| M and B Engineering Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the long-term bank facilities of M And B Engineering Limited (MBEL) to ‘Positive’ from ‘Stable’, while reaffirming the rating at 'CRISIL BBB’; the short-term rating has been reaffirmed at ‘CRISIL A3+'.
The revision in outlook reflects the expectations of sustenance of the improved performance and consolidation of the financial profile.
During the current fiscal, company’s turnover is expected to rebound by around 60% from previous year’s Rs. 414 cr with steady operating margin. Simultaneously, the working capital cycle has also moderated ensuring the liquidity remained comfortable. The performance has been supported by healthy rebound in demand and company’s well entrenched presence. Company currently has an order book of around Rs. 530 cr. Over medium term, the company is expected to maintain an annual growth rate of 10% with steady margin on back of its established presence, continued focus on customer and product addition.
Company’s financial profile is also expected to consolidate sequentially backed by healthy annual cash accruals of Rs. 30-35 cr and absence of any significant capex plans. Also, it continues to receive significant funding support from promoters in form of unsecured loans. MBEL’s capital structure remains healthy with total outside liabilities to tangible net worth ratio estimated around 2 times over medium term.
The ratings reflect MBEL’s established track record in the engineering and construction industry, healthy financial risk profile and funding support from promoters. These strengths are partially offset by working capital-intensive operations and exposure to intense competition in a highly fragmented industry. |
Key Rating Drivers & Detailed Description Strengths:
The company has been in the engineering and civil construction business for over five decades, leading to a strong track record for construction of industrial and government buildings. It was set up by the late Mr Manibhai Patel, and is now managed by Mr Hasmukhbhai Patel and his family members. Over the years, its promoters have developed technical and project management capabilities to execute mid-sized to large projects.
MBEL’s financial risk profile supported by healthy networth of Rs. 124 cr and gearing of 0.83 times as on March 31, 2021. MBEL’s capital structure has further improved with estimated net worth around Rs. 150 cr as on March 31, 2022. The company is also supported by unsecured loans from promoters, related entities amounting to Rs. 69 crore as on March 31, 2021. Debt protection metrics of company were moderate, with interest coverage and net cash accrual to total debt ratios of 2.57 times and 0.16 time, respectively, in fiscal 2021. With the rebound in scale and stable margin, MBEL’s interest coverage is estimated around 3.5 times for fiscal 2022.
Weaknesses:
The company has working-capital-intensive operations, reflected in an estimated gross current assets (GCA) of around six months as on March 31, 2022. This is driven by receivables of over 2 months and inventory of over 3 months. GCA levels had inflated to over eight months as on March 31, 2021 owing to supressed revenues in the first half of fiscal (amidst COVID-19 related disruptions) and increased revenue booking pace in fourth quarter of the year. CRISIL believes that company’s operations will remain working capital intensive over the medium term.
The group faces intense competition in the civil construction industry, which has a large number of unorganised players because of low entry barriers. |
Liquidity: Adequate The company is expected to generate annual cash accrual of over Rs 30 crore over the medium term against which it does not have any debt repayment obligation. MBEL has rarely utilized its fund based limits over last 12 months. MBEL primarily relies on LC and buyers credit to support the working capital requirements. It generates adequate monthly cash flows to service the monthly LC, buyer’s credit maturity and does not have to rely on external funding for same. Company currently has freely available fixed deposit of around Rs. 85 cr apart from margin money fixed deposit of around Rs. 40 cr. Further, company receives continued funding support from promoters in form of unsecured loans. |
Outlook: Positive CRISIL Ratings believes the group MBEL will continue to benefit from its promoters' extensive experience and their funding support. |
Rating Sensitivity factors Upwards factors:
Downward factors:
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About the Company MBEL, based in Ahmedabad, Gujarat, manufactures and installs pre-engineered buildings, and installs self-supported steel roofing systems. MBEL was incorporated as Manibhai & Brothers Construction Pvt Ltd, and was reconstituted as a public limited company with the present name in fiscal 2011. |
Key Financial Indicators
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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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
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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This Annexure has been updated on 04-Apr-2022 in line with the lender-wise facility details as on 10-Aug-2021 received from the rated entity.
Criteria Details
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