Key Rating Drivers & Detailed Description

Strengths:

Extensive experience of the promoters: The six-decade-long experience of the promoters, and their healthy relationships with large clients, will continue to support the business. Clients include the Indian Oil Corporation Ltd ('CRISIL AAA/Stable/CRISIL A1+'), Larsen & Toubro Ltd ('CRISIL AAA/Stable/CRISIL A1+'), Bharat Heavy Electricals Ltd ('CRISIL AA-/Negative/CRISIL A1+'), Bharat Petroleum Corporation Ltd ('CRISIL AAA/Stable/CRISIL A1+'), Hindustan Petroleum Corporation Ltd ('CRISIL AAA/Stable/CRISIL A1+'), Tata Projects Ltd (CRISIL A1+) amongst others.

Moderate financial risk profile: Financial risk profile is marked by a networth and moderate total outside liabilities to adjusted networth of Rs 42.10 crore and 1.5 time, respectively, as on March 31, 2022. Debt protection metrics remained moderate, marked by interest coverage and net cash accrual to adjusted debt ratios of 3.98 times and 0.10 time, respectively, for fiscal 2022.

Weaknesses:

Large working capital requirements: Operations are likely to remain working capital-intensive as reflected in gross current assets of 199 days as on March 31, 2022, driven by large inventory and high debtors of 128 days and 124 days.

Low return on capital employed (RoCE): Moderate operating margin in the range of 5.5-7.0% and large working capital requirements has resulted in low ROCE of 2-4% over past 3 years through fiscal 2022, While operating margin has moderated to around 3.5% in H1 of fiscal 2023, it is expected to improve and will remain monitorable.

Rating Sensitivity factors

Upward factors:

• New orders resulting in sustained revenue growth and an operating margin of around 7%.
• Sustenance of financial risk profile.
• Improvement in working capital cycle.

Downward factors:

• Decline in net cash accrual to below Rs 2.5 crore.
• Increase in working capital requirements, any large debt-funded capex or acquisition, or significant dividend pay-out, weakening the financial risk profile, particularly liquidity.

Key Financial Indicators

Annexure - Details of Instrument(s)

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