Key Rating Drivers & Detailed Description

Strengths:

Extensive experience of the promoter in the civil construction industry and strong project execution capability:

The promoter, Mr B Srinivasa Rao, has experience of over two decades in the construction industry. Aided by his extensive experience, the company has established strong project execution capabilities and long relationships with key stakeholders in the industry.

The company has a large unexecuted order book of around ~Rs 2995 crore (3.5 times the revenue of FY 2022) along with additional orders in advanced pipeline, as on August 31, 2022, to be executed largely in Karnataka. These orders are expected to be executed over the next 24 - 48 months and provide strong revenue visibility to the company. Strong operating capability and healthy asset base will help the company benefit from the increased government spending on road infrastructure, particularly in the state of Karnataka.

Moderate Financial Risk Profile: 

Financial risk profile remains supported by moderate capital structure and debt protection metrics. Capital structure, reflected by TOLTNW at 1.6 times as on March 31, 2022, remained moderate due to longer working capital cycle and higher reliance on bank debt. Interest coverage remains moderate at about 4 times for fiscal 2022 and is expected to remain in this level over the medium term.

Weaknesses:

Large working capital requirement:

The company has a large working capital requirement, reflected in gross current asset (GCA) days on 209 days as on March 31, 2022. High GCA is mainly on account of long collection cycle witnessed on account of pending debtors’ from partially executed projects in Andhra Pradesh and stretch in collections from existing customers on account of the pandemic.

Geographical concentration risk and susceptibility to tender-based operations:

The company's order book is largely skewed towards Karnataka. Any slowdown in project announcements by the governments of this state, or extraneous factors such as socio-political unrest, could adversely affect the company's revenue and operations.

The construction and civil works sector is highly competitive, marked by presence of both, large companies with pan-India presence, and small, local players. As all works are tender-based, revenue also depends on the ability to bid successfully. Profitability may come under pressure because of competitive pricing by local, small players.

Key Financial Indicators

Annexure - Details of Instrument(s)

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