| M and B Engineering Limited | ||||||
| Ratings upgraded to 'CRISIL BBB+/Positive/CRISIL A2' | ||||||
| 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 upgraded its ratings on the bank loan facilities of M And B Engineering Limited (MBEL) to ‘CRISIL BBB+/Positive/CRISIL A2' from ‘CRISIL BBB/Positive/CRISIL A3+'.
The upgrade reflects the sharp improvement in the business risk profile of MBEL as reflected in the ramp-up in operations after moderation in fiscals 2020 and 2021 due to Covid-related disruption. The revenue grew at 11% compound annual growth rate (CAGR) in the last five years, majorly supported by 66% yearly growth in fiscal 2022 to Rs 688 crore and is expected to cross Rs 800 crore in fiscal 2023 with yearly growth of 20%. The company has maintained operating margin above 8% in the past three fiscals despite the pandemic.
The financial risk profile has also strengthened, driven by healthy capital structure and better debt protection metrics supported by higher accrual. Liquidity remains comfortable, backed by high unencumbered cash and bank balance.
The continued ‘Positive’ outlook reflects growth expected in operating revenue over the medium term on account of the proposed plant in southern India resulting in wider geographic presence and increased market share. The new plant will lead to savings on account of reduced logistic cost for serving customers from southern India. Hence, operating margin should remain above 9%, also supported by increased scale and export proportion, resulting in net cash accrual above Rs 50 crore.
The ratings reflect the established track record of MBEL in the engineering and construction industry, its healthy financial risk profile and funding support from the promoters. These strengths are partially offset by working capital-intensive operations and exposure to intense competition in the highly fragmented industry. |
Analytical Approach The promoters have supported the company through unsecured loans, which stood at Rs 65.22 crore as on March 31, 2022, of which, Rs 35 crore is subordinated to bank debt. Therefore, debt of Rs 26.25 crore (75% of subordinated unsecured loan) is treated as equity and Rs 38.97 crore as debt. |
Key Rating Drivers & Detailed Description Strengths: Established track record: 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, the promoters have developed technical and project management capabilities to execute mid-sized to large projects.
MBEL achieved turnover of Rs 688 crore in fiscal 2022 and is expected to cross Rs 800 crore in fiscal 2023. However, CAGR was modest, just ~3% in the three fiscals through 2022, because of pandemic-related disruptions. CRISIL Ratings believes the strong channel network of the promoters and proposed plant will lead to improvement in the business risk profile over the medium term. This is reflected in healthy unexecuted order book of Rs 598 crore as of February 2023.
Healthy financial risk profile: The financial risk profile is driven by healthy networth of Rs 177 crore and gearing of 0.37 time as on March 31, 2022. The company is supported by unsecured loans from promoters and related entities amounting to Rs 65 crore as on March 31, 2022. The debt protection metrics were moderate, with improvement in interest coverage and net cash accrual to total debt ratios to 3.47 times and 0.53 time, respectively, in fiscal 2022 against 2.28 times and 0.21 time, respectively, in fiscal 2021. With recovery in scale and stable operating margin, MBEL’s interest coverage ratio is expected to be above 4 times in fiscal 2023 which will be a key rating sensitivity factor.
Weaknesses: Working capital-intensive operations: The company had gross current assets (GCAs) of around 213 days as on March 31, 2022, driven by receivables of 66 days and inventory of 106 days. The company maintains large inventory to hedge against metal pricing, given the long transit time for import and manufacturing process. It offers moderate credit of around 60 days as per industry standards. CRISIL Ratings believes the operations of MBEL will remain working capital intensive over the medium term.
Exposure to intense competition: As pre-engineered buildings (PEB) are used as a substitute for civil construction, majorly in the industrial segment, the company faces competition from the civil construction industry, which has a large number of unorganised players because of low entry barriers.
While overall growth of MBEL has remained subdued in the five fiscals through 2022, substantial improvement is expected to be seen in terms of quantity and value during fiscal 2023. CRISIL Ratings will continue to monitor the overall revenue growth and market position of the company over the medium term. |
Liquidity: Adequate Bank limit utilisation was low at 2.12% on average for the 12 months through November 2022. Cash accrual is expected to be Rs 49-59 crore against annual term debt obligation of Rs 8.6 crore over the medium term and the surplus will cushion liquidity.
Current ratio was healthy at 1.45 times as on March 31, 2022. The promoters are likely to extend support in the form of equity and unsecured loan to meet the working capital requirement and debt obligation. Moderate cash and bank balance of Rs 50.27 crore as on March 31, 2022, and low gearing and comfortable networth support financial flexibility and ability to withstand adverse conditions or downturn in the business. |
Outlook: Positive CRISIL Ratings believes MBEL will sustain revenue growth and operating margin above 9% over the medium term, with annual net cash accrual expected above Rs 50 crore, and will continue to benefit from the extensive experience of the promoters and their funding support. |
Rating Sensitivity factors Upwards factors
Downward factors
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About the Company MBEL, based in Ahmedabad, manufactures and installs PEBs, 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. The company is expanding its footprint in southern India by establishing a new plant for PEBs in Chennai. The company is managed by Mr. Hasmukhbhai Patel, Mr. Chirag Patel, Mr. Girish Patel, Mr. Malav Patel and other family members. |
Key Financial Indicators
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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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This Annexure has been updated on 17-Mar-2023 in line with the lender-wise facility details as on 10-Aug-2021 received from the rated entity.
Criteria Details
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