Rating Rationale
July 05, 2016 | Mumbai
KNR Constructions Limited
Ratings upgraded to 'CRISIL A/Stable/CRISIL A1'
 
Total Bank Loan Facilities Rated Rs.18000 Million
Long Term Rating CRISIL A/Stable (Upgraded from 'CRISIL A-/Stable')
Short Term Rating CRISIL A1 (Upgraded from 'CRISIL A2+')
(Refer to Annexure 1 for Facility-wise details)

CRISIL has upgraded its ratings on the bank facilities of KNR Constructions Limited (KNR) to 'CRISIL A/Stable/CRISIL A1' from 'CRISIL A-/Stable/CRISIL A2+'.
 
The upgrade reflects improvement in KNR's business risk profile because of stabilisation of operations of KNR Walayar Tollways Pvt. Ltd (KWT; 100% subsidiary of KNR); and advanced stage of completion (96%) of project KNR Muzaffarpur Barauni Tollway Pvt Ltd (KMBT; 51% subsidiary of KNR)  CRISIL's expects KNR to post moderate revenue growth backed by healthy order book of Rs.34.64 billion as on March 31, 2016, and sustainability of healthy operating margin of over 16 percent over the medium term. Furthermore, the company's financial risk profile is expected to remain robust with healthy capital structure as it prepaid Rs.1.51 billion of total debt of Rs.5.01 billion raised for KWT, through funds infused by promoters and healthy cash accrual in 2015-16 (refers to financial year, April 1 to March 31) from KWT's build-operate-transfer (BOT) project. Consequently, KNR's gearing improved to 0.09 time as on March 31, 2016, from 0.17 time a year earlier, and net cash accrual to total debt and interest coverage ratios rose to 2.55 times and 15.81 times, respectively, in 2015-16 from 1.14 times and 11.60 times, respectively, for the previous year. CRISIL believes KNR will sustain its healthy capital structure in the absence of any new BOT project and debt-funded capital expenditure (capex), and will maintain its working capital cycle over the medium term.
 
The ratings continue to reflect the company's established market position, strong project execution capability, healthy order book providing revenue visibility, and robust financial risk profile. These strengths are partially offset by limited segmental and geographic diversity in its revenue profile, with most orders being in the highways segment, working-capital-intensive operations and exposure to cyclicality in the construction industry.
 
For arriving at its ratings, CRISIL was earlier combining the business and financial risk profiles of KNR and its subsidiaries, except for KMBT. However, it has now changed its analytical approach to moderately consolidating the business and financial risk profiles of KNR and that of KWT and KMBT, the company's special-purpose vehicles (SPVs) for BOT projects. The change in approach is based on KNR's economic interest in the entities, and business and financial linkages among the companies. CRISIL has factored in KNR's support for funding equity investments in the subsidiaries, and financial support for expected cost overruns and debt servicing in case of cash flow mismatches in the projects.

Outlook: Stable

CRISIL believes KNR will benefit from its healthy order book and maintain robust financial risk profile over the medium term. The outlook may be revised to 'Positive' if the company reports better-than-expected revenue while maintaining profitability, and improves working capital cycle. The outlook may be revised to 'Negative' in case of significant decline in revenue and profitability, delays in project execution impacting working capital cycle, or weakening of financial risk profile on account of large debt-funded capex.

About the Company

KNR, set up in 1995, provides engineering, procurement, and construction (EPC) services, primarily for roads and highways segment. It has executed infrastructure projects independently and through joint ventures to leverage extensive experience and execution capabilities of both parties, which has helped it bag orders in diverse regions and of large value. Most of KNR's clients are government agencies, such as the National Highways Authority of India (NHAI; rated 'CRISIL AAA/Stable') and the public works departments of state governments.
 
KWT is a wholly owned SPV set up for four-laning the Walayar-Vadakkancherry section of National Highway (NH)-47 (from kilometre (km) 182.25 to km 240.00) in Kerala through a public-private partnership and on design-build-finance-operate-transfer (DBFOT [toll]) basis. The total project cost of Rs.9 billion was funded through equity of Rs.1.4 billion, grant of Rs.2.6 billion, and debt of Rs.5 billion. The project achieved provisional commercial operations date on May 31, 2015 and full commercial operations date on October 31, 2015.
 
KMBT is a SPV promoted by KNR's wholly owned subsidiary KNR Muzaffarpur Holding Pvt Ltd (51% stake) and JKM Infra Projects Ltd (JKM; 49% stake) set up for two/four laning (96.01 km two lane, 11.55 km four lane) of Muzaffarpur-Barauni section of NH-28 (from km 519.6 to km 627.0) in Bihar. The project was awarded by NHAI on DBFOT (toll) basis, and has been delayed by over 22 months from the original commercial operation date (COD) of July 2014 due to delay in land acquisition from NHAI and change in scope. It has received PCOD and started collecting toll.
 
KNR had net profit of Rs.1.61 billion on net sales of Rs.8.85 billion for 2015-16, against Rs.730 million and Rs.8.76 billion, respectively, for the previous year.

Annexure 1 - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Million) Rating Facility Amount (Rs.Million) Rating
Cash Credit 1000 CRISIL A/Stable Cash Credit 1000 CRISIL A-/Stable
Letter of credit & Bank Guarantee 12000 CRISIL A1 Letter of credit & Bank Guarantee 12000 CRISIL A2+
Long Term Loan 165.4 CRISIL A/Stable Long Term Loan 165.4 CRISIL A-/Stable
Proposed Cash Credit Limit 500 CRISIL A/Stable Proposed Cash Credit Limit 500 CRISIL A-/Stable
Proposed Letter of Credit & Bank Guarantee 3000 CRISIL A1 Proposed Letter of Credit & Bank Guarantee 3000 CRISIL A2+
Proposed Long Term Bank Loan Facility 500 CRISIL A/Stable Proposed Long Term Bank Loan Facility 500 CRISIL A-/Stable
Proposed Short Term Bank Loan Facility 834.6 CRISIL A1 Proposed Short Term Bank Loan Facility 834.6 CRISIL A2+
Total 18000 -- Total 18000 --

Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Manufacturing Companies
Rating Criteria for Construction Industry
CRISILs Criteria for Consolidation
Criteria for rating Short-Term Debt (including Commercial Paper)

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