Shakti Earth Movers

Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs.7.50 Crs. of Shakti Earth Movers

Particulars

Facility**	Amount (Rs.Crs)	Tenure	Rating*
Fund Based
Cash Credit - Sanctioned	03.50	Long Term	BWR B + (Stable)
Sub Total	03.50
Non-Fund Based
Bank Guarantee - Sanctioned	04.00	Short Term	BWR A4
Sub Total	04.00
Grand Total	07.50	(Rupees Seven Crores and Fifty lakhs Only)

*Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank facilities are provided in Annexure-I KEY RATING DRIVERS

Credit Strengths:

• Proprietor’s Experience: :

  The ratings also factor in the concern’s over 25-year operational track record and its founders-proprietor’s’ experience of over two decades in the construction industry.

• Location advantage: :

  The concern is located in Raisen cluster and thus has a competitive advantage in terms of skilled labor, logistics, production knowledge and vendors making the company more efficient and cost effective.

• Moderate financial profile: :

  Improved gearing (TD/TNW) at 1.28x in FY19 from 1.42x in FY18 . The company has moderate & marginally increased liquidity position, as reflected by current ratio of 1.67 x in FY19 from 1.52 x in FY18. ISCR is moderate and marginally improved to 3.13x in FY19 from 2.89x in FY18 and DSCR is also moderate and marginally declined to 1.70 x FY19 from 1.97x in FY18.

• Moderate profitability though volatility in the past: :

  Moderate & marginally reduced OPM to 21.22% in FY19 from 24.52% in FY18. Moderate & marginally reduced NPM to 8.00% in FY19 from 8.23% in FY18.

• Reputed clientele base: :

  The clientele are generally top public sector / private sector corporates including PWD etc.

Credit Risks:

• Small scale of operation and Inherent risks of govt. projects : :

  Total operating income is low & marginally improved to Rs.14.38 Crs in FY19 from Rs. 10.09 Crs in FY18. On provisional basis , operating income has reduced to Rs. 11.65 Crs in FY20. Few projects are stalled/delayed because of various issues like difficulty in land acquisitions, environmental clearances, political interference; causing delay in execution and subsequent realisations.

• Customer concentration risk and working capital intensive operations: :

  The entity faces high customer concentration and geographic concentration risk. The only three customers that are catered 93% of its operating revenue in the last few years. Gross Current Assets improved but remained high at 131 days as at 31-Mar-19 as against 169 days as at 31-Mar-18 . Working capital is stretched as GCA is equivalent to 60 % of the sale in FY19.

• Proprietorship constitution: :

  The constitution as a proprietorship firm restricts in terms of capital and management and withdrawal of capital by proprietor for any personal contingency would adversely affect capital structure of the concern.

• Susceptibility to risks inherent in tender based business: :

  Since the entire operations are tender based, the business depends on the ability to bid for tenders successfully. Also, the majority of orders are from government and local authority tenders, resulting in high dependence on timely clearances for tenders and payments. Revenue and profitability are expected to remain susceptible to risks inherent in tender based operations.

• Effects of COVID-19: :

  The Company’s business is correlated with the overall economic activity level of the country. Given the current lockdown, the country's economic activities have come to an almost standstill. The broad picture regarding the fallout of the pandemic is yet to emerge. But, this is most likely to bring down the growth rate of the Indian economy and affect the Company’ business operations due to delay in execution, a possible increase in labour cost due to migrant labourers’ exodus to their native places, the possibility of decline in new projects and an increase in raw materials’ cost due to supply chain disruptions .

ANALYTICAL APPROACH AND APPLICABLE RATING CRITERIA

BWR principally relied upon audited financials upto FY19 (FY 20 and CMA projections are not submitted)  and publicly available information and information / clarification provided by the management.

RATING SENSITIVITIES

Going forward, the ability of the entity to accelerate its scale of operations, increase its profit margins, compliance of bank's sanction terms, efficiently manage its working capital and cash flows for timely servicing of interest/debt obligations and strengthening of overall financial risk profile shall be the key rating sensitivities over short to medium term.

Positive: The rating outlook may be revised to positive or rating may be upgraded if the company is able to sustain its growth and profit margins.  Any additional infusion of share’s capital would help to improve its capital structure of the company.

Negative: The rating outlook may be revised to negative or rating may be downgraded if the entity achieves lower revenue and profit margins than projected. 

LIQUIDITY POSITION

The liquidity position of Shakti Earth Movers is adequate. The cash and cash equivalents stood Rs. 0.02 Crs  in FY19. The current ratio of the company stands at 1.67x in FY19. The average utilisation of the working capital stood at 60 %. The net cash accrual of the entity stood Rs. 2.14  Crs in FY17, Rs. 1.63 Crs in FY18 and  Rs. 2.16 Crs in FY19. The funding support from the proprietor by way of unsecured loan and ploughing back of profits has supported liquidity and such funding support will be available whenever required.

PROFILE

Shakti Earth Movers (SEM) was established on 15.9.2002 by Mr Shiv Singh Chouhan as a proprietorship concern at Mandideep, Madhya Pradesh. It is engaged in executing projects for civil construction of roads, largely for the Government of Madhya Pradesh. Further, SEM is also engaged into loading and unloading of construction materials for private entities. The Proprietor has experience of around more than two decades in the same industry.

KEY FINANCIAL INDICATORS

Key Parameters	Units	FY 18-19 (Audited)	FY 17-18 (Audited)
Operating Revenue	Rs.Crs.	14.38	10.16
EBITDA	Rs.Crs.	3.05	2.49
PAT	Rs.Crs.	1.15	0.84
Tangible Net Worth	Rs.Crs.	7.06	6.11
Total Debt/Tangible Net Worth	Times	1.28	1.42
Current Ratio	Times	1.67	1.52

NON-COOPERATION WITH PREVIOUS RATING AGENCY ,IF ANY

RATING HISTORY (INCLUDING WITHDRAWAL AND SUSPENSION)

S.No	Current Rating (2020)				Rating History
	Facilities	Tenure	Amount (Rs.Crs)	Rating	2019	2018	2017
Fund Based
1	Cash Credit - Sanctioned	Long Term	03.50	BWR B+ (Stable)	NA	NA	NA
Non-Fund Based
2	Bank Guarantee - Sanctioned	Short Term	04.00	BWR A4	NA	NA	NA
Total			07.50	(Rupees Seven Crores and Fifty lakhs Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS

BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.

Hyperlink/Reference to applicable Criteria :

• General Criteria
• Approach to Financial Ratios
• Short Term Debt
• Manufacturing Companies

For More Information Contact:

Analytical Contacts	Investor Contacts
Ushadevi V Dogra Ratings Analyst D : +91 22 6745 6650 B : +91 22 2831 1426, +91 22 2831 1439 ushadevi.d@brickworkratings.com	Liena Thakur Assistant Vice President - Corporate Communications M : +91 84339 94686 liena.t@brickworkratings.com
Sushil Kumar Chitkara Associate Director - Ratings B : +91 22 2831 1426, +91 22 2831 1439 sushilkumar.c@brickworkratings.com
1-860-425-2742

SL.No.	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Cash Credit - Sanctioned	3.50	_	3.50
2	Bank Guarantee - Sanctioned	_	4.00	4.00
Total				7.50
TOTAL (Rupees Seven Crores and Fifty lakhs Only)