CRISIL has upgraded its ratings on the bank facilities of SMC Infrastructures Pvt Ltd (SMC Infra) to ‘A-/Stable/P2+’ from ‘BBB+/Stable/P2’. The upgrade reflects better-than-expected growth in SMC Infra’s revenues, healthy profitability and a comfortable capital structure; SMC Infra’s revenue has grown to about Rs.3 billion in 2009-10 (refers to financial year, April 1 to March 31), registering a compound annual growth rate (CAGR) of 30 per cent over the past two years. The company’s net profit also has shown a similar growth. SMC Infra’s conservative gearing of about 0.5 times as on March 31, 2010 provides it the financial flexibility to raise funds at a short notice during an exigency. The upgrade also factors in CRISIL’s belief that SMC Infra will maintain its healthy revenue growth over the medium term, supported by its strong order book of large integrated projects, which are expected to yield higher margins.
The rating also reflects SMC Infra’s established presence in the construction business, and its strong financial risk profile, supported by efficient working capital management. However, these rating strengths are partially offset by SMC Infra’s vulnerability to volatility in raw material prices, and exposure to risks related to tender-based revenues, and limited geographic diversification.
Analytical Approach
For arriving at its ratings, CRISIL has combined the financial risk profiles of SMC Infra and its subsidiary, Chafal Road Developers Pvt. Ltd (Chafal). This is because SMC Infra has been extending financial support to its subsidiary.
Outlook: Stable
CRISIL believes that SMC Infra will maintain its business and financial risk profiles over the medium term on the back of its established presence in the construction business, supported by its strong order book. The outlook may be revised to ‘Positive’ if SMC Infra improves its scale of operations considerably while maintaining its profitability and capital structure, and expands its geographic reach. Conversely, the outlook may be revised to ‘Negative’, if the company reports significant decline in margins and orders, in case of any unprecedented stretch in working capital cycle leading to increased reliance on debt, or if it undertakes any large, debt-funded capital expenditure programme.
About the Company
Set up in 1982 by Mr. Arun Sheth, SMC Infra mainly undertakes water supply and irrigation projects for government departments. The company also undertakes road development, and construction of bridges and commercial buildings. Mr. Arun Sheth is the managing director and the other directors are Mr. Suhas Mehta, Mr. Prashant Mahagaonkar and Mr. Aniruddha Sheth.
For 2008-09, SMC Infra reported a profit after tax (PAT) of Rs.132 million on revenues of Rs.2.4 billion, as against a PAT of Rs.103 million on revenues of Rs.1.8 billion for 2007-08.
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Disclaimer: A CRISIL rating reflects CRISIL's current opinion on the likelihood of timely payment of the obligations under the rated instrument and does not constitute an audit of the rated entity by CRISIL. CRISIL ratings are based on information provided by the issuer or obtained by CRISIL from sources it considers reliable. CRISIL does not guarantee the completeness or accuracy of the information on which the rating is based. A CRISIL rating is not a recommendation to buy, sell, or hold the rated instrument; it does not comment on the market price or suitability for a particular investor. All CRISIL ratings are under surveillance. Ratings are revised as and when circumstances so warrant. CRISIL is not responsible for any errors and especially states that it has no financial liability whatsoever to the subscribers / users / transmitters / distributors of this product. CRISIL Ratings’ rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For the latest rating information on any instrument of any company rated by CRISIL, please contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (+91 22) 3342 3000.
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