Rating Rationale
October 27, 2020 | Mumbai
G R Infraprojects Limited
Long-term rating upgraded to 'CRISIL AA/Stable'; short-term rating reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.2050 Crore
Long Term Rating CRISIL AA/Stable (Upgraded from 'CRISIL AA-/Positive')
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.275 Crore Non Convertible Debentures CRISIL AA/Stable (Upgraded from 'CRISIL AA-/Positive')
Rs.200 Crore Non Convertible Debentures CRISIL AA/Stable (Upgraded from 'CRISIL AA-/Positive'; Rating withdrawn)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has upgraded its rating on the long-term bank facilities and non-convertible debentures (NCDs) of Rs 275 crore of G R Infraprojects Limited (GRIL) to 'CRISIL AA/Stable' from 'CRISIL AA-/Positive' while reaffirming the short-term rating at 'CRISIL A1+'.
 
CRISIL has also withdrawn its rating on the NCDs of Rs 160 crore (see Annexure- 'Details of Rating Withdrawn') on confirmation from the debenture trustee as these are fully redeemed. The rating is withdrawn in line with CRISIL's policy.
 
The upgrade reflects a steady improvement in GRIL's business risk profile, supported by strong operating performance and stable working capital cycle. Revenue grew at a compound annual rate of 47% during the past five years to Rs 6,030 crore in fiscal 2020.  On account of the Covid-19 outbreak, construction activities witnessed a slowdown in March 2020 due to lockdowns announced by various state governments and had halted from March 25, 2020 due to the nation-wide lockdown and continued to be impacted in the first half of fiscal 2021 due to issues with respect to availability of raw material and labour. Revenue for first half of fiscal 2021 (H1'FY2021) was around Rs 2,400 crore, 15% lower than revenues for the corresponding period of the previous fiscal. However, the company has healthy order book of more than Rs 22,500 crore as of September 2020 translating to order book to revenue (fiscal 2020) ratio of more than 3 times, providing revenue visibility. Furthermore, the operating margin has steadily improved to 20.6% in fiscal 2020 from 11.9% in fiscal 2016 (the same for first half of fiscal 2021 was lower at 19% on account of the pandemic). The improvement is on account of economies of scale achieved as a result of greater scale of operations, execution of higher margin projects and regular receipt of bonuses. The company's operations have more or less stabilized post easing of lockdowns and revenue for fiscal 2021 is expected to match that of the previous fiscal despite the slowdown in H1'FY2021. Revenue growth for fiscal 2022 is expected to be over 25% given GRIL's healthy order book and strong execution capabilities.
 
Working capital cycle remained comfortable with gross current assets (GCAs) of 167 days as on March 31, 2020 and is expected to sustain in the medium term. Despite significant ramp up in operations, the financial risk profile has been healthy as reliance on debt has been moderate. While the company's revenue has shown multifold growth in the five fiscals through  2020, capital structure remained comfortable, with gearing and total outside liabilities to tangible networth (TOLTNW) ratio of 0.54 time and 0.83 time, respectively, as on March 31, 2020. The financial risk profile should remain strong over the medium term despite large investment in hybrid annuity model (HAM) assets supported by strong average annual cash accrual of over Rs 1,000 crore over the medium term.
 
CRISIL's ratings on the bank loan facilities and NCDs of GRIL continue to reflect the company's established position in the construction industry, backed by strong project execution capabilities, robust order flow, efficient working capital management, and comfortable 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 has considered the standalone financials of GRIL, and has fully consolidated its special purpose vehicle (SPV) Nagaur Mukundgarh Highways Pvt Ltd as the company has provided an unconditional and irrevocable guarantee against the project debt undertaken in the SPVs. Further, CRISIL 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 - List of Entities Consolidated

CRISIL 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 in a timely manner and within the stipulated cost for over two decades. The healthy execution capabilities, owned fleet of equipment, sourcing tie-ups, and in-house designing and engineering teams have supported a 47% compound annual growth over the past five years. CRISIL believes that its execution capabilities will back its ability to grow at a healthy pace over the medium term, given expectation of large investments by the government in the road sector.

GRIL has a track record of completing projects ahead of schedule. In fiscal 2019, the company completed a state HAM project 13 months ahead of schedule and has received early completion bonus in October 2020. Two HAM projects from the National Highways Authority of India (NHAI; rated 'CRISIL AAA/Stable') were also completed ahead of schedule (in February and April 2020) and the company expects to receive early completion bonus shortly. The company's current under construction HAM projects are also expected to be completed as per schedule.

Furthermore, GRIL's order book is geographically well diversified across 13 states. Orders worth over Rs 22,500 crore as of September 2020 (which translates to order-to-revenue [fiscal 2020] ratio of more than 3 times), provides good revenue visibility over the medium term. Around 90% of the orders are from central government agencies thereby reducing counterparty risk with 80% of the orders from NHAI. HAM and EPC orders account for 42% and 58%, respectively, of the outstanding order book.

* Healthy operating efficiencies: GRIL benefits from backward integration into manufacturing and processing capacities of various inputs used in road construction and its strong fleet of owned equipment and vehicles, which have supported its operating efficiencies.  Operating margin has been maintained at over 17% since fiscal 2017 which improved further to over 20% in fiscal 2019 on account of execution of HAM projects and has been maintained at this level through the second half of fiscal 2021, despite the pandemic. CRISIL believes that the company's established track record of constructing high quality roads in a timely manner will support high margin over the medium term. Furthermore, efficient working capital management supported by strong sourcing tie-ups and healthy collection efficiencies have supported comfortable return on capital employed.  Working capital cycle remained comfortable with gross current assets (GCAs) of 165 days as on March 31, 2020 and is expected to sustain in the medium term.

* Comfortable financial risk profile: While the company's revenue has grown to Rs 6,030 crore in fiscal 2020 from Rs 864 crore in fiscal 2015, its reliance on debt continues to be low. Total debt as on March 31, 2020 stood at Rs 1,531 crore of which Rs 427 crore were interest bearing mobilization advances. Growth has been largely funded through internal accrual. Continued healthy accretion to reserves has resulted in strong networth of Rs 2,822 crore as on March 31, 2020. Supported by a growing networth and low debt, gearing improved to 0.54 time as on March 31, 2020 from 0.75 time a year earlier and is expected to remain at a similar level over the medium term. The TOLTNW ratio was also healthy at 0.83 time as on March 31, 2020 (1.06 times a year earlier) and is expected to remain below 1 time over the medium term. Debt protection metrics are comfortable and will remain steady with interest coverage ratio at around 6 times over the medium term.

Healthy growth in revenue, along with improvement in profitability, led to sizeable cash accrual of around Rs 870 crore in fiscal 2020 and average annual accrual is expected at over Rs 1,000 crore over the medium term. GRIL has equity funding requirement of around Rs 1,300 crore for its HAM projects (including projects which have been received in fiscal 2021) of which Rs 965 crore is to be infused over fiscals 2021 and 2022. GRIL has moderate capital expenditure of around Rs 300 crore annually. Annual accrual of around Rs 1,000 crore, over the medium term, should cover these requirements with minimal reliance on external debt.

The company has large investments in its project SPVs with about 30% of its networth invested in these SPVs. While large part of the investments are towards HAM projects which carry lower risk due to their fixed annuity inflows, deleveraging through sale of these assets would be essential in order to sustain GRIL's current growth trajectory. The company has sold its stake in two of its projects in fiscal 2017, and is expected to continue with the strategy of divesting stake in its HAM projects for improving capital structure over the medium term.

Furthermore, CRISIL believes that GRIL will not provide any corporate guarantees for any new project SPVs, and that it will provide only limited financial support to its SPVs undertaking the HAM projects to fund the initial equity contribution and any cost escalations over the construction phase.

Weaknesses:
* Limited diversity in revenue profile: Operations continue to be focused on road projects, which contribute to the bulk of the company's revenue, unlike EPC players with presence in multiple segments, such as commercial, residential and industrial construction and infrastructure (railways, irrigation, dams and power). The operating performance will remain susceptible to concentration on road projects, thus increasing exposure to cyclicality and risk of delayed payments. However, the company has diversified into the railway EPC business in fiscal 2019 by securing two orders from Rail Vikas Nigam Ltd and continues to bid for such projects which would bring in some diversity to revenue over the medium term.

* Exposure to intense competition inherent in the construction industry: With increased focus of the central government on the infrastructure sector, especially roads and highways, GRIL is expected to reap benefits over the medium term. However, most of its projects are tender-based and face intense competition, which may hence require it to bid aggressively to get contracts. While operating margin is currently healthy at over 20%, intense competition may constrain it going forward. Also, given the cyclicality inherent in the construction industry, the ability to maintain profitability margin through operating efficiency becomes critical.
Liquidity Strong

Liquidity is supported by healthy cash accrual, unutilised bank lines, and moderate cash and cash equivalents. Cash accrual was around Rs 870 crore in fiscal 2020 and average annual accruals are expected at over Rs 1,000 crore over the medium term, sufficient to service average maturing debt obligation of Rs 300-400 crore, per fiscal over fiscals 2021 and 2022. Fund-based bank limit utilisation has remained low within 30% during the 12 months through September 2020. Average utilization of the non-fund based facilities was high at over 80% during the 12 months through June 2020. However, the company has recently received enhancement in its non-fund based limits from Rs 2,450 crore to Rs 3,450 crore, keeping future utilization levels comfortable. As of September 30, 2020 the company had unencumbered cash of Rs 170 crore.

Outlook: Stable

CRISIL believes GRIL will continue to benefit from its established position in the construction industry and a comfortable financial risk profile.
 
Rating Sensitivity Factors
Upward factors
* Substantial increase in revenue (of more than 35%) in fiscal 2022 (against revenue of fiscal 2020), while operating margin is sustained over 20%
* Continuation of prudent working capital cycle
* Strengthening of the capital structure through divestment of stake in HAM projects
* Steps taken towards sectoral diversification
 
Downward factors
* Deterioration of the capital structure with TOLTNW ratio increasing significantly
*Stagnation of revenue while operating margin declines to below 17-18%
* Significant stretch in the working capital cycle
*Weakening of the liquidity profile.

About the Company

Incorporated in 1995, GRIL constructs roads and is promoted by Mr Vinod Kumar Agarwal and his family members. The company primarily undertakes road construction projects from NHAI and the Ministry of Road Transport and Highways on EPC and HAM basis. The company has also established emulsion manufacturing plants in Udaipur, Rajasthan (operational since fiscal 2010) and Guwahati, Assam with installed capacity of 30,000 metric tonne per annum each. In addition, GRIL 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
As on/for the period ended March 31  2020 2019
Revenue Rs.Crore 6030 4947
Profit After Tax (PAT) Rs.Crore 689 596
PAT Margin % 11.4 12.0
Adjusted debt/adjusted networth* Times 0.54 0.75
Interest coverage Times 9.15 10.1
*Interest bearing mobilization advances have been treated as debt

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 150.0 NA CRISIL AA/Stable
NA Letter of credit & Bank Guarantee NA NA NA 1,900.0 NA CRISIL A1+
INE201P08035 Non-convertible debentures 9-5-2018 9.00% 7-May-2021 65.0 Simple CRISIL AA/Stable
INE201P07151 Non-convertible debentures 13-11-18 9.69% 10-Sep-21 50.00 Simple CRISIL AA/Stable
INE201P07169 Non-convertible debentures 13-11-18 9.68% 13-May-22 50.00 Simple CRISIL AA/Stable
INE201P07177 Non-convertible debentures 13-11-18 N.A. 28-Jun-22 5.00 Simple CRISIL AA/Stable
INE201P07185 Non-convertible debentures 13-11-18 N.A. 29-Sep-22 70.00 Simple CRISIL AA/Stable
INE201P07193 Non-convertible debentures 13-11-18 N.A. 4-Oct-21 10.00 Simple CRISIL AA/Stable
 
Annexure - Details of Rating Withdrawn 
     ISIN Name of instrument Date of allotment Coupon rate (%) Maturity Date Issue size (Rs.Crore) Complexity level
NA Non-convertible debentures^ NA NA NA 70.0 NA
INE201P08027 Non-convertible debentures 9-5-2018 8.85% 8-5-2020 65.0 Simple
INE201P07144 Non-convertible debentures 13-11-18 9.68% 15-Sep-20 25.00 Simple
^Not placed
 
Annexure- List of Entities Consolidated
Entity consolidated Extent of consolidation Rationale for consolidation
Nagaur Mukundgarh Highways Pvt Ltd Full Corporate guarantee extended by GRIL
G R Phagwara Expressway Ltd Moderate To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations
Varanasi Sangam Expressway Pvt Ltd Moderate To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations
Porbandar Dwarka Expressway Pvt Ltd Moderate To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations
GR Gundugolanu Devarapalli Highway Pvt Ltd Moderate To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations
GR Sangli Solapur Highway Pvt Ltd Moderate To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations
GR Akkalkot Solapur Highway Pvt Ltd Moderate To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations
GR Dwarka Devariya Highway Pvt Ltd Moderate To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations
GR Aligarh Kanpur Highway Pvt Ltd Moderate To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations
GR Shirshad Masvan Expressway Pvt Ltd Moderate To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations
GR Ena Kim Expressway Pvt Ltd Moderate To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations
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
Commercial Paper  ST    --    --  23-07-19  Withdrawal  17-10-18  CRISIL A1+  14-12-17  CRISIL A1+  -- 
                04-05-18  CRISIL A1+       
Non Convertible Debentures  LT  708.00
31-03-20 
CRISIL AA/Stable      01-10-19  CRISIL AA-/Positive  17-10-18  CRISIL AA-/Positive    --  -- 
            23-09-19  CRISIL AA-/Positive  04-05-18  CRISIL AA-/Positive       
            23-07-19  CRISIL AA-/Positive           
Fund-based Bank Facilities  LT/ST  150.00  CRISIL AA/Stable      01-10-19  CRISIL AA-/Positive  17-10-18  CRISIL AA-/Positive  14-12-17  CRISIL AA-/Positive  Suspended 
            23-09-19  CRISIL AA-/Positive  04-05-18  CRISIL AA-/Positive       
            23-07-19  CRISIL AA-/Positive           
Non Fund-based Bank Facilities  LT/ST  1900.00  CRISIL A1+      01-10-19  CRISIL A1+  17-10-18  CRISIL A1+  14-12-17  CRISIL A1+  Suspended 
            23-09-19  CRISIL A1+  04-05-18  CRISIL A1+       
            23-07-19  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 150 CRISIL AA/Stable Cash Credit 150 CRISIL AA-/Positive
Letter of credit & Bank Guarantee 1900 CRISIL A1+ Letter of credit & Bank Guarantee 1900 CRISIL A1+
Total 2050 -- Total 2050 --
Links to related criteria
CRISILs Approach to Financial Ratios
Rating Criteria for Construction Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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