Rating Rationale
September 12, 2023 | Mumbai
Generic Engineering Construction and Projects Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.160 Crore
Long Term RatingCRISIL BBB/Stable (Reaffirmed)
Short Term RatingCRISIL A3+ (Reaffirmed)
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 BBB/Stable/CRISIL A3+’ ratings on the bank facilities of Generic Engineering Construction and Projects Limited (GECPL).

 

The rating reflects GECPL's extensive experience of the promoters in the civil construction industry, strong order book providing revenue visibility and above average financial risk profile. These strengths are partially offset by its susceptibility to cyclical downturns and intense competition in civil construction industry and working capital intensive operations.

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 August 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.

 

Above average financial risk profile: 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. Repayment of loans and limited reliance on outside borrowings for working capital limit or capital expenditure (capex) will keep the capital structure at similar levels. 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.

 

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: Adequate

GECPL has adequate liquidity driven by expected cash accruals of Rs.28-31 crores annually in fiscal 2024 and fiscal 2025 against long term repayment obligations of Rs.1.5–2.2 crores annually. GECPL's fund-based limits have been utilized around 85% over the 12 months ended July 2023. CRISIL Ratings expects internal accruals, cash & cash equivalents, and unutilized bank lines to be sufficient to meet its repayment obligations and incremental working capital requirements.

Outlook: Stable

CRISIL Ratings believes GECPL will continue to benefit from its strong track record in the civil construction industry, a healthy order book and above average financial risk profile.

Rating Sensitivity Factors

Upward factors

  • Sustained revenue growth and stable operating margin leading to higher cash accruals.
  • Bank limit utilisation below 85% on sustained basis.

 

Downward factors

  • Steep decline in revenue or operating profitability leading to lower net cash accrual below Rs. 12 crores.
  • Substantial increase in GCAs to above 400 days, thus weakening liquidity and the financial risk profile.

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

As on/for the period ended March 31

Unit

2023

2022

Operating income

Rs crore

273

260

Reported profit after tax

Rs crore

15.3

13.9

PAT margins

%

5.6

5.3

Adjusted Debt/Adjusted Networth

Times

0.25

0.29

Interest coverage

Times

3.75

4.77

 

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:
CRISIL Ratings` 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.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of instrument

Date of allotment

Coupon
rate (%)

Maturity date

Issue size
(Rs.Crore)

Complexity levels

Rating assigned

with outlook

NA

Cash Credit

NA

NA

NA

63

NA

CRISIL BBB/Stable

NA

Letter of credit & Bank Guarantee

NA

NA

NA

97

NA

CRISIL A3+

Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 63.0 CRISIL BBB/Stable   -- 21-06-22 CRISIL BBB/Stable   --   -- --
      --   -- 13-06-22 CRISIL BBB/Stable   --   -- --
Non-Fund Based Facilities ST 97.0 CRISIL A3+   -- 21-06-22 CRISIL A3+   --   -- --
      --   -- 13-06-22 CRISIL A3+   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 28 State Bank of India CRISIL BBB/Stable
Cash Credit 10 Axis Bank Limited CRISIL BBB/Stable
Cash Credit 10 ICICI Bank Limited CRISIL BBB/Stable
Cash Credit 15 Union Bank of India CRISIL BBB/Stable
Letter of credit & Bank Guarantee 10 ICICI Bank Limited CRISIL A3+
Letter of credit & Bank Guarantee 10 Axis Bank Limited CRISIL A3+
Letter of credit & Bank Guarantee 55 State Bank of India CRISIL A3+
Letter of credit & Bank Guarantee 22 Union Bank of India CRISIL A3+
Criteria Details
Links to related criteria
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Construction Industry
CRISILs Criteria for rating short term debt

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