July 10, 2024

Spacetech Equipments & Structurals Private Limited: Ratings upgraded to [ICRA]B+

(Stable)/[ICRA]A4 and removed from Issuer Non-Cooperating category; Stable outlook
assigned
Summary of rating action

Previous Rated Amount Current Rated Amount

Instrument* Rating Action
(Rs. crore) (Rs. crore)
[ICRA]B+ (Stable); upgraded from
[ICRA]D ISSUER NOT COOPERATING
Long Term – Fund Based – Cash
1.75 1.75 and removed from Issuer not
Credit
cooperating category; Stable outlook
assigned
[ICRA]A4; upgraded from [ICRA]D
Short Term – Non-Fund Based – ISSUER NOT COOPERATING and
4.20 4.25
Bank Guarantee/Letter of credit removed from Issuer not cooperating
category
Long Term/short term -
0.05 0.00 -
Unallocated limits
Total 6.00 6.00
*Instrument details are provided in Annexure-I

Rationale

ICRA has upgraded the long-term rating of Spacetech Equipments & Structurals Private Limited (SESPL)) to [ICRA]B+(Stable)
and removed the ratings from Issuer non-cooperation category. The revision in ratings follows the curing of the past delays,
and improvement in the working capital cycle. ICRA also notes the expected improvement in the scale of operations reflected
by the healthy outstanding order book position of Rs. ~101 crore as on May 11 th, 2024, which is expected to be executed
entirely in FY2025 with typical execution tenor being ~4-6 months for an order. Consequently, revenues for FY2025 are
expected to increase to more than Rs. 100 crore from Rs. ~65 crore achieved during FY2024. The ratings continue to take into
account the long experience of the promoters in the fabrication business and reputed customer base (Tata Steel, Linde, Jindal
Steel, INOX Air Products, Ion Exchange, Thyssenkrupp, JMI Group, Danieli, etc.). ICRA also factors in the improvement in
working capital cycle (NWC/OI improved to 20% in FY2024 from 35% in FY2023) as well coverage indicators (interest coverage
improved to 3.3 times in FY2024 from 1.3 times in FY2023) observed during FY2024, which are expected to sustain going
forward as well.
The ratings are however constrained on account of low scale of operations, despite the above-mentioned growth, and modest
net profits and net-worth base, leveraged capital structure and industry concentration risks. ICRA also notes that the company
remains exposed to forex risks due to its export presence, in the absence of a fully hedged exports receivables and exposure
to steel price volatility.
Moreover, the company has high sector concentration risk with its operations mainly catering to two sectors - steel and, oil &
gas. The rating is also constrained by the working capital-intensive nature of operations, resulting in high utilisation of the
working capital limits and a stretched liquidity position. Any moderation in working capital intensity due to delayed payments
from clients, could limit the company’s ability to timely execute pending order book. Moreover, the scale of operations is
expected to grow at a healthy pace and the ability of the company to execute the pending order book in a timely manner
remains to be seen.
The Stable outlook on the rating reflects ICRA’s opinion that the company will continue to benefit from its established position
as a supplier of pressure vessels for various industrial gases, translating into comfortable cash flow generation.

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 Key rating drivers and their description

Credit strengths

Long experience of the promoters in the fabrication business – SESPL was incorporated in 1982 and has been involved in the
fabrication of pressure vessels, with its facility at Ambernath in Thane district of Maharashtra. The pressure vessels
manufactured by the company find application mainly in the steel, oil and gas, power and engineering sectors.

Reputed clientele with a healthy order book position – SESPL has many reputed clients, like Tata Steel, Linde, Jindal Steel,
INOX Air Products, Ion Exchange, Thyssenkrupp, JMI Group, Danieli, etc. The entity has an outstanding order book of around
~Rs. 101 crore as of May 11th, 2024, thereby providing healthy revenue visibility over the near term.

Expected improvement in revenues and profits – The outstanding order book is expected to be executed entirely in FY2025
with typical execution tenor being ~4-6 months for an order. Consequently, revenues for FY2025 are expected to increase to
over Rs. ~100 crore from Rs. ~65 crore achieved during FY2024. Better operating leverage and capacity utilization is expected
to aid profitability as well. Revenues FY2026 onwards would depend on the fresh order inflow, and sustainability of healthy
order inflows over the medium term remains a key monitorable.

Credit challenges

Financial profile characterized by small scale of operations, weak albeit improving debt indicators – The company’s revenue
stood at around ~Rs. 40-50 crore over FY2018-FY2023, though it grew by ~30% in FY2024 to Rs. 65 crore. TNW was also modest
at Rs. 9.4 crore as on Mar-2024. Despite a healthy outstanding order book position, the scale of operations of SESPL remains
moderate. The company’s capitalization and coverage indicators remain weak with gearing of 2 times as on Mar-
2024(improved from 3 times as on Mar-2023) and debt/OPBIDTA of 3.1 times in FY2024 (improved from 4.3 times in FY2023).

Susceptibility to raw material price fluctuation risks – The company’s orders are fixed price in nature and sharp fluctuation in
prices of key raw material like steel can adversely impact profitability, with orders being fixed price in nature. Further, export
orders remain exposed to foreign exchange risk in absence of any absence of any hedging policy in place. However, there have
been no forex losses in the past due to net receivables position at all times and appreciation of USD against INR over the years.
The company has nil imports.

Moderately high working capital-intensive nature of business and nil cushion in working capital limits – The working capital
cycle is moderately high with NWC/OI at 20% in FY2024, even as it has improved from 66%/26%/35% in
FY2021/FY2022/FY2023. Further, there have been LC devolvements and CC overdrawings in the past (around FY2017), which
were regularized within a month, due to delayed payments from clients. While the credit profile of customers is good, disputes
over quality at multiple inspection points/contract terms can elongate working capital cycle. This results in high debtor days.

Further, the company’s working capital limits of Rs. ~10.25 crore are fully utilised at all points of time. Sustainable improvement
in scale of operations remains contingent on the company’s ability to tie up additional working capital limits or infusion of
unsecured loans from promoters, alongwith efficient working capital management.

Liquidity position: Stretched

SESPL’s liquidity position remains stretched with no buffer in working capital limits as it has been almost fully utilised over the
last 12 months. The company has debt repayment obligations of ~Rs. 0.67 crore in FY2025 and ~Rs. 0.68 crore in FY2026 and
has unencumbered cash and bank balances of ~Rs. 3.8 crore as on March 31, 2024.

Rating sensitivities

Positive factors – The rating could witness an upward revision if the company demonstrates a healthy revenue growth and
profitability, with improvement in the working capital intensity and liquidity position.

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 Negative factors – The rating could witness a downward revision if any adverse impact on the company’s revenue/profitability
results in a significant deterioration in its debt protection metrics and further stretches the working capital cycle and liquidity
position.

Analytical approach

Analytical Approach Comments

Applicable rating methodologies Corporate Credit Rating Methodology
Parent/Group support Not Applicable
Consolidated/Standalone Standalone

About the company

Established in 1982, SESPL is involved in the fabrication of pressure vessels, with its facility at Ambernath in Thane district of
Maharashtra. SESPL’s fabrication facility is ISO 9001-2000 certified, and the pressure vessels manufactured by the company
find application mainly in the steel, oil and gas, power and engineering sectors.

Key financial indicators (audited)

FY2023 FY2024*
Operating income 49.9 64.8
PAT 0.9 2.5
OPBDIT/OI 9.5% 9.2%
PAT/OI 1.9% 3.8%
Total outside liabilities/Tangible net worth (times) 6.0 3.7
Total debt/OPBDIT (times) 4.3 3.1
Interest coverage (times) 1.3 3.3
Source: Company, ICRA Research; All ratios as per ICRA’s calculations; Amount in Rs. crore 8 lower italics; PAT: Profit after tax; OPBDIT: Operating profit before
depreciation, interest, taxes and amortisation; *Provisional

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for past three years

Current rating (FY2025) Chronology of rating history for the past 3 years

Date & rating in Date & rating in Date & rating in Date & rating in
Instrument Amount
Type FY2025 FY2024 FY2023 FY2022
rated
(Rs. crore) July 10 2024 Mar 26, 2024 Feb 24, 2023 Dec 22, 2021
[ICRA]D; ISSUER [ICRA]D; ISSUER [ICRA]D; ISSUER
1 Cash Credit Long term 1.75 [ICRA]B+ (Sable) NOT NOT NOT
COOPERATING COOPERATING COOPERATING
Bank [ICRA]D; ISSUER [ICRA]D; ISSUER [ICRA]D; ISSUER
2 Guarantee/Letter of Short term 4.25 [ICRA]A4 NOT NOT NOT
credit COOPERATING COOPERATING COOPERATING
[ICRA]D/[ICRA]D; [ICRA]D/[ICRA]D; [ICRA]D/[ICRA]D;
Long term/
3 Unallocated limits 0.00 - ISSUER NOT ISSUER NOT ISSUER NOT
Short term
COOPERATING COOPERATING COOPERATING

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 Complexity level of the rated instruments

Instrument Complexity Indicator

Long Term – Fund Based – Cash Credit Simple
Short Term – Non-Fund Based – Bank Guarantee/Letter of
Very Simple
Credit

The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated.
It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument's
credit rating. It also does not indicate the complexity associated with analysing an entity's financial, business, industry risks or
complexity related to the structural, transactional or legal aspects. Details on the complexity levels of the instruments are
available on ICRA’s website: Click Here

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 Annexure I: Instrument details

Date of Amount Rated

ISIN Instrument Name Coupon Rate Maturity Current Rating and Outlook
Issuance (Rs. crore)
Long Term – Fund Based
NA NA NA NA 1.75 [ICRA]B+ (Sable)
– Cash Credit
Short Term – Non-Fund
Based – Bank
NA NA NA NA 4.25 [ICRA]A4
Guarantee/Letter of
Credit
Source: Company

Annexure II: List of entities considered for consolidated analysis – Not Applicable

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 ANALYST CONTACTS
Girishkumar Kadam Prashant Vasisht
+91 22 6114 3441 +91 124 4545 322
girishkumar@icraindia.com prashant.vasisht@icraindia.com

Ankit Jain Rohan Rustagi

+91 124 4545 865 +91 124 4545 383
ankit.jain@icraindia.com rohan.rustagi1@icraindia.com

RELATIONSHIP CONTACT
L. Shivakumar
+91 22 6114 3406
shivakumar@icraindia.com

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
communications@icraindia.com

Helpline for business queries

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)

info@icraindia.com

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
companies as an independent and professional investment Information and Credit Rating Agency.

Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company,
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