| Ashoka Buildcon Limited | ||||||
| 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 ratings on the bank facilities and debt instruments of Ashoka Buildcon Limited (ABL) continue to reflect an established track record in executing engineering, procurement, construction (EPC) contracts and build-operate-transfer (BOT) road projects and strong order pipeline providing healthy revenue visibility. The ratings also factor in a sound financial risk profile and the expectation of limited funding support to and investment in subsidiaries, Ashoka Concessions Ltd (ACL) and Unison Enviro Pvt Ltd (UEPL). These strengths are partially offset by working capital-intensive operations and susceptibility to intense competition and cyclicality in the construction industry. |
| Analytical Approach |
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For arriving at its 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 support for new projects in ACL and UEPL. Furthermore, ABL will also support cashflow mismatches in ACL. |
| Key Rating Drivers & Detailed Description |
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Strengths * Established track record of executing EPC contracts and BOT road projects The experience of over two decades in the EPC business and established relationship with state government departments, National Highways Authority of India (rated 'CRISIL AAA/Stable'), and Ministry of Road Transport and Highways should continue to support the business. The company was one of India's early entrants in BOT road projects and won its first project in 1997. Along with ACL, it currently has 22 such projects, of which 15 are operational, 3 under construction, and 4 have achieved financial closure. About 10,100 lane kilometre (km) has been constructed so far and nine completed projects have been successfully handed over. Of the portfolio of 22 projects, 14 (7 BOT toll/annuity and 7 hybrid annuity model [HAM]) are housed under ACL. Out of the three under-construction HAM projects, two have achieved more than 30% work as of November 2018 while the third has been awarded appointed date in December 2018. In March 2018, ACL won five HAM projects worth Rs 5,550 crore (including the one for which appointed date has been awarded recently). Financial closure of these five projects were completed by October 2018 and four of them are currently awaiting the appointed date. EPC works of these HAM projects is Rs 3,755 crore, which would be undertaken by ABL. 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 12-13% in the three fiscals through 2018. * Strong order pipeline providing healthy revenue visibility Order pipeline was Rs 9,537 crore as on December 31, 2018. Around 78% of the orders are from the road segment, while 14% and 8% are from the power transmission and distribution (T&D) segment and railways segment respectively. Of the total orders in the road segment, BOT (largely HAM) and EPC account for 51% and 27%, respectively. Outstanding order to revenue ratio was 4 times, providing healthy revenue visibility over the medium term. * Sound financial risk profile Operating income grew 20% in fiscal 2018, and continued its strong growth in the first half of fiscal 2019 with operating income at Rs 1,448 crore (33% growth over first half of fiscal 2018) supported by robust order execution. The operating margin was 12.5-13.5% in the five fiscals through 2018, leading to steady accretion to reserves and thereby resulting in improvement of networth. Revenue growth and profitability are likely to sustain over the medium term supported by strong outstanding orders and execution capabilities. The networth was strong at Rs 1,921 crore and the gearing low at 0.21 time, as on March 31, 2018. Further, healthy profitability and moderate debt have resulted in comfortable debt protection metrics: the interest coverage and net cash accrual to total debt ratios were 8.43 times and 0.58 time, respectively, in fiscal 2018. The company is expected to invest Rs 700-1,000 crore over fiscals 2019 to 2021 towards execution of ongoing as well as new HAM orders. Debt is expected to increase in the near term as NCDs are being issued to fund SBI Macquarie's equity contribution in the HAM projects under ACL till the new investor comes in, and to fund the incremental capital expenditure (capex) and working capital requirement. Despite these large investments, the gearing is expected to remain below 0.5 time, supported by a strong networth. On a standalone basis, ACL has adequate cash flow to meet financial requirement in other operational BOT projects. ABL will provide limited financial support to ACL, thereby helping the group maintain its sound financial risk profile. Pace of growth and execution of the BOT/HAM portfolio, and investment requirement towards subsidiaries and its impact on the capital structure, will remain key rating sensitivity factors. 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 timely receipt of payments. Further, in the power T&D segment, working capital requirement is higher because 20% of the payment is received upon erection of supplied material and 10% of the contract value is held as retention money until the expiry of the warranty period. The working capital cycle has been impacted in fiscals 2017 and 2018 on account of large inventory requirement in the power T&D segment. Although the working capital cycle has improved as on March 31, 2018, with gross current assets (GCA) at 225 days, on account of lower inventory backed by execution of higher road orders, it remains high. * Susceptibility to intense competition and cyclicality in the construction industry Of the outstanding orders as on December 31, 2018, 78% comprised of projects from roads and highways, and the remaining from the power T&D and railways segments. Although the company executes projects across various modes (BOT/EPC/HAM) in the roads segment, its revenue is susceptible to changes in government regulations and economic conditions. Limited diversity in revenue will continue to make it susceptible to intense competition and cyclicality inherent in the construction industry. |
| Liquidity |
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Liquidity is adequate, supported by healthy cash accrual, unutilised bank lines, and moderate cash and cash equivalents. Cash accrual is expected to remain at around Rs 300 crore, sufficient to service maturing debt obligation of Rs 35-50 crore, per fiscal over fiscals 2019 and 2020. Fund-based bank limit utilisation has historically remained low at less than 20% and was around 15% during the 12 months through November 2018. The company primarily uses non-fund-based facilities for meeting working capital requirement. Average utilisation of these facilities was 65% during the 12 months through November 2018. Furthermore, an established relationship with suppliers results in a long credit period and hence lower deployment of own funds. The cash and cash equivalents balance was Rs 137 crore as on March 31, 2018, of which Rs 63 crore was towards margin money requirement while the remaining was unencumbered. |
| Outlook: Stable |
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CRISIL believes ABL's financial risk profile will remain sound over the medium term, backed by a healthy capital structure and comfortable debt protection metrics. The business risk profile is expected to sustain due to healthy growth in revenue supported by strong outstanding orders and execution capabilities. The outlook may be revised to 'Positive' in case of a substantial and sustained increase in revenue and margins, and improvement in the working capital cycle, while the financial risk profile is maintained, or better performance of operational BOT projects strengthens overall risk profile. The outlook may be revised to 'Negative' if delays in project implementation, higher-than-expected support to group companies, or significant increase in exposure to new projects necessitating sizeable equity investment, weakens the financial risk profile. |
| 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. |
| Key Financial Indicators | ||||||||||||||||||||||||
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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. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Consolidation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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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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