Rating Rationale

Detailed Rationale

Crisil Ratings has revised the outlook on the long term bank facilities of Dilip Buildcon Ltd (DBL) to ‘Stable’ from ‘Positive’ while reaffirming the rating at ‘Crisil A'. The short term rating has been reaffirmed at 'Crisil A1'.

The revision in outlook follows expectation of moderation in the company’s operating performance this fiscal over a subdued last fiscal. Operating income reduced to Rs 9,005 crore in fiscal 2025 against Rs 10,537 crore in the previous fiscal and is expected to de-grow another ~5% this fiscal. The decline follows moderation in the order book to Rs 14,923 crore as on March 31, 2025 (from Rs 17,432 crore as on March 31, 2024, and Rs 25,395 crore as on March 31, 2023), translating into order book to revenue ratio of 1.65 times (on a lower base of fiscal 2025), providing limited revenue visibility over the medium term. The order book has been impacted due to muted order awarding in the road sector for two consecutive fiscals through 2025 as well as limited order additions from other sectors that the company operates in. The order book is expected to improve to over 2.0x times the revenue by the end of the current fiscal, with order addition expected at over Rs 15,000 crore. The company has bid for multiple projects in the irrigation and water supply segment and expects order additions of Rs 4,000-5,000 crore by the end of the current quarter. Further, awarding is expected to pick up for the road sector in the current fiscal; tightening of eligibility criteria for bidding for both EPC (engineering, procurement and construction) and HAM (hybrid annuity model) road projects, is also expected to bode well for the company, alleviating bid success ratio. Addition and timely commencement of new orders will remain critical for a rebound in operating income and will remain a key monitorable.

Given the reduction in scale of operations, operating margin also contracted to 10.2% in fiscal 2025 from 11.6% in fiscal 2024, due to high fixed costs, and is expected to remain rangebound at 10-11% for the current fiscal. Consequently, debt protection metrics are expected to remain modest with interest cover sustaining below 3.0 times over the medium term. The company is in the process of streamlining operations and bringing down certain fixed as well as variable costs, which should result in an improvement in operating margin to ~12% in the near to medium term. Further, the company is also focused on improving the net margin to ~5% in the medium term (from 3.5% for fiscal 2025) with lower interest outflow (through debt reduction and refinancing of high-cost debt) as well as increasing non-operating income (from distributions from its infrastructure investment trust [InvIT] and up streaming of surplus from mining projects). Timeliness in implementation of these measures and their impact on debt protection metrics will remain a key rating sensitivity factor.

Despite the moderation in operating performance, external debt is expected to be reduced gradually, with the company becoming net debt negative by September 2026. While the gross debt increased to Rs 1,970 crore as on March 31, 2025, from Rs 1,867 crore as on March 31, 2024, it is expected to come down in the current fiscal. The company is in the process of divesting stake in most of its underlying HAM projects as well as raising equity by way of its deal with Alpha Alternatives (AA). The deal involves – a) 26% stake sale in 18 HAM assets valued at ~Rs 1,500 crore, and b) issue of warrants to AA worth Rs 533 crore against 10% equity stake. Of this, the company has already realised Rs 133 crore for warrants and Rs 960 crore for sale of equity stake and repayment of unsecured loan from promoter till March 31, 2025, while the remaining inflows are expected in next two fiscals. DBL, in partnership with AA, is also in the process of listing its InvIT – Anantam Highways Trust and expected to receive units equivalent to ~Rs 3,500 crore and annual distribution of Rs 350-400 crore in the medium term. Inflows of balance funds from AA and regular distributions, along with cash accrual from operations, will be utilised towards equity commitments in existing and future projects as well as for debt reduction. The company is also expected to add new projects only to the extent of free cash flow available to fund their share of equity commitments without relying on incremental debt, thus maintaining a net debt free position once achieved.

The working capital cycle remains stretched with gross current assets (GCA) of 285 days as on March 31, 2025 (up from 243 days as on March 31, 2024). This is on account of high debtors primarily in the irrigation and water projects and large unbilled revenue due to sub-contracting. While the company is looking to rationalise its inventory holding period, which should result in 10-15 days reduction in the overall cycle, GCA are expected to remain above 250 days over the medium term. Consequently, the fund-based bank limit utilisation is also expected at 80-90% going forward (utilised at an average of 87% for fiscal 2025). Non-fund-based facilities were utilised at an average of 74% over the same period, leaving sufficient headroom for future bidding. As on March 31, 2025, cash and equivalent stood at ~Rs 394 crore, out of which ~Rs 98 crore was unencumbered and this level of unencumbered cash is expected to be maintained over the medium term.

The ratings continue to reflect the company’s established market position backed by strong project execution capability, a diversified order book and an improving financial risk profile given focus on deleveraging. These strengths are partially offset by the large working capital requirements, capital expenditure (capex) intensive business model, and cyclicality inherent in the construction industry.