Rating Rationale
December 30, 2021 | Mumbai
Driplex Water Engineering Private Limited
Ratings reaffirmed at 'CRISIL A- / Stable / CRISIL A2+ '
 
Rating Action
Total Bank Loan Facilities RatedRs.360 Crore
Long Term RatingCRISIL A-/Stable (Reaffirmed)
Short Term RatingCRISIL A2+ (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL A-/Stable/CRISIL A2’ ratings on the bank loan facilities of Driplex Water Engineering Private Limited (DWEPL).

 

The rating continues to factor in strong operational and financial support from parent Suez.

 

Business risk profile of DWEPL is marked by compound annual growth in revenue of around 29% in last three fiscals ended 2021, and is expected to grow further to around Rs 230-240 Cr in FY22 supported by healthy unexecuted order of around Rs 340 Cr. Though, the company’s operating profitability has improved to 3% in FY21 (from 1.2% in fy20), it continues to remain at modest levels. Lower operating profitability is predominantly on account of consistent debtor provisioning incorporated by the company and lower economies of scale; debtor provisioning stood at 6.9 crores in fy21.

 

Financial risk profile is marked by improving accretion to reserves with networth and TOLTNW ratio to remain healthy at an estimated 122 crores and 0.9 time, respectively, as at Mar 31, 2022. Improvement in scale has also aided the net cash accruals, which are expected at over Rs 11 Cr against nil repayments, during fiscal 2022. Working capital requirements will remain supported by excess net cash accruals over repayments and estimated unencumbered cash reserves of Rs 28 crores expected over the medium term.

 

The ratings continue to reflect the strong business and financial support that DWEPL gets from the Suez group and healthy financial risk profile because of negligible debt. These strengths are partially offset by low operating profitability and large working capital requirement.

Analytical Approach

For arriving at its ratings, CRISIL Ratings has applied its parent notch-up framework to factor in the extent of support available to DWEPL from the Suez group.

Key Rating Drivers & Detailed Description

Strengths:

  • Strong business and financial support from the parent: DWEPL benefits from the operational, managerial, and financial support received from the Suez group, which is one of the largest players globally in wastewater treatment. Business risk profile will benefit from synergies with the parent, such as access to strong technical know-how and improved technical qualification for bigger projects. The same has supported consistent revenue growth with a CAGR of 29% over the last fiscals 3 fiscals ended 2021. The same is expected to improve to improve to around Rs 230-240 Cr in FY22 supported by unexecuted order book of Rs 330 crores. Suez has provided necessary funding support to its subsidiary towards commencement of operations and towards stabilization of operations as well. Need-based support from the parent will continue to aid financial flexibility and support overall credit profile of the firm.

 

  • Healthy financial risk profile: The company has healthy financial risk profile marked by healthy networth of Rs 111 Cr in fiscal 2021. It is expected to improve further to around Rs 122 Cr as on 31st Mar, 2021 supported by stable accretion to reserves. Total outside liabilities to tangible networth ratio also remained comfortable at around 1.1 time as on 31st Mar, 2021 and is expected to improve below 1 time as on 31st Mar, 2022 supported by stable accretion to reserves and absence of long term debt in the capital structure. Debt protection metrics has also improved marked by improvement in interest coverage to around 4.5 times in fiscal 2021 and is expected to operate at above 5 times as on 31st Mar 2022.

 

Weaknesses:

  • Low operating profitability: Change in pricing policy (while bidding for tenders) over the past 2-3 years is to have reduced gross margin in any project to around 12%, from 18-20% historically. As a result, operating profitability has reduced to modest levels at around 1-3%. In last 2 fiscals ended 2021. Operating profitability was also impacted due to consistent provisioning of debtors incorporated by the company over the last 3 fiscals ended 2021. Decline in operating profitability is also attributed to lower economies of scale as revenue was subdued and fixed overhead costs (particularly employee cost) increased. The same is expected to improve in FY22 to around 5-6% in supported by improvement in scale and lower provisioning expected in the current fiscal. Improvement in operating margin will remain a key rating sensitivity factor over the medium term.

 

  • Large working capital requirement: The company has working capital intensive operations as indicated by gross current assets of 319 days as on 31st Mar 2021 which are being majorly driven by debtors of over 139 days as the company extends credit period of over 3 months to it clientele. The same is expected to operate at around 140 days as on 31st Mar, 2022. Also, the amount of work executed but not billed is reflected as work in progress inventory leading to higher inventory which stood at 143 days as on 31st Mar, 2021 and is expected to operate at around 130 days as on 31st Mar, 2022. Gross current assets are also impacted by sizeable retention money held by government authorities. Going forward as well, operations are expected to remain working capital intensive with gross current assets expected to operate at over 300 days as on 31st Mar, 2022.

Liquidity: Strong
Bank limit utilisation is low at around 0.3% for the past 12 months ended Sep-21. Cash accrual are expected to be over Rs 11 Cr which are sufficient against nil term debt obligations over the medium term. In addition, it will be act as cushion to the liquidity of the company. Current ratio is expected to be around 1.9 times on March31, 2022. Healthy cash and bank balance of around Rs.28 Cr as on Sep 30, 2021 provides additional cushion to liquidity. Low gearing and moderate net worth support its financial flexibility, and provides the financial cushion available in case of any adverse conditions or downturn in the business.

Outlook: Stable

CRISIL Ratings believes DWEPL will continue benefit from the support of the Suez group, and debt-free capital structure.

Rating Sensitivity factors

Upward factors:

  • Steady credit risk profile of the parent
  • Sustained improvement in revenue and operating profitability of over 7% leading to healthy accruals at over Rs 20 Cr
  • Efficient working capital management

 

Downward factors:

  • Weakening of the credit risk profile of the parent
  • Lower operating profitability of 4.5% (or below) or decline in revenue to below Rs 160 crore, thereby impacting net cash accrual
  • Further stretch in working capital cycle affecting financial risk profile, especially liquidity

About the Company

Set up in 1974 by Mr K Lall, DWEPL provides turnkey solutions in water and wastewater management. It offers a range of process plants (including raw water-treatment plants, reverse osmosis and ultra-filtration plants, effluent treatment plants, full-cycle water-treatment solutions, and ash-handling plants) mainly for power utilities, refineries, steel plants, large industrial sectors, and public health departments.

 

Suez Environment Company SA (parent company of the Suez group) is a multinational corporation headquartered in Paris that primarily operates in the water, electricity and natural gas supply, and waste management domains. The Suez group holds 99.99% stake in DWEPL.

Key Financial Indicators

As on / for the period ended March 31

 

2021

2020

Operating income

Rs crore

214.50

137.59

Reported profit after tax

Rs crore

6.14

6.04

PAT margins

%

3.58

2.86

Adjusted Debt/Adjusted Net worth

Times

0.00

0.00

Interest coverage

Times

4.47

1.29

 

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)

ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Complexity level Rating assigned with outlook
NA Cash Credit NA NA NA 36.75 NA CRISIL A-/Stable
NA Bank Guarantee NA NA NA 273.25 NA CRISIL A2+
NA Proposed Fund-Based Bank Limits NA NA NA 50 NA CRISIL A-/Stable

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 86.75 CRISIL A-/Stable   -- 25-09-20 CRISIL A-/Stable 31-05-19 CRISIL A-/Stable 28-02-18 CRISIL A-/Stable CRISIL A-/Stable
      --   -- 31-08-20 CRISIL A- /Stable(Issuer Not Cooperating)*   --   -- CRISIL BBB/Watch Developing
Non-Fund Based Facilities ST 273.25 CRISIL A2+   -- 25-09-20 CRISIL A2+ 31-05-19 CRISIL A2+ 28-02-18 CRISIL A2+ CRISIL A2+
      --   -- 31-08-20 CRISIL A2+ (Issuer Not Cooperating)*   --   -- CRISIL A3+/Watch Developing
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information
 
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Bank Guarantee 40 CRISIL A2+
Bank Guarantee 44 CRISIL A2+
Bank Guarantee 174.25 CRISIL A2+
Bank Guarantee 15 CRISIL A2+
Cash Credit 10 CRISIL A-/Stable
Cash Credit 16 CRISIL A-/Stable
Cash Credit 0.75 CRISIL A-/Stable
Cash Credit 10 CRISIL A-/Stable
Proposed Fund-Based Bank Limits 50 CRISIL A-/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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