| DCC Infra Projects Limited | ||||||
| Ratings upgraded to 'CRISIL BBB+/Stable/CRISIL A2 ' | ||||||
| Rating Action | ||||||
| ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its ratings on the bank facilities of DCC Infra Projects Limited (DIPL) to ‘CRISIL BBB+/Stable/CRISIL A2’ from ‘CRISIL BBB/Stable/CRISIL A3+’.
The upgrade reflects sustained improvement in the company’s operating performance supported by healthy order book and better operating efficiency. Revenue is expected to increase to around Rs 700 crore in fiscal 2022 from Rs 485 crore in fiscal 2021. The company has orders worth Rs 1,651 crore (as on November 30, 2021) to be executed over the next 24 months, providing medium-term revenue visibility. Operating margin was healthy at 13% in fiscal 2021, which is likely to be maintained over the medium term. Economies of scale, investment in construction equipment and machinery, and in-house mining and stone crushing operations will aid sustenance of the operating margin.
Further, efficient working capital management and increasing accretion to reserve have led to limited reliance on debt, and hence, steady improvement in the financial risk profile. Liquidity remains adequate driven by minimal utilisation of fund-based limit and unencumbered cash and equivalent of over Rs 20 crore as on December 2021.
DIPL took over its promoters’ partnership firm, Diamond Construction Company, through a business takeover agreement with effect from October 7, 2021. Consequently, the firm has ceased to exist and DIPL has the assets, liabilities, rights, privileges and obligations on going concern basis.
The ratings reflect the extensive experience of the promoters in the construction industry, the company’s improving revenue, its healthy order pipeline and above-average financial risk profile. These strengths are partially offset by exposure to intense competition and revenue concentration risk. |
Key Rating Drivers & Detailed Description Strengths:
Turnover increased to Rs 485 crore in fiscal 2021 from Rs 312 crore in fiscal 2020. Revenue has increased at a compound annual growth rate of 56% over the four fiscals through 2021. Orders worth around Rs 1,651 crore to be executed over the next 24 months offer medium-term revenue visibility, with revenue expected at around Rs 700 crore in fiscal 2022.
Networth was moderate at Rs 80 crore and gearing and total outside liabilities to adjusted networth (TOLANW) ratio were comfortable at 0.43 time and 1.71 times, respectively, as on March 31, 2021. Networth is expected to increase sharply in fiscal 2022 backed by healthy accretion to reserve. Entire capital from the firm has been retained in DIPL. Moreover, the company has limited reliance on debt owing to efficient working capital management. The capital structure will remain comfortable over the medium term. Debt protection metrics were strong, reflected in interest coverage and net cash accrual to adjusted debt ratios of 23.85 and 1.5 times, respectively, in fiscal 2021.
The company caters to large players engaged in road projects, wherein orders are awarded by the National Highways Authority of India (NHAI). Payments are generally received in 30-45 days. Gross current assets stood at 100 days as on March 31, 2021, led by receivables of around 24 days and inventory of 15 days. Nonetheless, the working capital cycle was supported by payables of 166 days as on March 31, 2021.
Weaknesses:
Revenue is susceptible to economic cycles. Furthermore, the company indirectly caters to government agencies, wherein expenditure is linked to the economy. Moreover, revenue and profitability depend on the ability to successfully bid for tenders amid intense competition in the roads engineering, procurement and construction (EPC) sector. Until recently, major orders were subcontracted from Gawar Construction Ltd (GCL).
Orders were concentrated in Rajasthan, Haryana, Madhya Pradesh and Gujarat. Over 90% of the current order book consists of subcontracted orders from GCL. Further, the top two orders constitute of over 85% of the overall order book. Successful and sustained diversification in the order book and execution track record of large own orders remain key monitorables. |
Liquidity: Adequate Expected cash accrual of Rs 65-80 crore per annum over the medium term will sufficiently cover yearly debt obligation of Rs 18-23 crore; the surplus will aid financial flexibility. Utilisation of the fund-based limit was minimal during the 12 months through November 2021. Current ratio was moderate at 1.2 times as on March 31, 2021. The company maintains fixed deposits for exigencies. |
Outlook: Stable CRISIL Ratings believes DIPL will continue to benefit from the extensive experience of the promoters and its healthy order book. |
Rating Sensitivity factors Upward factors:
Downward factors:
|
About the Company Incorporated on June 25, 2021, DIPL is promoted by Mr Harjit Singh and Mr Baljit Singh. The company is engaged in the construction of roads, bridges and buildings for government departments and large private entities. It has recently taken over the business of Diamond Construction Company. |
Key financial indicators*:
*pertains to firm Diamond Construction Company |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||
|
This Annexure has been updated on 07-Jan-2022 in line with the lender-wise facility details as on 07-Dec-2021 received from the rated entity.
Criteria Details
|