Key Rating Drivers & Detailed Description

Strengths:

Established track record of executing EPC contracts and BOT road projects

Experience of over two decades in the EPC business and established relationships with state government departments, NHAI, 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 23 such projects. 18 of these assets are operational and four are under construction. Over 11,800 lane kilometres (km) have been constructed so far and nine projects have been completed and successfully handed over.

Of the portfolio of 25 projects, ACL houses 13 (six BOT toll and seven HAM) projects. Out of the total 11 HAM projects with the group, seven are in the operational stage (including 5 that have received the provisional completion certificate) and four are under construction. Few under-construction HAM projects had ROW issues, but these are expected to be completed on time, given the strong track record of the EPC contractor and six months of extension provided due to the Covid-19 pandemic. Nonetheless, progress of HAM projects will remain a key monitorable.

The orderbook of ABL has evolved over time. The company has shifted its focus from bidding for BOT and HAM projects 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 transmission and distribution (T&D) business for 10 years), railways for five years and buildings for one year. It has recently entered into sewage, smart infrastructure and solar projects. Power T&D projects received recently will enable the company to report a healthy increase in scale of operations.

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

Robust order book providing strong revenue visibility

The company has an order book worth around Rs 15,805 crore as on March 31, 2023. Order book to sales ratio estimated at 2.5 times, will help the company achieve strong revenue growth over the medium term, as these orders are to be executed over the next three years. The roads segment accounted for majority of the orders (around 52%), followed by power T&D (25%), railways (10%) and buildings (14%). Within the road segment, HAM and EPC account for 12% and 39%, respectively.

Comfortable financial risk profile

Financial risk profile is strong, marked by a healthy networth of nearly Rs 3,366 crore and adjusted gearing of around 0.59 time as on March 31, 2023. Networth should improve to Rs 3,500-3,700 crore, while gearing is expected to be in the range of 0.50-0.55 time by March 31, 2024. ABL follows a conservative financial policy and hence, the capital structure has remained healthy over the years. Adjusted debt (CRISIL Ratings has fully consolidated debt in subsidiaries guaranteed by ABL/ACL in its assessment) increased to Rs 1,979 crore as on March 31, 2023, from Rs 1,107 crore, a year ago. This was because of an increase in interest-bearing mobilisation advances, led by growth in the orderbook and utilisation of working capital limits. Total outside liabilities to adjusted networth (TOL/ANW) ratio stood at 1.12 time on March 31, 2023. NCAAD and adjusted interest coverage ratios are estimated at 0.2-0.25 time and 4.0-4.5 times, respectively, in fiscal 2024.

About 50% of ABL’s networth is locked in investments made in the underlying BOT and HAM portfolios. Further, the company is expected to invest around Rs 800 crore over fiscals 2024 to 2026, towards its equity commitment in the ongoing HAM projects, and also extend funding support to cover cash flow mismatches in the underlying SPVs (including Ashoka Sambalpur Baragarh Tollway Ltd). Internal accrual will fund the incremental working capital requirement and support growth of ABL.

ABL has been infusing the entire equity commitment towards HAM projects under ACL, including the share of SBI Macquarie. ACL has raised Rs 200 crore till now, used to pay off unsecured loans from ABL.

In fiscal 2022, ABL had recorded an impairment of Rs. 770 crore on its investment in ACL and its obligation towards SBI Macquarie in ACL. In fiscal 2023, ABL recorded a reversal of impairment of Rs 367 crore, due to an increase in ACL’s valuation mainly on account of increased cash flow in its HAM projects and growth in toll collection by 22% in the toll assets. However, these adjustments will not have any impact on the future credit profile of ABL and ACL as they are non-cash adjustments.

ACL is also at an advanced stage of discussion for monetising its toll assets. The company has signed SPAs with National Investment and Infrastructure Fund Ltd (NIIF) for sale of the GVR Ashoka Chennai Outer Ring Road for Rs 686 crore in fiscal 2024 and sale of Jaora Nayagaon Toll Road project. Another SPA has been signed for the sale of UEPL with Mahanagar Gas Ltd. All these transactions are expected to conclude in fiscal 2024, and will support the financial and business risk profile of ABL.

Weaknesses:

Large working capital requirement

ABL has an inherently large working capital requirement , given the high dependence on state and central government authorities for receipt of payments. Further, in the power T&D segment, 20% of the payment is received only once the project is operationalised, which usually takes two years. Also, 10% of the contract value is withheld as retention money until the expiry of the warranty period and this may stretch upto five years.

Working capital cycle has been healthy over the years, with gross current assets of around 185 days as on March 31, 2023 (199 days as on March 31, 2022).

Susceptibility to intense competition and cyclicality in the construction industry

Around 57% of outstanding orders as on March 31, 2023, comprised projects from roads and highways, and the remaining from the power T&D, railways and commercial gas distribution. Although the company executes road projects across various modes (BOT/EPC/HAM), revenue remains susceptible to changes in government regulations and the prevailing economic conditions. Limited diversity in revenue streams expose the company to intense competition and cyclicality inherent in the construction industry.

Operating margin was around 9.9% during fiscal 2023, but has moderated from levels seen during the same period of the previous fiscal. This was due to higher inflation and delay in ROW, leading to suboptimal utilisation of fixed cost.  The margin is projected at 9.5-11% over the medium term.             

Annexure – List of entities consolidated

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper/magazine/agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.

About CRISIL Ratings Limited (A subsidiary of CRISIL Limited, an S&P Global Company)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ('CRISIL Ratings') is a wholly-owned subsidiary of CRISIL Limited ('CRISIL'). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 
 

About CRISIL Limited

CRISIL is a leading, agile and innovative global analytics company driven by its mission of making markets function better. 

It is India’s foremost provider of ratings, data, research, analytics and solutions with a strong track record of growth, culture of innovation, and global footprint.

It has delivered independent opinions, actionable insights, and efficient solutions to over 100,000 customers through businesses that operate from India, the US, the UK, Argentina, Poland, China, Hong Kong and Singapore.

It is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your account and to provide you with additional information from CRISIL. For further information on CRISIL's privacy policy please visit www.crisil.com.

DISCLAIMER

This disclaimer is part of and applies to each credit rating report and/or credit rating rationale ('report') that is provided by CRISIL Ratings Limited ('CRISIL Ratings'). To avoid doubt, the term 'report' includes the information, ratings and other content forming part of the report. The report is intended for the jurisdiction of India only. This report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the report or of the manner in which a user intends to use the report. In preparing our report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the report is not intended to and does not constitute an investment advice. The report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind to enter into any deal or transaction with the entity to which the report pertains. The report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold or sell any securities/instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. The rating contained in the report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the report should rely on their own judgment and take their own professional advice before acting on the report in any way. CRISIL Ratings or its associates may have other commercial transactions with the entity to which the report pertains.

Neither CRISIL Ratings nor its affiliates, third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively, 'CRISIL Ratings Parties') guarantee the accuracy, completeness or adequacy of the report, and no CRISIL Ratings Party shall have any liability for any errors, omissions or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the report. EACH CRISIL RATINGS PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. Public ratings and analysis by CRISIL Ratings, as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any), are made available on its website, www.crisilratings.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee - more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and/or relies on in its reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public website, www.crisilratings.com. For latest rating information on any instrument of any company rated by CRISIL Ratings, you may contact the CRISIL Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301.

This report should not be reproduced or redistributed to any other person or in any form without prior written consent from CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings is a wholly owned subsidiary of CRISIL Limited.
 

CRISIL Ratings uses the prefix 'PP-MLD' for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisil.com/en/home/our-businesses/ratings/credit-ratings-scale.html