Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil A-/Negative/Crisil A2+’ ratings on the bank facilities of Associated Power Structures Pvt Ltd (APSPL).

 

Operating income improved to Rs 619 crore in fiscal 2024 (from Rs 415.39 crore in fiscal 2023), led by strong order inflow and execution, primarily in erection of transmission towers and windmills. However, the operating margin declined to 7.37% in fiscal 2024, from 8.34% in fiscal 2023. The margin was much lower, in comparison to an average of 10-11% recorded over fiscals 2016 to 2022, as the company opted for execution of lower-margin orders, so as to qualify for high KV orders. Increase in the overall raw material cost also led to a lower margin. Going forward, revenue is projected to exceed Rs 1,100 crore in fiscal 2025, backed by outstanding orders worth Rs 2,369 crore as of December 2024. While this is likely to enhance the credit profile of the company, envisaged growth in revenue and profitability will be a key monitorable.

 

Substantial revenue growth in fiscal 2025 and the large working capital requirement, inherent in the engineering, procurement, and construction (EPC) business, led to receivables of over Rs 377 crore outstanding as of February 2025, and higher reliance on bank debt, as reflected in average utilisation of over 85% for the six months ended January 31, 2025. Though expected enhancement in bank limits should increase the cushion available, timely realisation of receivables remains a key sensitivity factor.

 

The ratings reflect the established market presence of APSPL in the EPC business, its track record of successful project completion, healthy order book with reputed counterparties, providing adequate revenue visibility, and the strong financial risk profile. These strengths are partially offset by the large working capital requirement and susceptibility to tender-based operations and volatility in operating margin.

Analytical Approach

Crisil Ratings has evaluated the standalone business and financial risk profiles of APSPL.

Key Rating Drivers & Detailed Description

Strengths:

Extensive experience of the promoters and proven track record of successful project completion: The two-decade-long experience of the promoters in erecting transmission towers and their strong execution capabilities have helped the company to establish a  healthy market position in the EPC business. Over the years, the company has executed orders in a timely manner for both private and government entities, and has maintained healthy relationships with customers and suppliers. APSPL is approved by the Power Grid Corporation of India Ltd (PGCIL) and several state electricity boards. APSPL offers EPC services and manufactures, fabricates, galvanises and installs windmills and power transmission towers. Resultantly, revenue has recorded a compound annual growth rate (CAGR) of 33% over the three fiscals ended March 31, 2025 and is projected to be over Rs 1,100 crore in fiscal 2025.

 

Healthy order book with reputed counterparties providing adequate revenue visibility: The company has a healthy pipeline of orders worth around Rs 2,369 crore as of December 2024, to be executed over the next 18-24 months. The orderbook to revenue ratio of more than 3.8 times the revenue of fiscal 2024, provides adequate revenue visibility for the medium term. Gujarat Energy Transmission Corp Ltd (GETCO) accounts for nearly 29% of the total unexecuted projects in hand, and this comprises 15 small projects. Clients include government bodies such as GETCO, TANTRANSCO, Suzlon Energy Ltd, Uttar Pradesh Power Transmission Corp Ltd, Gujarat Industrial Power Co Ltd, PGCIL, Adani Energy Solutions Ltd, etc. The management maintains a focused approach towards bidding and only selects projects that are well-funded and involve limited operational or counterparty risk. Timely execution of orders, while maintaining the working capital cycle, remains a key monitorable over the medium term.

 

Healthy financial risk profile: Networth is projected to be healthy over Rs 320 crore, while gearing is likely to be low at 0.51 time as on March 31, 2025. The total outside liabilities to tangible networth ratio is projected to be around 1.51 times as on the same date, owing to higher payables and capital expenditure (capex) of Rs 35 crore undertaken in fiscal 2025, towards expansion of the galvanised unit and funded via term debt of Rs 20 crore.

 

Debt protection metrics should be adequate too, as indicated by net cash accrual to adjusted debt and interest coverage ratios of 0.37 time and 3.64 times, respectively, for fiscal 2025, and are expected to remain comfortable over the medium term. Sufficient cash accrual and scheduled repayment of debt obligations should support the financial risk profile over the medium term.

 

Weaknesses:

Large working capital requirement: Operations are working capital intensive, given the inherent nature of the EPC business. The long project execution cycle of 18-24 months has led to higher reliance on short-term debt. Receivables too remain high due to sizeable retention money blocked in projects till the end of the performance guarantee period and due to milestone-based billings in EPC projects.

 

Receivables stood at 122 days as on March 31, 2024 (down from 203 days a year before), yet in absolute terms, they were high, ranging from 200 to 230 days, with major collections from GETCO and other clients such as Tamil Nadu Transmission Corporation Limited. Milestone-driven payments in non-transmission and distribution (T&D) segments continue to impact the working capital cycle. Substantial revenue growth in fiscal 2025 and high working capital intensity in the EPC business have led to an increase in working capital requirement, with receivables of over Rs 377 crore as of February 2025 and higher reliance on short-term debt. Gross current assets (GCAs) may remain high because of the margin money for bank guarantee, security deposit and retention of capital, and skewed revenue in the last quarter. Any further stretch in the working capital cycle is likely to hamper financial flexibility of the company, and this remains a key monitorable.

 

Susceptibility to tender-based operations and volatility in operating margin: The company lays electrical lines and undertakes power transmission/distribution for turnkey projects under the EPC model. Projects are secured through tenders floated by government or private entities. Revenue performance of the company depends on its ability to win tenders, particularly those fetching a higher margin. Operating margin declined to 7.37% in fiscal 2024, but is expected to improve to 9-10% in fiscal 2025, as the company has started undertaking higher-margin orders. Decline in margin from the current level remains a key rating sensitivity factor.

Liquidity: Strong

Bank limit utilisation was high averaging around 83% for the 12 months ended October 31, 2024. Expected cash accrual of over Rs 50 crore should suffice to cover the term debt obligation of Rs 4-5 crore over the medium term. Current ratio was healthy at 1.66 times as on March 31, 2024. The company also has unencumbered cash and cash equivalents of Rs 12-13 crore as of December 2024. The promoters too are likely to extend support via equity and unsecured loans to cover the working capital expenses and debt obligations. Low gearing and moderate networth offer financial flexibility to withstand adverse conditions or downturn in the business.

Outlook: Negative

Crisil Ratings believes the business risk profile of APSPL may remain under pressure over the medium term.

Rating sensitivity factors

Upward factors

• Growth in revenue and sustenance of operating margin at over 9%, leading to higher-than-expected cash accrual
• Improvement in financial risk profile and working capital cycle and reduced customer concentration in revenue

 

Downward factors

• Sizeable stretch in the working capital cycle, with GCAs exceeding 350 days, or any large, debt-funded capex, weakening the financial risk profile, especially liquidity
• Limited scalability of operations or any sharp moderation in debt protection measures

About the Company

APSPL was set up as a partnership called APSPL Engineers in 1986 and reconstituted into a private limited company in 1996 and to a public limited company in January 2025. The company undertakes manufacturing, fabrication, galvanising, and installation of all types of towers, such as power transmission towers and windmills.

Any other information: Not applicable