NCC Limited

Rating upgraded to 'CRISIL BB/Stable'

Total Bank Loan Facilities Rated Rs.90000 Million Long Term Rating Withdrawal Short Term Rating Withdrawal

(Refer to Annexure 1 for Facility-wise details)

Rs.0.5 Billion Non Convertible Debentures CRISIL BB/Stable (Upgraded from CRISIL B+/Stable)

CRISIL has upgraded its ratings on Rs.0.5-billion non-convertible debenture (NCD) programme of NCC Ltd (NCC; part of the NCC group) to 'CRISIL BB/Stable' from 'CRISIL B+/Stable'.
 
CRISIL has withdrawn its ratings on NCC's bank loan facilities following the expiry of the 180-day notice period. CRISIL had placed the ratings on 'Notice of Withdrawal' at the company's request. The rating withdrawal is in line with CRISIL's policy on withdrawal of ratings on bank loan facilities.
 
The rating upgrade reflects NCC's consistent revenue growth, sustained operating profitability and significant improvement in the working capital cycle. NCC's revenue has grown by around 36 per cent  in 2014-15 (refers to financial year, April 1 to March 31) and has further grown by around 16 per cent in the first three months of 2015-16 driven by execution of a large order from NCC Power Project. Furthermore, NCC has sustained the improvement in operating margins around 8 per cent in 2014-15 and the first quarter of 2015-16 as against around 7 per cent in 2013-14. The margin improvement has been driven by execution of new orders. The company's working capital cycle has also improved substantially as demonstrated by the fall in gross current assets days to 255 days in 2014-15 from 338 days in 2013-14.
 
The ratings reflect the NCC group's established market position across diverse construction segments and its healthy order book. These rating strengths are partially offset by NCC group's moderate working capital requirements, its exposure to relatively risky real estate projects and its exposure to intense competition and the cyclicality in the engineering, procurement, and construction (EPC) segment.
 
For arriving at the ratings, CRISIL has combined the business and financial risk profiles of NCC and its subsidiaries, NCC Urban Infrastructure Ltd, NCC Vizag Urban Infrastructure Ltd, Nagarjuna Contracting Company LLC, and NCC International LLC, collectively referred to as the NCC group. CRISIL has not combined the business and financial risk profiles of the NCC group's project special purpose vehicles (SPVs), as the project debt is non-recourse in nature and the group's management has stated that NCC will not extend any additional support to these SPVs. CRISIL has, however, factored in the NCC group's support for funding the equity component of the investment in these project SPVs, in addition to support for funding cost overruns. The structuring of, and any change in management policy regarding support to, these SPVs will be key rating sensitivity factors.

CRISIL believes that the NCC group will maintain a stable business risk profile over the medium term, supported by its established market position and healthy order book. The outlook may be revised to 'Positive' in case of sustained improvement in the group's cash accruals driven by improvement in its operating profitability or the working capital cycle, or if its capital structure improves. Conversely, the outlook may be revised to 'Negative' in case of large-scale order cancellations or delays in order execution, leading to a significant stretch in the NCC group's working capital cycle.

NCC, established by Mr. A V S Raju in 1978, provides construction services across diversified sectors, including industrial structures, transportation, water and environment, electrical installations, irrigation, power, real estate, and property development. NCC has formed several joint ventures with Indian and overseas construction companies for civil construction projects.
 
For 2014-15 (refers to financial year, April 1 to March 31), NCC, on a standalone basis, reported a profit after tax (PAT) of Rs.1.1 billion on a total operating income of Rs.83.0 billion, against a PAT of Rs.405 million on a total operating income of Rs.61.2 billion for 2013-14. For the three months ended June 30, 2015, NCC, on a standalone basis, reported a PAT of Rs.412 million on a total operating income of Rs.17.3 billion, against a loss of Rs.30 million on a total operating income of Rs.15.0 billion for the corresponding period of the previous year.