Detailed Rationale

Crisil Ratings has reaffirmed its 'Crisil AA-/Negative/Crisil A1+‘ ratings on the bank loan facilities of Ashoka Buildcon Limited (ABL). Further, the rating on the commercial paper worth Rs 200 crore has been withdrawn basis client request and on confirmation of no commercial paper outstanding as on date. The withdrawal is in line with the policy of Crisil Ratings on withdrawal of ratings.

 

The ratings continue to reflect the established track record of ABL in executing engineering procurement & construction (EPC) contracts and built-operate-transfer (BOT) road projects and its improving order book position providing adequate revenue visibility. The ratings also factor in the adequate financial risk profile amidst expectations of funding support and investment in subsidiaries, including Ashoka Sambalpur Baragarh Tollway Ltd (ASBTL). These strengths are partially offset by the large working capital requirement and susceptibility to intense competition and cyclicality in the construction industry.

 

The continuation of ‘Negative’ outlook reflects the expectation of delay in the improvement of the business and financial risk profiles of the company. ABL’s operating margin for fiscals 2025 and 2026 is expected to improve at a slower pace than earlier expectations due to delays in the commencement of execution of new orders, while execution of aggressively bid projects will continue to contribute a higher share of revenue. This coupled with increased working capital intensity for its projects will lead to weaker-than-expected debt protection metrics in the near-term. Furthermore, while the order book position improved from Rs 11,700 crore as of March 2024 to around Rs 16,450 crore as of December 2024, standalone revenue witnessed a 3% year-on-year dip for the first nine months of fiscal 2025 to Rs 5,227 crore.

 

Crisil Ratings-adjusted earnings before interest taxes depreciation amortisation (EBITDA) margin of ABL witnessed an improving trajectory during the first nine months of fiscal 2025 at 7.9%, against 7.5% for the corresponding period in the previous fiscal, but remained below Crisil Ratings’ earlier expectation. While margin improvement will be gradual in the near-term, increase in contribution from higher margin projects could drive up the margin over the medium-term and will remain a key rating sensitivity factor.

 

Crisil Ratings has noted the announcement by ABL dated October 30, 2024, stating that it has entered into a share purchase agreement (SPA) with Maple Infrastructure Trust for the sale of the entire stake in five build-operate-transfer (BOT) owned by its subsidiary, Ashoka Concessions Ltd (ACL), for an aggregate consideration of Rs 2,539 crore. Upon completion of the above transaction, ABL will acquire the remaining 34% stake in ACL held by SBI Macquarie for an aggregate consideration of Rs 1,526 crore.

 

Crisil Ratings has also noted the announcement dated December 31, 2024, stating that ABL, along with ACL, has entered into securities purchase agreements and other transaction documents with Epic Concessions 2 Pvt Ltd, Infrastructure Yield Plus II and Infrastructure Yield Plus IIA, for the sale of its entire stake in 11 hybrid annuity model (HAM) projects for an aggregate consideration of Rs 2,324 crore.

 

Crisil Ratings understands that both the deals are expected to be concluded over the next 3-5 months, subject to fulfillment of conditions precedent and receipt of requisite approvals. Successful completion of above transactions would ease concerns regarding the pending exit of SBI Macquarie from ACL and help ABL rationalise its debt levels, leading to an improvement in its financial risk profile. Crisil Ratings shall continue to monitor further developments in this regard.

 

Dip in revenue and lower-than-expected improvement in profitability, along with increase in working capital requirement for power transmission and distribution (T&D) projects, led to a rise in debt levels. Crisil Ratings-adjusted debt, including interest-bearing mobilisation advances, increased to ~Rs 2,966 crore as on December 31, 2024, from ~Rs 2,585 crore as on March 31, 2024. Increase in debt has led to higher interest expense and consequently, weakened interest coverage ratio. Improvement in debt protection metrics over the medium term will be contingent on the improvement in operating profitability and successful completion of planned monetisation of road assets during fiscal 2026 and hence will be a key rating sensitivity factor.

Analytical Approach

Crisil Ratings has also consolidated the debt of ASBTL, guaranteed (unconditional and irrevocable) by ABL, while assessing the credit risk profile of ABL. ABL is expected to extend equity and support towards cash flow mismatches in ASBTL.

 

Crisil Ratings has moderately consolidated ACL and other special purpose vehicles (SPV’s), as per the approach, the investment requirement, expected cost overrun in under-implementation projects, as well as cash flow mismatches in operational projects of ABL, have been factored into the financials of ABL.

 

Furthermore, interest-bearing mobilisation advances (~Rs 912 crore as on December 31, 2024) have been treated as debt.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation

Key Rating Drivers & Detailed Description

Strengths:

Established track record of executing EPC contracts and road projects

Experience of over two decades in the EPC business and established relationships with state government departments, the National Highways Authority of India (NHAI; Crisil AAA/Stable), and the Ministry of Road Transport and Highways should continue to support the business. ABL was one of the early entrants in BOT road projects in India and won its first project in 1997. Along with ACL, it currently has 21 such projects. Of these, 20 are operational and 1 is under construction; with over 14,000 lane kilometre (km) having been constructed so far and successfully handed over.

 

Of the portfolio of 21 projects, ACL houses 13 (six BOT toll and seven HAM) projects. Out of the total 11 HAM projects with the group, 10 are in the operational stage or have received provisional completion certificate and 1 project is under construction. The under-construction HAM project has had right-of-way (ROW) issues, but it is expected to be completed on time, given the strong track record of the EPC contractor and extension of time provided due to ROW issues.

 

The order book of ABL has evolved over time. The company has shifted its focus from bidding for BOT and HAM to EPC projects. ABL aims to become an all-sector EPC player over the medium term. The company has been engaged in the roads, power T&D business for more than 10 years, railways for more than 5 years and buildings for more than 2 years. It has recently entered into sewage, smart infrastructure and solar projects. Road EPC and power T&D projects received by the company over the last few months will enable it to report a healthy increase in scale of operations.

 

Strong project execution capabilities of ABL are reflected in the successful completion of projects within scheduled time and budgeted cost. The robust in-house EPC division undertakes all project implementation. The group also manufactures readymade concrete and high-grade bitumen, which supports operating efficiency.

 

Order book providing moderate revenue visibility

ABL had order book worth around Rs 16,457 crore as on December 31, 2024, as against ~Rs 11,700 crore as on March 31, 2024, as it focused on EPC and Power T&D projects. Order book to sales ratio improved to 2.2 times as on December 31, 2024, from 1.5 times as on March 31, 2024. It is expected to improve further over the medium term with better awarding expected this fiscal.

 

Receipt of EPC projects in the roads sector has improved its share in the order book as of December 2024 to ~71% (from around 46% as of March 2024), while the share of power T&D projects declined to 23% (from around 41% as of March 2024), railways (~3%), and the balance in building EPC and other segments. Within the road segment, HAM and EPC account for 12% and 59%, respectively. Moreover, diversified revenue streams will help reduce susceptibility to downturn in any one segment.

 

Adequate financial risk profile

Financial risk profile is adequate with networth and total outside liabilities to tangible networth (TOL/TNW) ratio of ~Rs 3,812 crore and 1.26 times, respectively, on March 31, 2024. The TOLTNW ratio is expected to remain healthy despite annual capital expenditure (capex) plans of Rs 100-125 crore and Rs 500-600 crore of equity investment plans (on HAM/BOT projects) over the next 2-3 fiscals. ABL follows a conservative financial policy and hence, capital structure has remained healthy over the years.

 

Crisil Ratings-adjusted debt increased to ~Rs 2,966 crore as on December 31, 2024 from Rs 2,585 crore as on March 31, 2024 on account of higher working capital requirement of ABL’s ongoing projects in the Power T&D segment. While debt levels are expected to have moderated as on March 31, 2025, increase in debt levels during fiscal 2025 led to higher interest expense. Accordingly, the adjusted interest coverage ratio is expected to have moderated to 2.6 times for fiscal 2025, as against 2.7 times for fiscal 2024 (4.2 times, 7.5 times, 8.5 times in fiscals 2023, 2022 and 2021, respectively). With expected improvement in profitability, net cash accrual should improve, leading to improvement in debt protection metrics over the medium term.

 

About 50% of ABL’s networth is locked in investments made in the underlying BOT and HAM portfolios.  However, as most of the HAM projects are complete, equity commitment is expected to reduce to Rs 100 crore in existing projects and with improvement in toll and debt refinancing in ASBTL, no further support is expected towards any of the projects. Internal accruals are expected to fund the incremental working capital requirement and support the growth of ABL, which has been infusing the entire equity commitment towards HAM projects under ACL.

 

Weaknesses:

Large working capital requirement

Operations of ABL are working capital intensive on account of the inherent nature of the EPC business and long project execution cycle of 2-3 years. There is high dependence on state and central government authorities for receipt of payments. ABL has high working capital requirement reflected in gross current assets (GCAs) of 190 to 200 days over the last four fiscals, driven by high unbilled revenue and receivables. Furthermore, in the power T&D segment, sizeable funds are blocked in retention money until the expiry of the warranty period.

 

Exposure to intense competition and cyclicality in the construction industry

As per the orderbook as on December 31, 2024, ~71% of outstanding orders comprised of projects from roads and highways, ~23% from the power T&D and the balance from railways and buildings. Although the company executes projects across segments, revenue remains susceptible to changes in government regulations and the prevailing economic conditions. Furthermore, the company mainly caters to government agencies, expenditure of which is directly linked to the economy. Competition in roads has intensified further due to the recent relaxation in bidding norms by NHAI and Ministry of Road Transport and Highways of India. The increased competitiveness has impacted operating margin, as can be seen from moderation in Ebitda margin to 7.3 and 7.8% for fiscals 2024 and 2023 respectively, from 12-14% (prior to fiscal 2021). Margin in fiscals 2022 and 2023 were also impacted by increase in input prices and the company diversifying into new segments from earlier concentration in roads.

 

However, this risk is mitigated by the increased diversification of ABL into varied sectors, which will allow it to bid selectively for projects. Though the company has a strong track record of efficient operations in roads, its performance in new segments such as power T&D and railways will remain monitorable.

Liquidity: Strong

Cash and equivalents stood at Rs 189 crore as on December 31, 2024. Utilisation of the fund-based bank lines (includes commercial paper, working capital demand loan and cash credit) was moderate at 70% during the 12 months through December 2024. Expected yearly cash accrual of Rs 400-500 crore should suffice to cover the maturing debt of Rs 60-90 crore per annum, capex/ investment plans and incremental working capital requirements over the medium term.

Outlook: Negative

Crisil Ratings believes  the business risk profile may weaken due to moderation in operating margin, thereby subsequently impacting the financial risk profile as well.

Rating Sensitivity Factors

Upward factors:

• Improvement in operating performance, with growth in revenue and increase in EBITDA margin leading to interest coverage ratio going above 5 times on a sustained basis
• Monetisation of asset resulting in significant reduction of debt leading to improvement in financial risk profile.
• Efficiency in working capital cycle leading to improvement in the liquidity position.

 

Downward factors:

• Lower than expected improvement in operating margin leading to interest coverage ratio sustaining below 3 times
• Any delay in completion of ongoing asset monetisation, further stretch in working capital cycle or any large debt-funded capex or investments, leading to weakening of financial risk profile on a sustained basis.

About the Company

ABL, incorporated in 1993, engineered and constructed residential, commercial, industrial, and institutional buildings until 1997. The company won its first BOT project in 1997. Currently, operations comprise BOT and EPC road projects, EPC power T&D projects, collection of tolls on roads and bridges owned and constructed by third parties, and manufacturing of ready-mix concrete. The company also ventured into the commercial gas distribution business in 2016 by winning its first order to build and operate a distribution network in Ratnagiri district, Maharashtra. Additionally, the company began executing smart city construction projects in 2016.

 

ABL is listed on both the Bombay Stock Exchange and National Stock Exchange. It has significant experience in executing road projects across India and has constructed more than 14,000 lane km till date. This is also reflected in its outstanding BOT/HAM portfolio of 21 projects (including ACL assets) as of December 2024. In the EPC division, ABL constructs roads and bridges for its own BOT projects as well as for third parties. It also executes EPC projects in the power distribution space for various state governments.

 

ABL set up ACL as a subsidiary in November 2011 and transferred six BOT projects to it. SBI Macquarie also infused Rs 800 crore (39% stake at the time of entry), and ACL acted as an exclusive BOT project developer for both ABL and SBI Macquarie. Out of 11 HAM projects awarded to ABL, seven are housed under ACL.

Key Financial Indicators (Standalone)*

Financials as on/for the period ended March 31	Unit	2024	2023
Operating income	Rs crore	7,694	6,332
Profit after tax (PAT)	Rs crore	424	683
PAT margin	%	5.5	10.8
Adjusted debt/adjusted net worth	Times	0.68	0.59
Adjusted interest coverage	Times	2.68	4,07

PAT is high in fiscal 2023 due to Rs. 349 crore of reversal of impairments

*as per analytical adjustments made by Crisil Ratings.

Any other information: Not Applicable