| Ashoka Buildcon Limited | ||||||
| Ratings Reaffirmed; NCD Withdrawn | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has reaffirmed its ratings on the bank facilities and commercial paper of Ashoka Buildcon Limited (ABL) at 'CRISIL AA-/Stable/CRISIL A1+'. CRISIL has also withdrawn its ratings on the non-convertible debentures of Rs 150 crore at the company's request as these have been redeemed. The withdrawal is in-line with CRISIL's withdrawal policy. |
| Analytical Approach |
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For arriving at ABL's ratings, CRISIL has moderately consolidated ABL with its special purpose vehicles (SPVs), ACL, and UEPL. The debt in ABL's SPVs is non-recourse to ABL, and in line with CRISIL's moderate consolidation 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. ABL is expected to extend equity and support towards cashflow mismatches in ACL and UEPL. CRISIL has also loaded the debt of ACL guaranteed (unconditional and irrevocable) by ABL and expected debt in UEPL which is proposed to be guaranteed (unconditional and irrevocable) by ABL, while assessing the credit risk profile of ABL. |
| Key Rating Drivers & Detailed Description |
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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, National Highways Authority of India (rated 'CRISIL AAA/Stable'), and the Ministry of Road Transport and Highways should continue to support the business. The company 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, of which 15 are operational, 5 under construction, 3 are in the process of achieving financial closure (FC). Over 10,000 lane kilometre (km) has been constructed so far and nine completed projects have been successfully handed over. Of the portfolio of 23 projects, 14 (6 BOT toll and 8 hybrid annuity model [HAM]) are housed under ACL. Out of the total ten HAM projects with the group, one has achieved Provisional Commercial Operations Date (PCOD) in March 2020 and one has applied for the same, five projects are under construction and are progressing as per schedule without any delay or cost overrun. And the balance three are in the process of achieving FC. ABL's strong project execution capabilities 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, reflected in a moderate operating margin of 12-15% in the past five fiscals through 2020. * Robust order book providing strong revenue visibility Order book was Rs 8497 crore (excluding one HAM project amounting to Rs 602 crore whose EPC agreement was signed in May 2020) as on March 31, 2020 translating to order book to revenue (fiscal 2020) ratio of 2.1 times, providing healthy revenue visibility over the medium term.. Around 80% of orders are from the road segment, while 11% and 9% are from railways segment, and power transmission and distribution (T&D) and commercial gas distribution (CGD) segments, respectively. Of the road orders in the overall order book, HAM and EPC account for 52% and 28%, respectively. On account of the Covid- 19 outbreak, construction activities witnessed a slowdown from March 15, 2020 due to lockdowns announced by various state governments and had halted from March 25, 2020 due to the nation-wide lockdown. Although construction activity at most sites started from April 20, 2020 and on all sites from June 1, 2020, the spread of the pandemic may impact operations. Currently, work is ongoing at about 85% efficiency due to some constraints in the availability of labour, while that of raw material has more or less normalised. Revenue growth for fiscal 2021 is expected to be muted due to the lockdown after registering a compound annual growth rate of ~20% between fiscals 2016 and 2020. Ability of the company to improve its efficiency and return to normalcy will remain a key monitorable. * Sound financial risk profile Operating income at Rs 3937 crore registered a modest growth of 3% in fiscal 2020 due to lower execution on account of extended monsoon and lockdown imposed during end of March 2020. While revenue remained flattish, operating margin improved to 15.3% in fiscal 2020 from 13.9% in fiscal 2019 on account of execution of HAM projects where margins are higher and lower bitumen prices during the fiscal, leading to steady accretion to reserves and thereby, resulting in improvement in networth to Rs 2597 crore as on March 31, 2020 from Rs 2209 crore a year ago. Capital structure improved during the fiscal, as reflected in adjusted gearing of around 0.3 time as on March 31, 2020 from 0.46 time a year ago, on account of decrease in debt and improvement in networth. This was largely on account of higher net cash accrual and improvement in working capital requirement. Adjusted total outside liabilities to adjusted networth (TOL/ANW) also improved to 1.02 times from 1.37 times. Healthy profitability and moderate debt levels have helped maintain comfortable debt protection metrics: the adjusted interest coverage and net cash accrual to adjusted debt ratios were 8.75 times and 0.64 time, respectively, in fiscal 2020. About 80% of ABL's networth is locked in investments made in the underlying BOT and HAM portfolio. Further, the company is expected to invest around Rs 800 crore over fiscals 2021 and 2022, towards equity commitment of ongoing HAM projects and investments in CGD business along with financial support for meeting cash flow mismatches at the underlying SPVs. Major maintenance works is being taken up for all six BOT projects in fiscals 2021 and 2022, which is leading to larger support requirements. This support is over and above the surplus generated from Jaora Nayagaon Toll Road Company Pvt Ltd and Viva Highways Ltd, which would be used towards supporting ABL's SPVs. ABL will infuse the entire equity commitment towards HAM projects under ACL until the new investor comes in. The company had been negotiating to monetise its stake in the BOT and HAM portfolio, however talks on the same were stalled because of the Covid-19 situation. The company again is focused on its monetisation plan so that outflow from ABL towards equity and support requirement in the projects can be curtailed. Any delay in fructification of monetisation plan in the near term is likely to increase debt levels, which can impact the credit profile of the company. Exit of one investor and participation of the new investor in the next 3-6 months, to unlock its capital, will remain a rating sensitivity factor. Weaknesses: * Working capital-intensive operations Working capital requirement is inherently large in the EPC industry, given the high dependence on state and central government authorities for receipt of payments. Further, in the power T&D segment, working capital requirement is higher because 20% of the payment is received once the project is operationalised, which usually takes two years and 10% of the contract value is held as retention money until the expiry of the warranty period that usually takes five years. The working capital cycle has been impacted in fiscals 2016 and 2017, on account of large inventory requirement in the power T&D segment. Working capital cycle has been improving over the past three fiscals, with gross current assets (GCA, net off cash) at 182 days as on March 31, 2020 (266 days as on March 31, 2017), aided by lower inventory on account of collection of working capital advance for NHAI road projects which has improved the billing cycle in fiscal 2020 and lower execution in power T&D segment. Working capital cycle is expected to sustain at current level given the lower orders from the T&D sector and improved collection efficiency in the road segment. * Susceptibility to intense competition and cyclicality in the construction industry Of the outstanding orders as on March 31, 2020, 80% comprised projects from roads and highways, and the remaining from the power T&D, railways and CGD segments. Although the company executes projects across various modes (BOT/EPC/HAM) in the roads segment, revenue is susceptible to changes in government regulations and economic conditions. Limited diversity in revenue will keep it susceptible to intense competition and cyclicality inherent in the construction industry. |
| Liquidity Strong |
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Liquidity is strong, supported by healthy cash accrual, unutilised bank lines, and moderate cash and equivalents. Expected cash accrual of Rs 300-400 crore per annum over the medium term, should suffice to cover the maturing debt of Rs 80-120 crore each in fiscals 2021 and 2022. Fund-based bank limit utilisation remained low at 10% during the 15 months through June 2020. The company primarily uses non-fund-based facilities for meeting working capital requirement. Utilisation of these facilities averaged 60% for the 15 months through June 2020. Furthermore, an established relationship with suppliers results in a long credit period and hence, lower dependence on own funds. Unencumbered cash and equivalents stood at Rs 70 crore as on June 30, 2020. |
| Outlook: Stable |
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CRISIL believes ABL's business risk profile will remain healthy over the medium term, driven by moderate growth in revenue, in turn led by strong outstanding orders and execution capabilities. The financial risk profile is expected to remain comfortable, marked by healthy capital structure and debt protection metrics. |
| Rating Sensitivity factors |
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Upward factors: * Substantial growth in revenue of more than 15% and profitability upwards of 15% while sustaining the capital structure * Improvement in working capital management * Significant improvement in performance of operational BOT projects strengthening overall credit profile Downward factors: * Sustained weakening in TOL/ANW ratio to 1.5 times or more * Stretch in working capital cycle * Delays in project implementation or deterioration in performance of operational BOT projects, leading to higher-than-expected support requirement * Significant delay in monetisation plan |
| About the Company |
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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 toll 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 gas distribution network in Ratnagiri district, Maharashtra. Additionally, the company entered into executing smart city construction projects in 2016. |
| Key Financial Indicators - CRISIL adjusted | ||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Rating Withdrawn | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - List of entities consolidated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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