdeva Vice President - Bank Loan & Instrument Rating Vice President - Bank Loan & Financial Services Mobile: Mobile: meenal.sikchi@carerating.com ankur.sachdeva@careratings.com CREDIT ANALYSIS & RESEARCH LIMITED Corporate Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai Tel: Fax: care@careratings.com Other Office: 503, Kaledonia, Sahar Road, Near Andheri Railway Station, Andheri (E), Mumbai Tel: Fax: AHMEDABAD Mr. Mehul Pandya 32, Titanium, Prahaladnagar Corporate Road, Satellite, Ahmedabad Cell: Tel: mehul.pandya@careratings.com BENGALURU Mr. Dinesh Sharma Unit No , 11th Floor, Prestige Meridian II, No. 30, M.G. Road, Bangalore Cell: Tel: , dinesh.sharma@careratings.com CHANDIGARH Mr. Sajan Goyal 2nd Floor, S.C.O , Sector 34-A, Chandigarh Cell: Tel: / 09 sajan.goyal@careratings.com CHENNAI Mr. V Pradeep Kumar Unit No. O-509/C, Spencer Plaza, 5th Floor, No. 769, Anna Salai, Chennai Cell: Tel: / pradeep.kumar@careratings.com HYDERABAD Mr. Saikat Roy 401, Ashoka Scintilla, , Himayat Nagar, Hyderabad Tel: saikat.roy@careratings.com JAIPUR Mr. Rahul Jain 304, Pashupati Akshat Heights, Plot No. D-91, Madho Singh Road, Near Collectorate Circle, Bani Park, Jaipur Cell: Tel: / 14 rahul.jain@careratings.com KOLKATA Ms. Priti Agarwal 3rd Floor, Prasad Chambers, (Shagun Mall Bldg.) 10A, Shakespeare Sarani, Kolkata Cell: Tel: priti.agarwal@careratings.com NEW DELHI Ms. Swati Agrawal 13th Floor, E-1 Block, Videocon Tower, Jhandewalan Extension, New Delhi Cell: Tel: swati.agrawal@careratings.com PUNE Mr. Rahul Patni 9th Floor, Pride Kumar Senate, Plot No. 970, Bhamburda, Senapati Bapat Road, Shivaji Nagar, Pune Cell: Tel: rahul.patni@careratings.com CIN - L67190MH1993PLC