Rating Rationale
September 25, 2020 | Mumbai
Driplex Water Engineering Private Limited
Ratings migrated to 'CRISIL A-/Stable/CRISIL A2+' 
 
Rating Action
Total Bank Loan Facilities Rated Rs.360 Crore
Long Term Rating CRISIL A-/Stable (Migrated from 'CRISIL A-/Stable ISSUER NOT COOPERATING'*)
Short Term Rating CRISIL A2+ (Migrated from 'CRISIL A2+ ISSUER NOT COOPERATING'*)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
*Issuer did not cooperate; based on best-available information
Detailed Rationale

Due to inadequate information, CRISIL, in line with the Securities and Exchange Board of India guidelines, had migrated its ratings on the bank facilities of Driplex Water Engineering Private Limited (DWEPL) to 'CRISIL A-/Stable/CRISIL A2+ Issuer Not Cooperating'. However, the management has subsequently started sharing information necessary for carrying out a comprehensive review of the ratings. Consequently, CRISIL is migrating its ratings on the company's facilities to 'CRISIL A-/Stable/CRISIL A2+' from 'CRISIL A-/Stable/CRISIL A2+ Issuer Not Cooperating'.
 
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 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. Though revenue declined in fiscal 2018 due to a dismal order book, the same has improved during the past couple of fiscals. With an unexecuted order book of Rs 680 crore (as on March 31, 2020), revenue profile is expected to improve further over the medium term.
 
* Healthy financial risk profile is supported by a debt-free capital structure and a strong networth of Rs 104 crore as on March 31, 2020. Debt protection metrics were robust in the past but declined significantly during fiscals 2019 and 2020 due to accounting losses and low revenue following Covid-19, respectively. Expected revival in operating profitability shall result in healthy debt protection metrics over the medium term.
 
Weaknesses:
* Low operating profitability: Change in pricing policy (while bidding for tenders) over the past 2-3 years is estimated to have reduced gross margin in any project to around 12%, from 18-20% historically. As a result, operating profitability turned negative at 3.9% during fiscal 2019 (excluding provision for doubtful debt and retention money) and was estimated to be lower at 0.4% during fiscal 2020. Decline in operating profitability is also attributed to lower economies of scale as revenue was subdued and fixed overhead costs (particularly employee cost) increased. Improvement in operating margin will remain a key rating sensitivity factor over the medium term.
 
* Large working capital requirement: Gross current assets stood at 250-419 days over the three fiscals through March 31, 2020, predominantly on account of delayed payment from government authorities and sizeable retention money held by them (outstanding at around Rs 30 crore as on March 31, 2020), which resulted in stretched receivables (90-310 days). Inventory majorly includes basic raw material pertaining to civil work requirements and is 10-15 days on average. During fiscals 2019 and 2020, inventory (mainly work-in-progress) increased to 48 days and 110 days, respectively.
Liquidity Strong

Capital structure is debt-free and bank limit of Rs 50 crore unutilised. Though working capital requirement remained large, it is partly supported by credit from suppliers. Over the medium term, absence of any sizeable capital expenditure, and large unencumbered cash and cash equivalents will continue to aid liquidity.

Outlook: Stable

CRISIL 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 10% leading to healthy accrual
* Efficient working capital management
 
Downward factors
* Weakening of the credit risk profile of the parent
* Lower operating profitability of 5% (or below) or decline in revenue to below Rs 160 crore, thereby impacting cash accrual
* Further stretch in working capital cycle affecting financial risk profile
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 (Standalone)
As on/for the period ended March 31 Unit  2020 2019
Operating income Rs.Crore 136.5 114.07
Reported profit after tax Rs.Crore 4.98 -24.04
PAT margins % 3.65 -21.1
Adjusted debt/adjusted networth Times NA NA
Interest coverage Times 0.58 -30.25

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
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 50 NA CRISIL A-/Stable
NA Bank Guarantee NA NA NA 240 NA CRISIL A2+
NA Letter of Credit NA NA NA 20 NA CRISIL A2+
NA Proposed Bank Guarantee NA NA NA 50 NA CRISIL A2+
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  50.00  CRISIL A-/Stable  31-08-20  CRISIL A-/Stable (Issuer Not Cooperating)*  31-05-19  CRISIL A-/Stable  28-02-18  CRISIL A-/Stable      CRISIL A-/Stable 
Non Fund-based Bank Facilities  LT/ST  310.00  CRISIL A2+  31-08-20  CRISIL A2+ (Issuer Not Cooperating)*  31-05-19  CRISIL A2+  28-02-18  CRISIL A2+      CRISIL A2+ 
All amounts are in Rs.Cr.
*Issuer did not cooperate; based on best-available information
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 240 CRISIL A2+ Bank Guarantee 225 CRISIL A2+/Issuer Not Cooperating
Cash Credit 50 CRISIL A-/Stable Cash Credit 50 CRISIL A-/Stable/Issuer Not Cooperating
Letter of Credit 20 CRISIL A2+ Letter of Credit 85 CRISIL A2+/Issuer Not Cooperating
Proposed Bank Guarantee 50 CRISIL A2+ -- 0 --
Total 360 -- Total 360 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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