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 11th, 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.