| M and B Engineering Limited | ||||||
| Ratings upgraded ‘CRISIL A-/Stable/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 facilities of M and B Engineering Limited (MBEL) to ‘CRISIL A-/Stable/CRISIL A2+’ from ‘CRISIL BBB+/Positive/CRISIL A2’.
The upgrade reflects the expected improvement in the business risk profile of the company, with operating revenue expected to grow 3-4%, along with volume growth of 6-7% in its pre-engineered buildings (PEB) segment, driven by a healthy order book. Revenue rose at compound annual growth rate (CAGR) of 18% in the last three fiscals to Rs 860.91 crore in fiscal 2023 (yearly growth of 25%). Operating margin slightly improved to 8.7% in fiscal 2023. The financial risk profile has also strengthened, driven by healthy capital structure and better debt protection metrics supported by healthy accrual. Liquidity was comfortable, backed by unencumbered cash and bank balance of Rs 97.21 crore as on March 31, 2023.
The ratings reflect the established track record of MBEL in the engineering and construction industry, its healthy financial risk profile and the funding support from the promoters. These strengths are partially offset by large working capital requirement and exposure to intense competition. |
Analytical Approach The promoters had extended unsecured loan of Rs 88.12 crore as on March 31, 2023, of which Rs 35 crore was subordinate to bank debt. Therefore, debt of Rs 26.25 crore (75% of subordinated unsecured loan) is treated as equity and Rs 61.87 crore as debt. |
Key Rating Drivers & Detailed Description Strengths:
The company has been in the engineering and civil construction business for over five decades, and has 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.
Turnover stood at Rs 860.91 crore in fiscal 2023 and is likely to grow in fiscal 2024 on account of healthy order book of Rs 759 crore as of September 2023; however, growth in turnover will be partly offset by softening commodity prices. The strong channel network of the promoters and proposed plant will lead to improvement in the business risk profile over the medium term.
Networth and gearing were comfortable at Rs 218.11 crore and 0.53 time, respectively, as on March 31, 2023. Debt protection metrics were moderate, as reflected in improvement in interest coverage and net cash accrual to total debt ratios to 4.36 times and 0.42 time, respectively, in fiscal 2023, from 3.47 times and 0.53 time, respectively, in fiscal 2022. With recovery in revenue and stable operating margin, the interest coverage ratio is expected above 4 times in fiscal 2024 and will be a key rating sensitivity factor.
Weaknesses:
Gross current assets were around 180 days as on March 31, 2023, driven by receivables and inventory of 50 days and 76 days, respectively. The company maintains large inventory to hedge against volatility in metal prices, given the long transit time for import and manufacturing. Operations will remain working capital intensive over the medium term.
As PEBs 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. 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 around 85% on average for the 12 months through September 2023. Cash accrual, expected at Rs 50-70 crore per annum, will sufficiently cover yearly term debt obligation of Rs 8-9 crore over the medium term, and surplus will cushion liquidity.
Current ratio and cash and bank balance were moderate at 1.71 times and Rs 97.21 crore, respectively, as on March 31, 2023. The promoters will likely extend support by way of equity and unsecured loans to meet working capital requirement and debt obligation. Low gearing and moderate networth support financial flexibility, which will help to withstand adverse conditions or downturns in the business. |
Outlook: Stable CRISIL Ratings believes MBEL 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 Based in Ahmedabad, MBEL manufactures and installs PEBs and installs self-supported steel roofing systems. The company was incorporated as Manibhai & Brothers Construction Pvt Ltd and was reconstituted as a public limited company with the current name in fiscal 2011. It is expanding its footprint in south India by setting up a new plant for PEBs in Chennai. It is managed by Mr Hasmukhbhai Patel, Mr Chirag Patel, Mr Girish Patel, Mr Malav Patel and their family members. |
Key Financial Indicators
*Provisional |
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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Criteria Details
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