Rating Rationale
September 28, 2018 | Mumbai
NBCC (India) Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.1600 Crore
Long Term Rating CRISIL AA/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its rating on the long-term bank facilities of NBCC (India) Limited (NBCC) at 'CRISIL AA/Stable'.
 
The rating continues to reflect a strong market position in the project management consultancy (PMC) segment and a robust financial risk profile. These strengths are partially offset by exposure to risks related to saleability of real estate projects, and modest operating profitability.
 
CRISIL has also assessed the impact of the takeover by the company of HSCC (India) Ltd (HSCC), formerly, Hospital Services Consultancy. CRISIL believes the acquisition will not have any material impact on the financial risk profile as HSCC is debt-free. NBCC acquired 100% shares in the company in September 2018.

Analytical Approach

For arriving at the rating, CRISIL has combined the business and financial risk profiles of NBCC and all subsidiaries, except NBCC RK Millen and Jamal NBCC International (PTY) Ltd as these companies did not have any transactions, and losses in these companies have already been provided for by NBCC.

Key Rating Drivers & Detailed Description
Strengths
* Strong market position in the PMC segment: The strong market position is underpinned by the company's status as a PWO, which enables it to secure orders from central and state government organisations on a nomination basis rather than through competitive bidding. A focus on quality and timely execution of projects has resulted in repeat orders. It is also designated as an implementing agency for several government schemes such as Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and Pradhan Mantri Gram Sadak Yojana (PMGSY). Following the successful implementation of the Moti Bagh project in Delhi, it is now redeveloping four other such projects. These projects have relatively higher margins and the company is likely to undertake more of them in the future. Work on few of these projects has, however, been stalled from the second quarter of fiscal 2019 due to a ban on tree cutting in some parts of Delhi, which may impact revenue from this business over the medium term. However, revenue from other business segments is expected to increase, which will help to sustain the business risk profile.

* Robust financial risk profile: The capital structure is strong and liquidity healthy. Cash accrual was around Rs 200 crore against no debt in fiscal 2018. The cash and cash equivalent balance was over Rs 2,400 crore as on March 31, 2018, providing robust liquidity. Despite being in the highly capital-intensive construction space, the working capital cycle is moderate on account of the business model for executing PMC projects against customer advances. This also leads to sizeable liquid surplus, which generates large non-operating cash flow. The company is expected to earn sizeable interest income on its liquid surplus.
 
Weakness
* Exposure to risks related to saleability of real estate projects: The Company faces saleability and implementation risks in the real estate sector, as witnessed over the three fiscals through fiscal 2018, when income from this sector fell considerably. In view of weak demand, the pace of land acquisition has been slowed down and some slow-moving projects have been kept on hold. Although sale from real estate has been healthy during the first quarter of fiscal 2019, operations in this sector are not expected to be scaled up over the medium term and the focus will be on completing existing projects.
 
* Modest operating profitability margin: The margin of 5-6% is modest for the rating category, primarily due to a moderate margin in the PMC business, which accounts for over 90% of revenue, because of limited value addition. However, the margin has been stable given the strong track record in order execution and is expected to remain steady over the medium term on account of sustained revenue from the PMC business.
Outlook: Stable

CRISIL believes revenue growth will be healthy and the strong financial risk profile will be maintained, over the medium term.
 
Upside scenario:
* Sustained growth in orders providing medium-term revenue visibility, while profitability and the working capital cycle are maintained
 
Downside scenario:
* Decline in revenue and profitability
* Delay in completion/sale of real estate projects
* Weakening of the working capital cycle or liquidity

About the Company

NBCC, incorporated in 1960, is a central government enterprise under the Ministry of Urban Development and is a Schedule A Navratna company. It was set up as a project management consultant to undertake civil and industrial infrastructure projects for central and state governments. Under this arrangement, projects are awarded on a nomination basis to NBCC, and it assigns the projects to third-party contractors. NBCC also secures jobs on tender basis from government and public sector clients, and develops commercial and residential real estate projects.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs crore 6,890 7,348
Profit after tax (PAT) Rs crore 372 325
PAT margin % 5.4 4.4
Adjusted gearing Times 0.00 0.00
Interest coverage Times 322 112

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Rating assigned with outlook
NA Bank guarantee NA NA NA 1500.0 CRISIL AA/Stable
NA Proposed bank guarantee NA NA NA 100.0 CRISIL AA/Stable
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Fund-based Bank Facilities  LT/ST  1600.00  CRISIL AA/Stable      30-06-17  CRISIL AA/Stable  27-06-16  CRISIL AA/Stable  11-05-15  CRISIL AA-/Positive  CRISIL AA-/Stable 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 1500 CRISIL AA/Stable Bank Guarantee 1500 CRISIL AA/Stable
Proposed Bank Guarantee 100 CRISIL AA/Stable Proposed Bank Guarantee 100 CRISIL AA/Stable
Total 1600 -- Total 1600 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Construction Industry
Criteria for Notching up Stand Alone Ratings of Entities Based on Government Support

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