Rating Rationale
January 22, 2019 | Mumbai
Dilip Buildcon Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.9793 Crore
Long Term Rating CRISIL A/Stable (Reaffirmed)
Short Term Rating CRISIL A1 (Reaffirmed)
Short Term Rating CRISIL A1+(SO) (Revised from 'CRISIL A1')
 
Rs.600 Crore Non Convertible Debentures CRISIL A/Stable (Reaffirmed)
Rs.100 Crore Commercial Paper CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has revised the short-term rating on the non-fund based limit facility of Rs 100.65 crore of Dilip Buildcon Limited (DBL) to 'CRISIL A1+(SO)' from 'CRISIL A1'. The revision in rating is based on the unconditional and irrevocable counter guarantee from L&T Finance Ltd (L&T Finance).
 
CRISIL has also reaffirmed its long-term rating on the bank facilities and non-convertible debentures (NCDs) at 'CRISIL A/Stable' and short-term rating on other bank facilities and commercial paper at 'CRISIL A1'.
 
CRISIL on January 8, 2019 had downgraded its rating on the long-term bank facilities and NCDs of DBL to 'CRISIL A/Stable' from 'CRISIL A+/Stable', while the short-term rating and commercial paper was reaffirmed at 'CRISIL A1'.
 
The downgrade reflects DBL's stretched liquidity, as reflected by the near-full utilisation of bank limit (averaging 95% over the 12 months through September 2018). Liquidity is stretched as the company has incurred significant expenses of Rs 500 crore in mobilisation and pre-operative work for its 12-hybrid annuity model (HAM) projects prior to the receipt of appointed date, thus receiving no mobilisation advance for these projects, which in turn resulted in high working capital requirement. This coupled with delay in receiving enhancement on the bank lines has stretched liquidity. Timely enhancement in the bank lines and inflows from the Shrem group deal and receipt of mobilisation advances for the HAM projects are key monitorables.
 
The ratings continue to reflect DBL's established market position, backed by strong project execution capability, healthy operating margin, robust orders providing revenue visibility over the medium term, and moderate financial risk profile marked by an adequate capital structure. These strengths are partially offset by large working capital requirement, and exposure to cyclicality in the construction industry.

Analytical Approach

For arriving at the ratings, CRISIL has considered the standalone financials of DBL and has fully consolidated the 12 special-purpose vehicles (SPVs) where DBL has outstanding corporate guarantees (CGs) as on September 30, 2018. CRISIL has also moderately consolidated three newly formed SPVs to an extent of debt guaranteed - DBL is expected to extend CGs for partial debt in these SPVs in the near future. The list of all SPVs being consolidated is provided in the Annexure.
 
Previously, CRISIL had considered the standalone financials of DBL, while moderately consolidating the SPVs. While DBL had outstanding CGs on the 12 SPVs mentioned above, these projects were in the process of being transferred to the Shrem group and the understanding was that the CGs would fall off post the transfer of the assets and were hence not considered to evaluate DBL's rating. However, the CGs are now expected to continue post transfer and could fall off only on refinancing. While DBL has back to back recourse guarantees with the Shrem group for the CGs which are currently outstanding, the analytical approach now involves full consolidation of the guaranteed SPVs.
 
For arriving at the rating on the Rs 100.65 crore BG (provided by Axis Bank to DBL) backed by counter guarantee from L&T Finance, CRISIL has applied its criteria on rating instruments backed by guarantees. The structured obligation (SO) suffix in the ratings reflects the payment structure that is designed to ensure full and time-bound payment to lenders.
 
Another BG facility of Rs 42.09 crore provided by Axis Bank to DBL is backed by counter guarantee from L&T Finance for Rs 42.08 crore. CRISIL has assigned rating of 'CRISIL A1' to this facility given that it is not fully covered by the counter guarantee. DBL has, however, created a fixed deposit lien to Axis Bank for the differential amount of Rs 0.01 crore.

Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths:
* BGs backed by unconditional and irrevocable counter guarantee from L&T Finance
The rating on DBL's non-fund-based facility is based on the strength of the unconditional and irrevocable counter guarantee provided by L&T Finance. The counter guarantee covers the entire amount of the instrument, and their tenure is co-terminus. As per the counter guarantee, L&T Finance is the primary obligor, and undertakes to make all guaranteed payments without any deductions.

* Established market position backed by strong project execution capability and healthy operating margin
The company has established relationships with state government departments, National Highways Authority of India (NHAI; 'CRISIL AAA/Stable'), and the Ministry of Road Transport and Highways (MoRTH), owing to its track record of executing projects on or before time. This is because of large equipment fleet and geographical clustering of projects. Furthermore, strong in-house technology and manpower enable completion of projects within the timelines and without any cost overrun. Acquiring own equipment, against leasing equipment, and minimal subcontracting of jobs has enabled the company to earn early completion bonus resulting in healthy operating margin of 18%. Margins are expected to remain stable over the medium term.
 
* Robust orders providing significant revenue visibility
The company had orders of Rs 24,000 crore as on September 30, 2018, (about 3 times its revenue in fiscal 2018). Though the roads segment accounts for 88% of the orders, there has been some diversification into mining and urban infrastructure in the past few years. The company in fiscal 2019 has secured a large mining contract for 55 years, which is expected to provide steady revenue of Rs 500 crore per year escalated annually. Furthermore, increased focus on road projects from central government agencies, such as NHAI and MoRTH will benefit DBL over the medium term. Continued focus on detailed due diligence while bidding for projects should sustain profitability.
 
* Moderate financial risk profile
Adjusted total outside liabilities to tangible networth (TOL/TNW) improved to 2.38 times as on March 31, 2018, from 2.59 times as on March 31, 2017, driven by strong cash accrual and a growing networth. Adjusted TOL/TNW ratio for fiscal 2019 is expected at 2.4 times despite the expected inflow from Shrem, due to high capital expenditure (capex) largely for the new mining contract. Debt stood at Rs 3,594 crore as on September 30, 2018, from Rs 2,955 crore as on March 31, 2018. Increase in debt was largely to fund the preparatory work in the 12 new HAM projects in the absence of mobilisation advances for these projects and for incremental working capital especially the inventory.
 
DBL had announced 100% stake sale in its 24 road projects (18 currently operational, six under construction HAM) portfolio to the Shrem group for Rs 1,602 crore, out of which DBL expects to receive Rs 814 crore from stake sale of its 18 operational SPVs and balance Rs 788 crore towards the six under-construction HAM projects. As a part of this divestment deal, 74% of the equity requirement in the six under-construction projects (Rs 583 crore) will be funded by the Shrem group during construction and balance 26% (Rs 205 crore) would be paid once the projects become operational. Though equity of Rs 400 crore has been invested in these six under-construction HAM projects till September 2018, only an amount of Rs 173 crore vis-Ã'' -vis Rs 296 crore (74% of Rs 400 crore) has been received from Shrem for these under construction projects pending no objection certificates from the lenders. Timely receipt of Shrem inflow thereby becomes critical for supporting the equity commitment in these projects. Furthermore, the company has won 12 new HAM projects in fiscal 2018 and has large equity commitment of about Rs 660 crore for fiscal 2019 (50% of the total equity commitment to be brought upfront) for these 12 new HAM projects. Healthy annual accrual of Rs 1,000 crore and Shrem inflow would support the equity commitments.
 
The TOL/TNW ratio is expected to improve gradually from fiscal 2020 onwards in the absence of any large capex plan as the company will largely incur only maintenance capex and, reduced equity contribution to HAM projects and fewer additions of new HAM projects over the medium term.
 
Debt protection metrics remain moderate for the rating category; interest coverage ratio improved to 3.05 times in fiscal 2018 from 2.48 times in fiscal 2017 and is expected to remain stable over the medium term.
 
Weaknesses:
* Large working capital requirement
As an engineering, procurement, and construction (EPC) player with robust orders, DBL has sizeable working capital requirement, with gross current assets of 260 days as on March 31, 2018. Inventory remains large, due to policy of stocking about 40% of total project inventory upfront for faster execution. The company has also started mobilisation and preparatory work prior to receipt of the appointed date for its 12 new HAM projects and has incurred a cost of around Rs 500 crore towards the same. This has significantly added on to the working capital as work done prior to appointed date cannot be billed. Though three projects have now received the appointed date, timely receipt of the dates for the remaining nine projects is crucial for draw down of project debt and receipt of mobilization advances from the NHAI. Timely inflow in the form of enhancement in bank lines, proceeds from the Shrem deal and mobilisation advances from the 12 new HAM projects are key monitorables.
 
* Susceptibility to intense competition and inherent cyclicality in the construction industry
The construction industry is cyclical and highly fragmented. Furthermore, 88% of the orders comprise projects from the roads segment, leading to limited diversity in the revenue profile.
Liquidity

Liquidity is currently stretched as evident in the near full utilisation of bank lines (averaging 95% utilisation over the 12 months through September 2018). Liquidity is stretched as the company has incurred significant expenses of Rs 500 crore in preparatory work for its 12 HAM projects prior to receipt of appointed date and thereby not received mobilisation advance. This coupled with delay in receiving enhancement on the bank lines has led to stretched liquidity. Cash accrual is projected at over Rs 1,000 crore annually over the medium term, sufficient to service debt obligation of Rs 184 crore and Rs 304 crore in fiscals 2019 and 2020, respectively. Further the company is expected to receive mobilisation advance of around Rs 1,600 crore for the 12 HAM projects in the near term after receipt of the appointed date.  The company has unencumbered cash of Rs 134 crore as of September 2018.

Outlook: Stable

CRISIL believes DBL will continue to benefit from an established market position and robust orders. The outlook may be revised to 'Positive' if liquidity improves significantly with timely and sufficient enhancement in bank lines and with realisation from the Shrem deal, while the company maintains its operating performance. Conversely, the outlook may be revised to 'Negative' if liquidity does not correct and remains stretched.

About the Company

DBL was set up as a proprietorship firm (Dilip Builders) in fiscal 1989, reconstituted as a private-limited company in 2006 and then as a public-limited company in fiscal 2017. The company is promoted by Mr Dilip Suryavanshi and his family. The company, based in Bhopal, undertakes road construction on an EPC basis and road development on a build operate transfer (BOT) basis. During August 2016, DBL successfully completed an initial public offering of Rs 654 crore, which included fresh equity of Rs 430 crore and the balance through sale of partial stake by the promoters and investor, Banyan Tree Growth Capital LLC. The company had orders of Rs 24,000 crore as of September 2018 of which about 88% were from the roads segment predominantly from the NHAI.
 
DBL has a portfolio of 36 BOT-based road projects through SPVs, including 18 operational projects and 18 under-construction projects. The operational BOT portfolio comprises of 10 toll plus annuity, three annuity, three HAM and two toll projects. The under-construction portfolio only contains HAM projects all awarded by the NHAI. DBL had announced 100% stake sale in its 24 road projects (18 currently operational, 6 under construction HAM) portfolio to the Shrem group for Rs 1,602 crore, out of which DBL expects to receive Rs 814 crore from stake sale of its 18 operational SPVs and balance Rs 788 crore towards the six under-construction HAM projects. The stake transfer is currently in progress and Rs 772 crore of the Rs 1,602 crore has been received till November 30, 2018.
 
For the six months ended September 2018, DBL reported profit after tax (PAT) of Rs 338 crore on revenue of Rs 4,060 crore against PAT of Rs 238 crore on revenue of Rs 3,245 crore for the corresponding period of the previous year.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs crore 7696 5006
Profit after tax Rs crore 620 361
PAT margins % 8.1 7.2
Adjusted debt/adjusted networth Times 1.20 1.39
Interest coverage Times 3.05 2.48

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)
ISIN Name of Instrument Date of Allotment Coupon rate (%) Maturity Date Issue size
(Rs Cr)		 Rating Assigned
with Outlook
NA Term loan NA NA Dec-2020 63.78 CRISIL A/Stable
NA Term loan NA NA Apr-2023 9.67 CRISIL A/Stable
NA Term loan NA NA Mar-2019 5.69 CRISIL A/Stable
NA Term loan NA NA Sept-2022 0.81 CRISIL A/Stable
NA Term loan NA NA May-2022 44.27 CRISIL A/Stable
NA Term loan NA NA Feb-2019 20.0 CRISIL A/Stable
NA Proposed Term loan NA NA NA 300.0 CRISIL A/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 6.04 CRISIL A/Stable
NA Cash credit NA NA NA 2145.8 CRISIL A/Stable
NA Non fund-based limit NA NA NA 5139.84 CRISIL A1
NA Non fund-based limit* NA NA NA 100.65 CRISIL A1+(SO)
INE917M07019 NCD 28-Dec-2017 8.9% 28-Dec-2019 45 CRISIL A/Stable
INE917M07027 NCD 28-Dec-2017 8.9% 28-Mar-2020 45 CRISIL A/Stable
INE917M07035 NCD 28-Dec-2017 8.9% 28-June-2020 45 CRISIL A/Stable
INE917M07043 NCD 28-Dec-2017 8.9% 28-Sep-2020 45 CRISIL A/Stable
INE917M07050 NCD 28-Dec-2017 8.9% 28-Dec-2020 45 CRISIL A/Stable
INE917M07068 NCD 28-Dec-2017 8.9% 28-Mar-2021 45 CRISIL A/Stable
INE917M07076 NCD 28-Dec-2017 8.9% 28-Jun-2021 45 CRISIL A/Stable
INE917M07084 NCD 28-Dec-2017 8.9% 28-Sep-2021 45 CRISIL A/Stable
INE917M07092 NCD 28-Dec-2017 8.9% 28-Dec-2021 45 CRISIL A/Stable
INE917M07100 NCD 28-Dec-2017 8.9% 28-Mar-2022 45 CRISIL A/Stable
INE917M07118 NCD 28-Dec-2017 8.9% 28-Jun-2022 50 CRISIL A/Stable
INE917M07126 NCD 28-Dec-2017 8.9% 28-Sep-2022 50 CRISIL A/Stable
INE917M07134 NCD 28-Dec-2017 8.9% 28-Dec-2022 50 CRISIL A/Stable
NA Commercial Paper NA NA 7-365 days 100 CRISIL A1
NA Proposed Cash Credit Limit NA NA NA 104.2 CRISIL A/Stable
NA Proposed Non Fund based limits NA NA NA 1852.25 CRISIL A1
*Backed by unconditional and irrevocable counter guarantee from L&T Finance 
 
 
Annexure - Details of consolidation
Entity consolidated Extent of consolidation Rationale for consolidation
DBL Ashoknagar Vidisha Tollways Ltd. Full CG extended by DBL
DBL Tikamgarh Nowgaon Tollways Limited Full CG extended by DBL
DBL Betul Sarni Tollways Limited Full CG extended by DBL
DBL Hata Dargawaon Tollways Limited Full CG extended by DBL
DBL Patan Rehli Tollways Limited Full CG extended by DBL
DBL Mundargi Harapanahalli Tollways Limited. Full CG extended by DBL
Jalpa Devi Tollways Limited Full CG extended by DBL
Lucknow Sultanpur Highways Limited Full CG extended by DBL
DBL Kalmath Zarap Highways Limited Full CG extended by DBL
DBL Yavatmal Wardha Highways Private Limited Full CG extended by DBL
DBL Tuljapur Ausa Highways Limited Full CG extended by DBL
DBL Wardha Butibori Highways Private Limited Full CG extended by DBL
DBL Mangalwedha Solapur Highways Private Ltd Moderate DBL is expected to extend CG on partial debt
DBL Sangli-Borgaon Highways Private Ltd. Moderate DBL is expected to extend CG on partial debt
DBL Borgaon Watambare Highways Private Ltd. Moderate DBL is expected to extend CG on partial debt
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  100.00  CRISIL A1  08-01-19  CRISIL A1  28-02-18  CRISIL A1  29-11-17  CRISIL A1/Watch Developing    --  -- 
                07-09-17  CRISIL A1/Watch Developing       
                16-05-17  CRISIL A1       
Non Convertible Debentures  LT  600.00
31-12-18  		CRISIL A/Stable  08-01-19  CRISIL A/Stable  28-02-18  CRISIL A+/Stable  29-11-17  CRISIL A+/Watch Developing    --  -- 
                07-09-17  CRISIL A+/Watch Developing       
Fund-based Bank Facilities  LT/ST  2700.26  CRISIL A/Stable  08-01-19  CRISIL A/Stable  28-02-18  CRISIL A+/Stable  29-11-17  CRISIL A+/Watch Developing    --  -- 
                07-09-17  CRISIL A+/Watch Developing       
                16-05-17  CRISIL A+/Stable       
Non Fund-based Bank Facilities  LT/ST  7092.74  CRISIL A1/ CRISIL A1+(SO)  08-01-19  CRISIL A1  28-02-18  CRISIL A1  29-11-17  CRISIL A1/Watch Developing    --  -- 
                07-09-17  CRISIL A1/Watch Developing       
                16-05-17  CRISIL A1       
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 2145.8 CRISIL A/Stable Cash Credit 2145.8 CRISIL A/Stable
Non-Fund Based Limit 5139.84 CRISIL A1 Non-Fund Based Limit 5097.75 CRISIL A1
Non-Fund Based Limit* 100.65 CRISIL A1+(SO) Proposed Cash Credit Limit 104.2 CRISIL A/Stable
Proposed Cash Credit Limit 104.2 CRISIL A/Stable Proposed Long Term Bank Loan Facility 6.04 CRISIL A/Stable
Proposed Long Term Bank Loan Facility 6.04 CRISIL A/Stable Proposed Non Fund based limits 1994.99 CRISIL A1
Proposed Non Fund based limits 1852.25 CRISIL A1 Proposed Term Loan 300 CRISIL A/Stable
Proposed Term Loan 300 CRISIL A/Stable Term Loan 144.22 CRISIL A/Stable
Term Loan 144.22 CRISIL A/Stable -- 0 --
Total 9793 -- Total 9793 --
*Backed by unconditional and irrevocable counter guarantee from L&T Finance
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for rating instruments backed by guarantees
Rating Criteria for Construction Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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