Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL BBB+/Stable/CRISIL A2’ ratings to the bank facilities and commercial paper programme of JWIL Infra Limited (JWIL).

 

JWIL is an engineering, procurement, and construction (EPC) company involved in water infrastructure projects. Initially operating only in the drinking water distribution segment, the company entered the irrigation segment in 2018 and wastewater treatment segment in 2022. JWIL has been operating for more than a decade and has completed projects in India and outside India as well.

 

Over the years, the company has improved its operating efficiency considerably—total operating income increased at a compound annual growth rate of 26% from Rs 246 crore in fiscal 2018 to Rs 793 crore in fiscal 2022 owing to better internal policies and bidding process. JWIL turned around from a loss-making company in fiscal 2018 to operating margin of 10% in fiscal 2022. The return on capital employed was 23-27% in the past two fiscals due to low capital requirement. The profitability ratios are expected to be in the same range in the medium term. The order book has increased from Rs 300 crore in fiscal 2018 to Rs 3,140 crore (3.95 times the total operating income in fiscal 2022) in September 2022 and provides healthy revenue visibility over the medium term.

 

JWIL belongs to the PR Jindal group of companies with a majority stake (51%) held by JITF Urban Infrastructure Services Ltd. and the rest (49%) by the chief executive officer (CEO) Rishabh Sethi through his investment holding company Samarpan Infra Holdings Pvt Ltd (Samarpan Infra). JWIL has received financial support from the PR Jindal group when needed (in the form of unsecured loan from immediate parent company JITF Urban Infrastructure Services Ltd, which was later converted to optionally convertible debentures [OCDs]). The extent of such support stood at Rs 136 crore of OCDs and Rs 40 crore of unsecured debt as on March 31, 2022, both are from JITF Urban Infrastructure Services Limited.

 

The ratings reflect JWIL’s established position in EPC business with track record in executing mid-sized projects in water infrastructure, considerable improvement in its operating efficiencies over the last few years and a strong management profile. These strengths are partially offset by slightly moderate financial risk profile and susceptibility to intense competition and cyclicity in the infrastructure and construction industry.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of JWIL and its subsidiaries (see annexure for the list of subsidiaries and joint ventures consolidated) as they have strong financial, managerial, and operational linkages.

 

The unsecured loan from related party has been treated as 100% debt as it has an interest cost and is repayable.

 

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 position in EPC for water infrastructure projects:

JWIL has been in the EPC business for water infrastructure projects since over a decade. The company also does operations and maintenance (O&M) work for completed projects, which comprises a very small proportion of revenue (Rs 8-10 crore annually). The company has successfully completed 16 projects in the drinking water distribution and irrigation segments - 15 in India (in Uttar Pradesh, Madhya Pradesh, and Bihar) and 1 in Nepal.

 

JWIL had an order book of 15 projects totaling Rs 3,140 crore in the water distribution and irrigation segments in September 2022. It entered the wastewater treatment segment in 2022. The company executes only government related projects, with low counterparty risk as majority of the projects are linked to the Jal Jeevan Mission (Har Ghar Jal Scheme). Its other counterparties are also strong such as the Brihanmumbai Municipal Corporation.

 

Improvement in operating efficiency:

JWIL was a loss-making entity until fiscal 2018 due to inefficient business practices. The company turned around in fiscal 2019 by making changes in internal controls such as strict margin criteria and a stable order book to revenue ratio for efficient execution. All this helped improve operating efficiency significantly. The total operating income rose from Rs 246 in fiscal 2018 to Rs 475 crore in fiscal 2020 and to Rs 793 crore (up 28% on-year) in fiscal 2022. JWIL targets revenue of Rs 1,000 crore in fiscal 2023. The operating margin was healthy at 10-11% in the past two fiscals, backed by price escalation clause in contracts, and is expected at a similar level over the medium term.

 

Strong group support:

JWIL is held jointly by the PR Jindal group (51%) and Samarpan Infra (49%). The company receives financial support from the PR Jindal group (in the form of loan to meet working capital requirement till 2018; the company now funds its own working capital). The company gets working capital support in the form of raw material supply (pipes, which account for 60% of raw materials) on 90-day clean credit terms from Jindal SAW.

 

Samarpan Infra is held by the CEO Rishabh Sethi (joined JWIL in July 2018), who manages the daily operations of JWIL along with a group of experienced professionals. His experience of over 15 years helped JWIL implement important controls, thereby improving operating efficiency.

 

Weaknesses:

Moderate financial risk profile:

The capital structure is average as indicated by total outside liabilities to tangible networth ratio of 2.3 time and gearing of slightly below 1 time as on March 31, 2022. Debt protection metrics were also average as reflected in interest coverage of 2.91 times and net cash accrual to total debt ratio of 0.20 time in fiscal 2022. The total debt comprises loans provided in the past by the PR Jindal group for working capital management along with working capital bank debt. With accrual expected to increase and no major capital expenditure (capex) in the medium term, the capital structure and debt protection metrics should improve. Any major debt from the group or depletion in accrual due to change in budgetary allocations will remain key monitorables.

 

The gross current assets were stretched at 254 days as on March 31, 2022, but have improved from 420 days as on March 31, 2019. The working capital management is supported by credit from Jindal SAW for raw material.

 

Susceptibility to intense competition and cyclicality in the infrastructure industry:

JWIL is susceptible to cyclicality inherent in the EPC industry and volatility in profitability amid intense competition in the business. JWIL faces intense competition from small and mid-sized players in the water infrastructure industry. Small and mid-sized players tend to bid for projects at a lower margin to win a bid which puts a pressure on the margins for all other players. 

 

However, the company graduating from lower ticket projects to larger ticket projects may reduce competition from over 15 players to 6-7 players, while improving profitability.

Liquidity: Adequate

Net cash accrual of Rs 40-50 crore will comfortably cover debt obligation of Rs 1-2 crore over the medium term. Bank limits of Rs 70 crore were utilised moderately at 56% on average for the 12 months through June 2022. Net cash accrual and unutilised bank lines should be sufficient to support the debt obligations and liquidity of JWIL.

Outlook: Stable

CRISIL Ratings believes JWIL will continue to benefit from its healthy order book and strong managerial profile.

Rating Sensitivity factors

Upward Factors

• Sustained increase in scale of operations supported by steady order execution and sustenance of profitability at over 11-12%, leading to healthy cash generation
• Maintenance of healthy financial risk profile with steady improvement in debt protection metrics

 

Downward Factors

• Weak order execution, impacting revenue booking and operating profitability (below 9%) and cash generation
• Sharp decline in financial risk profile with steady decline in debt protection metrics

About the Company

Incorporated in October 2006, JWIL undertakes EPC projects (pipes laying) for water treatment; water supply and distribution; and wastewater treatment at the household and industrial levels, and for irrigation. It operates in India and abroad. A small part of the revenue (9%) comes from O&M and trading of pipes. The company has its registered office in Mathura, Uttar Pradesh. JWIL was created as a subsidiary for forward integration for Jindal SAW and to cater to water related projects specifically.

 

For the three months ended June 30, 2022, JWIL had a net profit of Rs 7 crore on income of Rs 160 crore, compared with Rs 10 crore and Rs 150 crore, respectively, for the corresponding period of the previous fiscal.

Any other information: Not applicable

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	65.79	NA	CRISIL BBB+/Stable
NA	Proposed cash credit limit	NA	NA	NA	24.21	NA	CRISIL BBB+/Stable
NA	Bank guarantee*	NA	NA	NA	383	NA	CRISIL A2
NA	Bank guarantee	NA	NA	NA	155.22	NA	CRISIL A2
NA	Proposed bank guarantee*	NA	NA	NA	161.78	NA	CRISIL A2
NA	Commercial paper	NA	NA	7 to 365 Days	10	Simple	CRISIL A2

*Interchangeable with letter of credit