Rating Rationale
August 04, 2020 | Mumbai
Raj Path Infracon Private Limited
Rating outlook revised to 'Positive'; ratings reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.201.8 Crore
Long Term Rating CRISIL BBB/Positive (Outlook revised from 'Stable' and rating reaffirmed)
Short Term Rating CRISIL A3+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has revised its rating outlook on the long-term bank facilities of Raj Path Infracon Private Limited (RPIPL) to 'Positive' from 'Stable', and reaffirmed the rating at 'CRISIL BBB'; the short-term rating has been reaffirmed at 'CRISIL A3+'.
 
The outlook revision factors in anticipated improvement in RPIPL's operating performance in fiscal 2020 and expectation of sustenance of improved performance in current fiscal 2021. During fiscal 2020, revenue increased by 150% over previous fiscal, with improved operating margins at around 27%. The growth was mainly supported by execution of its state hybrid annuity projects (HAMs) undertaken under SPVs. Out of the total revenues in fiscal 2020, 80% of the revenues were generated from execution of HAM order book. The pending execution of HAM projects will aid the company to record revenues growth and maintain its margin in fiscal 2021. With most of the HAMs getting executed in near term, the newly obtained NHAI HAMs with value of over Rs.1300 crores provide revenue visibility for medium term. Timely completion of existing HAM projects and commencement of execution of new HAMs from Jan 2021 remains critical and will be monitored.
 
The company's performance in the first month of fiscal 2021 was impacted due to nation-wide lockdown to contain Covid-19 pandemic. However, post April 2020 the company was able to ramp up its operations and was operating at 60-80% at most of its site locations. Further currently, out of the 8 state HAM projects, 7 projects are ahead of schedule and likely to achieved COD in current fiscal.
 
The financial risk profile stood improved supported by healthy accretions to reserves in fiscal 2020 leading to comfortable capital structure and adequate debt protection metrics. Nonetheless, there will be large equity commitments for existing and upcoming HAM projects and hence profitability and need based support from promoters remains critical.
 
The ratings reflect an established market position and the extensive experience of the promoters in the construction industry, a HAM concentrated but healthy order book providing revenue visibility, and a comfortable financial risk profile. These strengths are partially offset by susceptibility to risks related to the tender-based, and working capital-intensive, nature of operations.

Analytical Approach

For arriving at the ratings, CRISIL has consolidated RPIPL's special-purpose vehicles (SPVs), Raj Path Infracon PN 41 LLP (RPIPN41), Raj Path Infracon PN 44 LLP (RPIPN44), Raj Path Infracon PN 51 LLP (RPIPN51), Raj Path Infracon PN 40 LLP (RPIPN40), Raj Path Sagunamata Construction PN39 LLP (RPSP39), Raj Path Infracon PN 42 Pvt Ltd (RPIPN42), Raj Path Infracon NSK 68 LLP (RPINSK68), and Raj Path Infracon NSK 69 LLP (RPINSK69). That's because RPIPL's support is expected in these SPVs to the extent of equity investments, cost overruns, and debt servicing in the initial stage of operations. 

Key Rating Drivers & Detailed Description
Strengths:
* Established market position and extensive experience of the promoters: A moderate scale of operations provides operating flexibility in an intensely competitive industry. Further, the promoters have an experience of over two decades in the construction industry. This has given them a strong understanding of market dynamics, and led to a healthy relationship with key customers and suppliers. Further over the years the company has equipped itself to take up larger projects with limited dependence on subcontracting.
 
* Healthy order book: RPIPL has revenue visibility because of an outstanding order book of about Rs.2359 crore to be executed over the next 2-3 years.  The order book consists of eight existing HAM contracts with balance work worth Rs 689 crores'under the Government of Maharashtra's hybrid annuity model (HAM) scheme. The orderbook also reflects two new HAM contracts worth Rs 1384 crores received from NHAI, which are likely to commence from January 2021. The company's sustained and healthy order book is attributed to its proven execution capabilities. Steady execution of the order book and stability in margins would remain key rating sensitivity factor. Also the order book is concentrated towards HAM segment and better diversification will remain critical.
 
* Healthy financial risk profile: Financial risk profile is healthy marked by strong networth of Rs 184.63 crores as on March 31st 2020 (an increase from Rs 84.60 crore as on March 31, 2019 driven by strong accretions). The company's capital structure remains adequate marked by gearing and total outside liabilities to tangible networth of about 0.39 time and 1.40 times respectively as on March 31, 2020 (0.82 time and 2.15 times resp. as on March 31st 2019). The  debt protection metrics were strong marked by interest coverage ratio of 22.84 times and net cash accrual to adjusted debt of 1.48 time for fiscal 2020 and are expected remain at similar level driven by healthy cash accruals and limited debt. The equity investments in SPVs in next two years will be higher and hence generation of healthy profits and need based fund support from promoters remains critical.
 
Weaknesses:
* Susceptibility to risks related to the tender-based nature of operations: Revenue and profitability entirely depend on the ability to win tenders. Also, entities in this segment face intense competition, thus requiring them to bid aggressively to get contracts. Also, given the cyclicality inherent in the construction industry, the ability to maintain profitability margin remains critical.
 
* Working capital-intensive operations: Gross current assets were high at 102-164 days over the three fiscals ended March 31, 2020 (102 days as on March 31, 2020). The GCA days were driven by inventory level of 76 days and other contractual obligations. The operations are likely to remain working capital intensive over the medium term.
Liquidity Adequate

Liquidity is adequate. Cash accruals are expected to remain over Rs 125 crore over medium term against moderate repayment obligation of Rs 26 in fiscal 2021. The cash accruals are may also be sufficient to fund equity requirement and initial support for HAM projects. Bank limit of Rs 31.7 crore is utilized on average at around 60% over past 12 months ending March 2020.Current ratio is around 1.23 times as on March 2020. RPIPL going ahead will continue to extend funding support to SPV's for timely execution of project and same will remain monitorable. 

Outlook: Positive

CRISIL believe RPIPL business and financial risk profile will improve over the medium term supported by execution of its HAM orderbook.

Rating Sensitivity factors
Upward factors
* Sustained improvement in revenue and operating margin of over 25%
* Diversified order book and improvement in the working capital cycle
 
Downward factors
* Steep decline in revenue and or operating margin leading net cash accruals of less than Rs 60 crores
* Any large unanticipated debt-funded capital expenditure or stretch in working capital cycle
* Delays in execution of HAM projects or any cost overruns in the HAM projects or delay in receipt of annuities from HAM affecting financial flexibility
About the Company

RPIPL, incorporated in 1987, (formerly known as Raj Promoters and Civil Engineers Pvt Ltd) is owned and managed by Mr Jagdish Laxmanrao Kadam. The company is majorly involved in infrastructure development works and undertakes project involving dams, canals, highways and bridges.

Key Financial Indicators
As on / for the period ended March 31 Units 2020* 2019
Operating income Rs crore 512.61 201.63
Reported profit after tax (PAT) Rs crore 100.13 32.48
PAT margin % 19.53 16.11
Adjusted debt/Adjusted networth Times 0.39 0.82
Interest coverage Times 22.84 9.90
*Provisional

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size
(Rs crore)		 Complexity
level		 Rating assigned
with outlook
NA Cash Credit NA NA NA 10 NA CRISIL BBB/Positive
NA Bank Guarantee NA NA NA 80 NA CRISIL A3+
NA Fund & Non Fund
Based Limits		 NA NA NA 55 NA CRISIL BBB/Positive
NA Term Loan NA NA Mar-24 43.09 NA CRISIL BBB/Positive
NA Proposed Working
Capital Facility		 NA NA NA 13.71 NA CRISIL BBB/Positive
 
Annexure - List of entities consolidated
Names of Entities Consolidated Extent of Consolidation Reason for consolidation
Raj Path Infracon PN 41 LLP Moderate RPIPL's support  expected to the extent of equity investments, cost overruns and support in the initial stage of operations
Raj Path Infracon PN 44 LLP Moderate
Raj Path Infracon PN 51 LLP Moderate
Raj Path Infracon PN 40 LLP Moderate
Raj Path Sagunamata Construction PN39 LLP (RPSP39) Moderate
Raj Path Infracon PN 42 Pvt Ltd (RPIPN42), Moderate
Raj Path Infracon NSK 68 LLP Moderate
Raj Path Infracon NSK 69 LLP Moderate
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  66.80  CRISIL BBB/Positive      22-08-19  CRISIL BBB/Stable    --    --  -- 
Non Fund-based Bank Facilities  LT/ST  135.00  CRISIL BBB/Positive/ CRISIL A3+      22-08-19  CRISIL A3+    --    --  -- 
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 80 CRISIL A3+ Bank Guarantee 90 CRISIL A3+
Cash Credit 10 CRISIL BBB/Positive Cash Credit 10 CRISIL BBB/Stable
Fund & Non Fund Based Limits 55 CRISIL BBB/Positive Proposed Working Capital Facility 101.8 CRISIL BBB/Stable
Term Loan 43.09 CRISIL BBB/Positive -- 0 --
Proposed Working Capital Facility 13.71 CRISIL BBB/Positive -- 0 --
Total 201.8 -- Total 201.8 --
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
CRISILs criteria for rating annuity roads
CRISILs Bank Loan Ratings
CRISILs Criteria for Consolidation
Criteria for rating entities belonging to homogenous groups
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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