Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil A/Positive/Crisil A1’ ratings on the bank loan facilities of LC Infra Projects Private Limited (LCPL). 

 

The rating reflects the expected improvement in the business risk profile, particularly scalability, driven by the healthy order book position. Revenue has recorded a compound annual growth rate of 42% over the three fiscals through March 2024, to Rs 2,017 crore (as against Rs 1,160 crore during fiscal 2023). The momentum should sustain with expected revenue growth of 10-15% per fiscal in 2025 and 2026, backed by a healthy pipeline of orders worth Rs 7,500 crore as of October 2024. 

 

The business risk profile has been aided by healthy operating efficiency, as reflected in operating margin of over 11%, recorded for the first eight months of fiscal 2025 i.e. till November 2024. The margin is expected to sustain at 10-11% over the medium term. However, timely execution of orders and efficient working capital management remain key monitorables. The financial risk profile is marked by a healthy networth, comfortable capital structure and robust debt protection metrics, aided by limited reliance on external debt.

 

The ratings continue to reflect the extensive experience of the promoters and established market position of LCPL in the civil construction industry, its healthy order book with reputed counterparties providing adequate revenue visibility and its healthy financial risk profile. These strengths are partially offset by exposure to risks stemming from tender-based business and intense competition, and the working capital-intensive operations.

Analytical Approach

Crisil Ratings has evaluated the standalone business and financial risk profiles of LCPL. Unsecured loan of Rs 25.73 crore, extended by the promoters as on March 31, 2024, has been treated as 75% equity and 25% debt.

Key Rating Drivers & Detailed Description

Strengths:

• Established market position and extensive experience of the promoters: The promoters have been engaged in the civil construction business for nearly four decades and have executed turnkey projects for central and state government bodies. LCPL offers engineering, procurement and construction (EPC) services in segments such as water supply and wastewater management, railways, irrigation and sewerage, solar projects and Power transmission & Distribution (T&D) projects across India. Revenue is projected to record a compound annual growth rate of 45% during the four fiscals through March 31, 2025 and be in the range of Rs 2,200-2,500 crore in fiscal 2025 and fiscal 2026. Orders worth Rs 7,550 crore as of October 2024 (around 4 times the revenue of fiscal 2024) provide adequate revenue visibility and need to be executed over the next 2-3 years. However, LCPL remains exposed to concentration in the order book and risk of delay in execution of few orders, due to counterparties. Timely execution of orders will further strengthen the market position of the company.

 

• Healthy order book with reputed counterparties providing adequate revenue visibility: The company has a healthy pipeline of orders worth around Rs 7,550 crore as of October 2024, to be executed over the next 24-36 months. The orderbook to revenue ratio of more than 3.5 times the revenue of fiscal 2024, provides adequate revenue visibility for the medium term. Share of orders under the Jal Jeevan Mission has come down to 39%, as compared to 80% two years ago with state and central government bodies accounting for the remaining orders. The Jal Jeevan Mission projects are funded by the central government and hence, counterparty risk is low. Key clients include government bodies such as UP Jal Nigam Board, UP State Water Sanitation Mission, Madhya Pradesh Jal Nigam Maryadit, Gujarat Urban Development Company Ltd, Indian Railways, Maharashtra State Power Generation Co. Ltd, etc. The management has a focused approach towards bidding and only takes those projects which are well funded and have limited operational or counterparty risk. Timely execution of orders, while managing the working capital cycle efficiently, remains a key monitorable.

 

• Healthy financial risk profile: The strong capital structure is backed by steady accretion to reserve along with low dependence on working capital debt; gearing ratio is projected to be in the range 0.08-0.10 time as on March 31, 2025. Networth has improved significantly over the past few years, and should remain at over Rs 500 crore as on March 31, 2025. However, total outside liabilities to tangible networth ratio was high at 1.29 times as on March 31, 2024, as majority of working capital is funded via payables/sub-contractors. Debt protection metrics were strong, marked by interest cover of above 11 times and net cash accrual to adjusted debt of 3.3-4.3 times over the medium term.

 

Efficient working capital management and asset-light model have ensured lower reliance on working capital debt as well as long-term debt. Absence of any large, debt-funded risk profile is expected to be comfortable, with no large debt funded capex, if any would remain closely monitorable.

 

Weaknesses:

• Exposure to risks inherent in tender-based business and intense competition: LCPL undertakes civil construction under the engineering, procurement and construction model, where projects are secured through tenders floated by government entities. The company’s revenue and profitability thus depend on its success in bidding for such tenders. While there are price escalation clauses available in the civil construction contracts industry any significant increase in costs can have some impact on the operating profitability. The operating margin is expected at 9-10% over the medium term, and the ability to maintain profitability margin through operating efficiency will remain monitorable.

 

The construction and civil works sector is highly fragmented, marked by the presence of large companies. The intense competition in the civil construction industry restricts the ability of a company to diversify its scale of operations from different segments and restricts its ability to fully pass on any significant increase in costs to end customers, given the tender-based nature of operations. LCPL faces competition not just from companies based in Gujarat, but also from larger pan-India players. LCPL undertakes water supply, sewerage-irrigation projects, with further diversification into railways, solar and Power (T&D) projects and will continue to face competitive pressure, despite its established position in the segment.

 

• Working capital-intensive operations: Gross current assets stood at 86 days as on March 31, 2024, driven by a large inventory of 53 days and receivables of 36 days. Receivables tend to be high towards the end of the fiscal as the company has major revenue booking in the month of March. However, payments are realized within a month. Inventory tends to be high and includes work-in-progress and raw material stock. Nevertheless, the company has a price escalation clause in all its contracts, which mitigates the risk of any sharp fluctuation in raw material prices. Working capital requirement is supported by payables of 77 days as on March 31, 2024, bank limit and internal accrual. Improvement in the working capital cycle shall remain a key monitorable. Further, LCPL has received one railway project, nine solar projects and two Power (T&D) and are at incipient stages of progress, timely execution of construction remain key monitorable. Any delay in execution or completion of projects can impact on the financial risk profile and liquidity position of LCPL and hence will remain a key rating sensitivity factor.

Liquidity: Adequate

Bank limit utilisation is low at around 28 percent for the past twelve months ended November 2024. Cash accrual are expected to be over Rs 146 crore which are sufficient against term debt obligation of Rs 50-60 lakhs over the medium term. In addition, it will be act as cushion to the liquidity of the company. Current ratio are healthy at 2.12 times on March 31, 2024. The promoters are likely to extend support in the form of equity and unsecured loans to meet its working capital requirements and repayment obligations. Low gearing and moderate net worth support its financial flexibility, and provides the financial cushion available in case of any adverse conditions or downturn in the business.

Outlook: Positive

Crisil Ratings believes LCPL will improve its project diversity in its order book while maintain its healthy financial risk profile over the medium term.

Rating sensitivity factors

Upward factors

• Sustained revenue growth in medium term with sustenance of operating margin around 10% leading to more-than-expected net cash accrual.
• Prudent working capital management and sustenance of financial risk profile

 

Downward factors

• Decline in revenue or operating margin, resulting in lower cash accrual.
• Sizeable stretch in the working capital cycle, with gross current assets exceeding 200 days, or any large, debt-funded capital expenditure, weakening the financial risk profile, especially liquidity.

About the Company

LCPL was initially set up as a partnership firm named Laxmi Construction by Mr Shyam Sundar Agrawal and his family members in 1994. The firm was reconstituted with the present name in 2018. The Ahmedabad-based company executes turnkey drainage, sewerage, and irrigation and water supply projects for urban development authorities and municipalities and O&M services in the projects in water supply and sewerage projects. Further, with diversification, company started projects under railways, solar and oil and gas. The operations of the company are managed by Mr. Pratik Agrawal and Rajan Agrawal.

Any other information: Not Applicable