Key Rating Drivers & Detailed Description

Strengths:

* Marked presence in civil construction in Pune and an established market position: The promoters have been engaged in the business of civil construction for real estate, commercial and industrial segments, for over three decades, and over the years have developed a sound understanding of the Pune market dynamics and also developed strong relations with reputed clients as well as suppliers. Even though SJCPL derives its entire revenue from projects in Pune and near vicinity, however, company has been executing projects for reputed players and ample opportunities have emerged in Pune real estate market over the past one decade, which thus mitigates the geographical concentration risk to an extent. SJCPL has diversified and well-established players within real estate construction segment such as City Corporation Ltd, Kolte-Patil Developers Limited, Godrej Properties Limited etc. and Volkswagen India Private Limited, Serum Institute of India, etc. under industrial construction segment. On the back of promoters’ extensive experience, company has been able to deliver high quality projects within the timelines which has also led to SJCPL receiving repeat orders from its clients. The revenue has grown at a CAGR of 36% over the last three fiscals to record Rs 592.5 crore in fiscal 2020. SJCPL’s moderate scale of operations provides it an operating flexibility in an intensely competitive industry. Company has successfully been able to ramp up its operations in an expedited manner, and the same is reflected in revenue of Rs 178 crore for 8M FY21. Company has been receiving repeat orders from its clients on a regular basis. Also, since the company has been associated with reputed clients, the order book has remained resilient to COVID-19 pandemic. Company has a healthy order book of Rs 983.81 crore as on December 20, 2020, which provides a healthy revenue visibility. The order to sales ratio is 1.3 times for the next 16 months.

* Sound operating efficiencies: SJCPL’s operating margin was healthy at 11% in fiscal 2020 and company has shown consistent track record of maintain healthy operating margin in the range of 11-13% over the last four fiscals ended 2020. SJCPL’s healthy operating efficiencies are also reflected in healthy return on capital employed (RoCE) of 28-31% over the last three fiscals ended 2020.

* Healthy financial profile: SJCPL has a strong networth of Rs 100.7 crore as on March 31, 2020, backed by the healthy accretion to reserves. Consequently, the capital structure has been healthy, reflected in gearing of 0.68 time as on March 31, 2020. SJCPL’s debt protection measures have also been at healthy level due to moderate reliance on external debt and healthy profitability. The interest coverage and net cash accrual to adjusted debt (NCAAD) ratios were 7.98 times and 0.69 time, respectively in fiscal 2020. With no major debt funded capex plans over the medium term, the financial risk profile metrics will remain healthy.

Weakness:

* Geographical concentration risk in revenue profile: SJCPL has high geographic concentration in its revenue profile. The company derives about 100% of its revenue from Pune and near vicinity. Thus, any slowdown in these economies may adversely affect the financial and business performance. However, ample opportunities have emerged in Pune real estate market over the past one decade, which thus mitigates the geographical concentration risk to an extent.

* Exposure to real estate sector: SJCPL generates around 80% of its revenue from real estate segment and hence is exposed to cyclicality of real estate sector. However, company has a track record of executing projects for reputed clients in residential, commercial and industrial segments. Furthermore, the company has its own screening process for evaluation of prospective clients. This mitigates the risk of exposure to real estate sector.

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