| Generic Engineering Construction and Projects Limited | ||||||
| Long-term rating downgraded to 'CRISIL BB/Negative'; Ratings removed from 'Watch Negative' | ||||||
| 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 removed its ratings on the bank facilities of Generic Engineering Construction and Projects Limited (GECPL) from 'Rating Watch with Negative Implications' and downgraded its long term rating to ‘CRISIL BB’ from ‘CRISIL BB+’ while assigning a ‘Negative’ outlook. The short term rating has been reaffirmed at ‘CRISIL A4+’.
CRISIL Ratings had, on November 28, 2023, placed the rating on watch with Negative Implications due to security perfection issues with one of the lenders along with liquidity stretch which limits the company’s ability to absorb any stretch in its already elongated working capital cycle, adversely affecting its overall credit risk profile. CRISIL Ratings has resolved the watch as the company has completed the security perfection related to the working capital limits.
The rating action is driven by the continuous stretch in GECPL’s liquidity profile despite completion of security perfection issues as reflected in the almost full utilization of its fund-based bank limits and the cash and bank balances remaining modest. This also limits the company’s ability to absorb any stretch in its already elongated working capital cycle, adversely affecting its overall credit risk profile. Furthermore, the operations have slightly moderated with revenues of Rs 149 crores upto December 2023 as compared to Rs 185.72 crores during the same period in fiscal FY 2023. Sustained improvement in liquidity profile of the company remains a key monitorable.
The rating reflects extensive experience of the promoters in the civil construction industry, strong order book providing revenue visibility and comfortable capital structure. These strengths are partially offset by its susceptibility to cyclical downturns and intense competition in civil construction industry, working capital intensive operations and stretched liquidity. |
Key Rating Drivers & Detailed Description Strengths: Extensive industry experience of the promoters: The promoters have experience of over 50 years in the civil construction industry. This has given them an understanding of the dynamics of the market and enabled them to establish relationships with suppliers and customers. They have longstanding relationships with customers, which has helped the firm successfully navigate business cycles over the years. Over the years, GECPL has successfully completed several projects with various government authorities and private entities. Revenue has grown to Rs 272 Crore in fiscal 2023 from Rs 200 Crore in fiscal 2020.
Strong revenue visibility: Successful track record of project execution has led to healthy unexecuted order book of around Rs 777 crore as of December 2023, to be executed in the next two-three years. This provides strong revenue visibility over the medium term and will help scale up operations. Comfortable capital structure: Networth was strong at Rs. 234.6 crores as on March 31, 2023, and capital structure is comfortable as reflected in gearing and total outside liabilities to adjusted networth ratio of 0.25 time and 0.56 time, respectively, as on March 31, 2023. Debt protection is adequate on account of moderate operating margin and limited interest expense, indicated by interest coverage and net cash accrual to adjusted debt ratios of 3.75 times and 0.45 time, respectively in fiscal 2023. The capital structure is expected to be comfortable in the medium term with expected Gearing and total outside liabilities to adjusted networth (TOLANW) at 0.26 times and 0.50 times respectively as on March 31, 2024 and debt protection metrics are also expected to remain at healthy over the medium term backed by healthy profitability.
Weakness: Large working capital requirement: The large working capital requirement, reflected by gross current assets (GCAs) of 283-436 days for the past four fiscals, is driven by debtors and inventory of 120-150 days each. The increase to 436 days was due to Covid 19 pandemic impact in FY2021, whereby debtors and inventory had increased to 151 and 162 days respectively, however by FY2022 debtors and inventory days have come down to normal levels at 135 and 133 days respectively. Debtors are usually high in March due to 40% of revenues booked in last quarter of the fiscal. Further, there is high work in progress inventory as some portion of booking is done on milestone basis. Because of the business requirement, operations will remain working capital intensive over the medium term.
Susceptibility to cyclical downturns and intense competition in civil construction industry: Construction industry is cyclical by nature and is also prone to economic downturns and GECPL, like other players in the industry, will remain susceptible to these trends. GECPL is also a relatively small player in the highly competitive and fragmented civil construction industry with revenue of Rs. 272.5 crores in fiscal 2023. The presence of a large number of small players also restricts pricing flexibility for players such as GECPL, resulting in pressure on its margins. |
Liquidity: Stretched GECPL is expected to generate net cash accruals of Rs.23-25 crores annually in fiscal 2024 and fiscal 2025 against long term repayment obligations of Rs.1.5–2.2 crores. However, GECPL's fund-based limits utilization is high (close to 100%) over the past ten months through January 2024. Liquidity profile is also constrained by stretched working capital operations of GECPL. Any further stretch in the liquidity risk profile shall remain a key monitorable. |
Outlook: Negative CRISIL Ratings believes the business risk profile of the Generic Engineering Construction and Projects Limited will deteriorate over the medium term driven by continuous stretch in GECPL’s liquidity profile. |
Rating Sensitivity Factors Upward factors:
Downward factors:
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About the Company GECPL, incorporated in 1994 in Mumbai by Mr. Manish Patel and his family. It undertakes civil construction work for buildings across commercial, residential, industrial, health and leisure and institutional buildings with presence in states of Maharashtra, Karnataka, Gujarat, Goa & Himachal Pradesh. GECPL is listed in the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) |
Key Financial Indicators
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Status of noncooperation with previous CRA CARE Ratings has assigned non-cooperative rating to the bank facilities of GECPL vide press release dated 15th November, 2022 on account of non-cooperation by GECPL with the efforts to undertake a review of the ratings outstanding. |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||
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Criteria Details
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