| G R Infraprojects Limited | ||||||||||||||
| Ratings Reaffirmed | ||||||||||||||
| Rating Action | ||||||||||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||||||||||
| 1 crore = 10 million | ||||||||||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL AA/Stable/CRISIL A1+’ ratings on the bank loan facilities and non convertible debentures of G R Infraprojects Limited (GRIL).
The rating on NCDs worth Rs 229 crore (see ‘Annexure- Details of Rating Withdrawn' for details) has been withdrawn on confirmation from the debenture trustee as these are fully redeemed. The withdrawal is in line with the policy of CRISIL Ratings.
Revenue is expected to grow by 3-4% in fiscal 2024 to nearly Rs 8,300-8,400 crore. Outstanding orders worth Rs 26,780 crore with order-book-to-revenue ratio of 3.3 times as of fiscal 2023, offer revenue visibility over the next three years. The EBITDA margin without early completion bonus is expected to remain similar to fiscal 2023 at 14% in the medium term. Including early completion bonus, the EBITDA margins stood at 16.1% for FY23. Due to the increased competitive intensity in roads sector, GRIL, while continuing to bid for HAM projects with 13-14% margins, has also entered into ropeways and multi modal logistics park segment which are expected to provide better margins and support the overall operating performance of the company.
GRIL has equity commitments of Rs 800-900 crore towards its special purpose vehicles (SPVs), debt obligation of Rs 350 crore and debt-funded capital expenditure (capex) of Rs 250 crore per fiscal in the medium term against expected cash accrual of over Rs 900 crore per annum. However, cashflow will be supported by dividends from the InvIT units, which will be received on transfer of the seven HAM assets to Bharat Highways InvIT within the next six months.
Debt protection metrics are expected to remain healthy with gearing expected to marginally increase from 0.26 time in fiscal 2023 to 0.3 times in fiscal 2024. Interest coverage ratio in fiscal 2024 will be lower but healthy at 9-9.5 time compared to 12.9 times in fiscal 2023 which was supported by early completion bonus. Even considering a 5% cost overrun, which is unlikely due to GRIL’s strong execution track record, gearing is expected to be below 0.5 time and interest coverage is expected to be above 4.5 time in the medium term.
The company has strong liquidity and financial flexibility. It has average unutilized fund based lines of ~Rs 900 crore, as on 11 months ending April’ 2023 and unencumbered cash of Rs ~100 cr as on Mar 31, 2023. Financial flexibility is supported by Rs. ~2000 crore worth of InvIT units that are expected to be received on transfer of the 7 HAM assets within the next 6 months.
On June 13, 2022, 3 GRIL employees were arrested on charges of bribery to the tune of ₹4 lakh by the Central Bureau of Investigation (CBI). Consequently, there were raids/surveys on the premises of GRIL and at the residence of the promoter. However, no top management or promoter family members have been implicated. As per disclosures made to the stock exchanges, the company is fully cooperating with CBI and providing them all the required documents. There is no major impact on operations or financial flexibility of the company. Further, CRISIL Ratings will continue to monitor developments around the case and its impact on the credit risk profile of GRIL.
The ratings continue to reflect the established position of GRIL in the construction industry, backed by its strong project execution capabilities, robust order flow, efficient working capital management and healthy financial risk profile. These strengths are partially offset by exposure to risks related to segmental concentration and inherent cyclicality in the construction industry. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has considered the standalone financials of GRIL and has moderately consolidated other SPVs to the extent of support required over the medium term.
The list of all SPVs being consolidated is provided in the Annexure.
CRISIL Ratings has considered interest-bearing mobilisation advances as debt.
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: Established track record: GRIL has been constructing high quality roads within the stipulated cost and timeline for over two decades. Healthy execution capabilities, owned fleet of equipment, sourcing tie-ups and in-house design and engineering teams have helped the company record a compound annual revenue growth rate of 22% over the five fiscals through March 2023. With revenue of Rs 8,148 crore in fiscal 2023 (year-on-year growth of 3%), CRISIL Ratings believes that GRIL will cautiously grow over the medium term; expectation of large investments by the government in the road and infrastructure sector also augurs well for the company.
GRIL has a track record of completing projects ahead of schedule with receiving early completion bonus of Rs.163 crore in fiscal 2023. Under-construction HAM projects and EPC projects are progressing to be completed within expected completion dates.
Furthermore, the order book is geographically well diversified across 21 states. Orders worth over Rs 26,780 crore as of March 2023 (translating into an order-to-revenue [fiscal 2023] ratio of 3.3 times), offer good revenue visibility over the medium term. Around 90% of the orders are from central government agencies, thereby reducing counterparty risk, with 81% of orders from NHAI or its subsidiary. Road HAM projects account for 63% of the outstanding order book.
Healthy operating efficiencies: Backward integration into manufacturing and processing capacities of various inputs used in road construction and a strong fleet of owned equipment and vehicles have supported the operating efficiency of GRIL. However, due to increased competitive bidding in the roads sector, the profitability will be lower in the medium term compared to historical average of 18%. Efficient working capital management, supported by strong sourcing tie-ups and healthy collection efficiency, have ensured a comfortable return on capital employed of over 20% in the past three fiscals. Working capital cycle remains moderate with some pressure on debtor days due to high SPV debtors for interest arbitrage. Gross current assets (GCAs) of 191 days as on March 31, 2023 should remain at similar levels in the medium term.
Comfortable financial risk profile: Sustained growth in revenue over the years has helped the company maintain lower reliance on debt. However, total debt (including interest bearing mobilization advances) is likely to increase from Rs. 1347 crore in fiscal 2023 to Rs ~1,700 crore by fiscal 2024 (considering no dividend support from InvIT) as GRIL has equity commitments in its SPVs to the tune of Rs. 800-900 crore, repayment of Rs. 350 crore and debt funded capex of Rs. 250 annually in the medium term against cash accruals of over Rs. 900 crore p.a. However, debt levels can be lower than expected in case of cash inflow from sale of InVIT units or receipt of dividend from InVIT.
Healthy accretion to reserve has resulted in strong networth of Rs 5,213 crore as on March 31, 2023. Debt protection metrics are expected to remain healthy with gearing expected to marginally increase from 0.26 time in fiscal 2023 to 0.3 times in fiscal 2024. Interest coverage ratio in fiscal 2024 will be lower but healthy at 9-9.5 time compared to 12.9 times in fiscal 2023 which was supported by early completion bonus. Considering 5% cost overrun, which is unlikely due to GRIL’s strong execution track record, gearing is expected to be below 0.5 time and interest coverage is expected to be above 4.5 time in the medium term. TOL/TNW (total outside liabilities to tangible networth) ratio is also expected to remain below one time over the medium term (0.49 time as on March 31, 2023). Additionally, diversification into newer segments will not impact the debt metrices in the near term.
GRIL has large investments in its project SPVs, with about ~40% of its networth expected to be invested in them as of March 31, 2024. A large chunk of these investments is towards HAM projects, which are low-risk due to their fixed annuity inflows; however, deleveraging through sale of these assets would be essential to sustain the current growth trajectory. The company has sold its stake in two of its projects in fiscal 2017 and may continue to divest its stake in HAM projects to enhance the capital structure over the medium term.
Furthermore, GRIL is unlikely to extend any corporate guarantee for new project SPVs. The company may offer limited support to its SPVs, undertaking HAM projects so as to cover the initial equity contribution and any cost escalations over the construction phase and shortfall in the operational phase.
Weakness: Limited but slowly improving diversity in revenue profile: Road projects contribute to bulk of the revenue, unlike EPC players which are present in multiple segments, such as commercial, residential and industrial construction and infrastructure (railways, irrigation, dams and power). Operating performance will remain susceptible to concentration risk, thus increasing the exposure to cyclicality and delay in payments. However, the company over the last year has improved its diversification by entering into T&D, ropeways and MMLP projects. It shall continue to bid for such projects, which would lend some diversity to revenue over the medium term.
Exposure to intense competition inherent in the construction industry: Increased focus of the central government on the infrastructure sector, especially roads and highways, should augur well for GRIL over the medium term. However, as most of the projects are tender-based and the segment is intensely competitive, the company needs to bid aggressively to get contracts. Competition has intensified due to the recent relaxation in bidding norms by NHAI and the Ministry of Road Transport & Highways (MoRTH). Operating margin has already moderated to around 16.1% (fiscal 2023), given input price escalation and rising competitive intensity, and remains a key monitorable. Also, given the cyclicality inherent in the construction industry, the ability to maintain profitability through operating efficiency becomes critical. |
Liquidity: Strong Liquidity is supported by healthy cash accrual, unutilised bank limit and moderate cash and cash equivalents. Cash accrual of Rs 1097 crore was reported in fiscal 2023. Expected cash accrual of over Rs 900 crore per fiscal, should suffice to cover the maturing debt of around Rs 350 crore p.a. in the medium term. Unencumbered cash and equivalents (standalone level) stood at Rs ~100 crore as on March 31, 2023. The fund-based limit worth Rs ~900 crore has also been unutilised during most of the months since June 2022, with utilisation averaging 13% in the eleven months ending July 31, 2023. |
Outlook: Stable CRISIL Ratings believes GRIL will continue to benefit from its established position in the construction industry and its comfortable financial risk profile. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Company GRIL was incorporated in 1995, by the promoter, Mr Vinod Kumar Agarwal and his family members. The company primarily undertakes road construction projects from NHAI and the MoRTH on EPC and HAM basis. It has also established emulsion manufacturing plants in Udaipur (Rajasthan), Sandila (Uttar Pradesh) and Guwahati (Assam) with combined installed capacity of 84,960 metric tonne per annum. In addition, the company has its own capacities for bitumen processing, thermoplastic road-marking paint and road signage, fabrication and galvanization unit for metal crash barriers. |
Key Financial Indicators
*Interest bearing mobilisation advances have been treated as debt | ||||||||||||||||||||||||
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
Annexure - Details of Rating Withdrawn
^Yet to be placed |
Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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