Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A/Negative/CRISIL A1’ ratings on the bank loan facilities of GHV (India) Private Limited (GHV).

 

The company reported operating income of Rs 2,609 crore for fiscal 2023 (better than earlier expectation of Rs 2,000 crore), which is substantially higher than Rs 1,611 crore in fiscal 2022 driven by healthy execution across projects. The improvement was achieved while maintaining operating margin at ~11.0%. For the first quarter of fiscal 2024, the company has already reported revenue of Rs 513 crore, while operating margin has improved to 12.1%. While operating income has increased, the executable order book has moderated to Rs 3,780 crore as on June 30, 2023 (Rs 5,748 crore as on October 31, 2022 and Rs 7,052 crore as on October 31, 2021). Consequently, order book-to-revenue ratio has declined to 1.5 times (on fiscal 2023 revenue) limiting revenue visibility over the medium term. While the company is expected to bid for orders over the next few quarters, the ability of the company to win significant orders and ramp up executable order book will be a key rating sensitivity factor.

 

Improvement in operating performance has also resulted in adequate financial risk profile with adjusted gearing and total outside liabilities to tangible net worth (TOLTNW) ratios improving to 0.49 time and 1.75 times, respectively, as on March 31, 2023 against 0.83 time and 1.97 times, respectively, as on March 31, 2022. The debt level had increased substantially to Rs 332 crore in fiscal 2022, compared with Rs 173 crore in fiscal 2021. While debt level moderated to Rs 269 crore (including interest-bearing mobilisation advances) as on March 31, 2023 from Rs 332 crore as on March 31, 2022, it was temporary and the level increased back to Rs 310 crore as on June 30, 2023.  The company had average fund-based bank limit utilisation of 66% for the 12 months through June 2023 (limits were enhanced to Rs 180 crore in August 2022) and unencumbered cash and cash equivalent of Rs 26 crore apart from fixed deposits of Rs 43 crore as on March 31, 2023.

 

While the company has infused 50% of the equity requirement in its three ongoing hybrid annuity model (HAM) projects, the remaining 50% contribution was to be funded by the promoters. However, as on July 24, 2023, incremental infusion from the company towards these projects stood at Rs 70 crore. The incremental monies infused are expected to come back to the company and the same remains a monitorable.

 

The ratings continue to reflect the extensive experience of GHV’s promoters in the construction segment, improving scale of operations and adequate financial risk profile. These strengths are partially offset by moderate order book position and exposure to cyclicality inherent in the construction industry.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of GHV and those joint ventures (JVs)/associate companies which have been formed in the normal course of business to bid for or undertake engineering, procurement and construction (EPC) projects. CRISIL Ratings has also moderately consolidated those special purpose vehicles (SPVs) where GHV has provided a corporate guarantee to the extent of support required over the medium term. These SPVs have not been fully consolidated as the corporate guarantees are expected to fall off once the projects achieve commercial operations date (COD).

 

CRISIL Ratings has also moderately consolidated GHV-BDE-DIL (JV for coal trading contract) and Karmala Road Project Pvt Ltd (associate company undertaking a HAM project, with 26% shareholding by GHV), to the extent of GHV’s shareholding in them. This is because there are no operational, financial and managerial linkages between GHV and these entities, and the company’s involvement is only limited to fulfilling technical qualifications required for these projects. GHV has also provided a corporate guarantee to the extent of support required which is expected to fall off after the project is completed, hence it has not been fully consolidated.

 

Interest-bearing mobilisation advances of Rs 23 crore as on March 31, 2023 (Rs 51 crore as on March 31, 2022) have been considered as debt and retention money of Rs 48 crore as on March 31, 2023 (Rs 30 crore as on March 31, 2022) has been considered as a part of receivables.

 

Loans and advances of Rs 66 crore as on March 31, 2023 (Rs 100 crore as on March 31, 2022) from related parties have been treated as advances from customers. This is because these are mainly mobilisation advances received from HAM SPVs and are expected to be repaid in line with project progress and receipt of milestone payments. These advances are also non-interest bearing.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Extensive experience of the promoters: The promoters have been in the infrastructure industry for around five decades and have forged strong relationships with customers, suppliers and contractors. The company has in-built labour and machinery which allows superior execution without any delays and reliance on third parties. This is also evident from investments of Rs 129 crore in last two fiscals to enhance capacities for executing higher order book of around Rs 7,000 crore. Operating margin is supported by no subcontracting expenses, no leasing of equipment and early completion bonuses. Additionally, GHV only bids for projects which are backed by strong counterparties, such as National Highways Authority of India (NHAI, rated ‘CRISIL AAA/Stable’), Airports Authority of India (AAI, rated ‘CRISIL AAA/Stable’), Military Engineering Services (MES), to name a few.

 

• Improving scale of operations: The company reported 62% increase year-on-year in revenue to Rs 2,609 crore in fiscal 2023, better than earlier expectation of Rs 2000 crore. The improvement was achieved while maintaining operating margin at ~11.0%. Consequently, interest coverage ratio improved to 5.78 times in fiscal 2023 on account of improvement in operating performance. For the first quarter of fiscal 2024, the company has already reported revenue of Rs 513 crore, while operating margin has improved to 12.1%. For fiscal 2024, revenue is expected to improve further to around Rs 2,700 crore backed by execution of outstanding order book while the operating margin is expected to remain stable at 11.0%. However, the ability of the company to win significant orders and ramp up executable order book will be a key rating sensitivity factor.

 

The working capital cycle experienced a stretch during fiscals 2020 and 2021 due to the Covid-19 pandemic with gross current assets (GCA) of 222 days and 193 days as on March 31, 2020, and March 31, 2021, respectively. Nevertheless, it has improved in past two fiscals with GCA of 125 days as on March 31, 2023 and 161 days as on March 31, 2022. The ability to efficiently manage working capital requirement and maintain comfortable liquidity will remain a monitorable.

 

• Adequate financial risk profile: The financial risk profile has remained adequate, as indicated by low gearing of below 1.0 time since fiscal 2019, given low reliance on external debt. The debt level had increased substantially to Rs 332 crore in fiscal 2022, compared with Rs 173 crore in fiscal 2021. While debt level moderated to Rs 269 crore (including interest-bearing mobilisation advances) as on March 31, 2023 from Rs 332 crore as on March 31, 2022, it was temporary and the level increased back to Rs 310 crore as on June 30, 2023. Nevertheless, the financial risk profile is adequate with gearing and TOLTNW ratio improving to 0.49 time and 1.75 time, respectively, as on March 31, 2023 compared to 0.84 time and 1.97 times as on March 31, 2022.

 

Weaknesses:

• Moderate order book position: The executable order book has moderated to Rs 3,780 crore as on June 30, 2023 (Rs 5,748 crore as on October 31, 2022 and Rs 7,052 crore as on October 31, 2021). Consequently, order book-to-revenue ratio has declined to 1.5 times (on fiscal 2023 revenue) limiting revenue visibility over the medium term. The company has been shortlisted as lowest bidder for orders worth ~Rs 3000 crore and the consequent award and execution of these orders will be a key monitorable. While the company is expected to bid for orders over the next few quarters, the ability of the company to win significant orders and ramp up executable order book will be a key rating sensitivity factor.

 

While GHV's order book is concentrated in the roads and highways segment, over 85% of the orders are coming from a strong counterparty, that is NHAI. The sectoral concentration is mitigated by diverse geographical presence across 10 states wherein the company had executed projects in the past. The current order book is largely spread across 4 states viz., Maharashtra, Madhya Pradesh, Gujarat and Rajasthan. The business risk profile is expected to continue to benefit from good execution capabilities and experienced promoters.

 

• Exposure to cyclicality inherent in the construction industry: Revenue remains susceptible to economic cycles that impact the construction industry. Furthermore, the company mainly caters to government agencies, whose expenditure is directly linked to the economy. Intense competition also puts pressure on profitability.

Liquidity: Adequate

Liquidity is supported by expected net cash accrual of Rs 180-200 crore per annum against debt obligations up to Rs 65 crore over the medium term. While the company incurred Rs 129 crore towards capex in last two fiscals, there are no plans for any further capex in fiscal 2024. While the company has infused 50% of the equity requirement in its three ongoing hybrid annuity model (HAM) projects, the remaining 50% contribution is to be funded by the promoters. Unencumbered cash is around Rs 26 crore apart from fixed deposits of Rs 43 crore as on March 31, 2023. The average utilisation has moderated to 66% during the 12 months through June 2023 (peak utilisation of 84% in January 2023).

Outlook: Negative

CRISIL Ratings believes the credit risk profile of GHV may weaken over the medium term on account of limited revenue visibility due to moderation in order book-to-revenue ratio.

Rating Sensitivity factors

Upward factors:

• Significant ramp up in executable order book leading to order book-to-revenue ratio over 2.0 times
• Sustenance of financial risk profile
• Improvement in the working capital cycle, leading to strengthening liquidity

 

Downward factors:

• Debt-funded capex or higher-than-expected infusion into subsidiaries/associates leading to TOLTNW ratio of above 2 times on sustained basis
• Lower than expected operating income or moderation in profitability impacting net cash accrual
• Stretch in the working capital cycle, resulting in higher debt and weakening of the financial risk profile

About the Company

GHV, based in Mumbai, was incorporated in 2009 by Mr Jahid Vijapura and his three brothers, Mr Mustaq Vijapura, Mr Farooq Vijapura and Mr Shafi Vijapura, by reconstituting a partnership firm, G. H. Vijapura & Co. The firm was set up in 1965 by the late Mr Hussein M Vijapura and was engaged in infrastructure development.

 

GHV is an EPC contractor and executes projects related to the construction of roads, bridges, dams, irrigation projects and airport runways, among others. The company's first large irrigation project was undertaken in 1977 in partnership with the government of Gujarat. Post that, the group has successfully completed numerous other irrigation projects with other state governments. The company has expertise in construction of runways/resurfacing, parking bays and taxiways. GHV has worked with airports in Mumbai, Pune, Vadodara, Udaipur, Patna, Guwahati, Belgaum, Diu and Kochi. Presently, the order book comprises mostly of national and state highway projects. 

 

GHV has also bid for and won three build-operate-transfer projects under HAM, two in Maharashtra and one in Madhya Pradesh. All three are NHAI projects and progressing in line with schedule.

Status of non cooperation with previous CRA:

GHV has not co-operated with Brickwork Ratings which has classified it as Issuer Non Cooperating vide release dated July 5, 2023. The reason provided by Brickwork Ratings is non-furnishing of information.

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of the instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue size (Rs. Crore)	Complexity Level	Rating assigned with outlook
NA	Fund-based facilities	NA	NA	NA	180	NA	CRISIL A/Negative
NA	Non-fund-based limit	NA	NA	NA	820	NA	CRISIL A1