Detailed Rationale

Crisil Ratings has upgraded its ratings on the bank facilities of Ram Kumar Contractor Pvt Ltd (RKCPL; part of the RKCPL group) to ‘Crisil A/Stable/Crisil A1’ from ‘Crisil A-/Stable/Crisil A2+’.

 

The upgrade reflects improvement in the business risk profile of the group with revenue of Rs 1076 crore in fiscal 2024 exhibiting 26% growth as against the previous year owing to healthy order flow and efficient execution of projects. The revenue growth of the group is likely to continue this fiscal as well with recorded revenue of Rs 950 crore till January 2025 and expected at Rs 1200-1300 crore for the full fiscal backed by sizeable unexecuted order book of ~Rs 3800 crore, providing healthy revenue visibility. The business risk profile is also strengthened on account of the awarding of new tenders in different geographies, worth ~Rs 2500 crore, over the past 1-1.5 years, thereby lowering the group’s dependence on any certain set of orders and/or any geography. Operating profitability, on the other hand, stands improved too backed by improvement in operating margin to over 19% during fiscal 2024 and fiscal 2025 (April’24 to Dec’24) from ~15% during fiscal 2023, which is likely to sustain over the medium term as well amidst expected receipt of annuity income. Thus, net cash accruals are expected at over Rs 160 crore annually, thereby aiding the cash flow and overall working capital requirement of RKCPL.

 

The financial risk profile is strongly marked by expected networth of Rs 560-570 crore as on March 31, 2025 (~Rs 430 crore as of Mar 31, 2024), supported by steady accretion to reserve, which is further expected to increase over the medium term backed by healthy profitability.  Low dependence on external debt has further strengthened the capital structure. In the absence of any major debt funded capital expenditure (capex) plan, gearing is expected below unity over the medium term. Debt protection metrics are expected to remain robust going forward driven by steady profitability and cash accrual.

 

The ratings also factor in the strong liquidity marked by moderately utilized bank lines, thereby providing sufficient cushion to encounter exigencies. Net cash accruals are estimated at Rs 160-180 crore per annum going forward against annual repayment obligations of Rs 19-20 leading to cushion of 8-9 times over the medium term. Promoter support in the form of unsecured loans or equity should be available, if needed.

 

The ratings continue to reflect the extensive industry experience of the promoters & healthy order book and robust financial risk profile. These strengths are partially offset by moderate scale of operations, timely completion of HAM project with no cost overruns and exposure to intense competition inherent in the construction industry.

Analytical Approach

Crisil Ratings has consolidated the business and financial risk profiles of RKCPL and its special purpose vehicle (SPV), Poanta Saheb Highway Private Limited (PSHPL) as the group has provided a corporate guarantee for the entire tenure for the term loan of the SPV.

 

Crisil Ratings has also moderately consolidated the SPVs such as Bathinda Ludhiana Highway Pvt Ltd (BLHPL) and Ambala Ring Road Highway Pvt Ltd (ARHPL) to the extent of equity commitment required for the hybrid annuity model (HAM) project and any cost overruns.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Extensive experience of the promoters & healthy order book: The promoters’ experience in the road and civil construction industry of over four decades has given them an understanding of the market dynamics, helped establish relationships with suppliers & customers, build a strong track record for order execution resulting in repeat orders and healthy orderbook. With expansion in the orderbook by addition of new EPC orders worth ~Rs 2500 crore, the concentration on any certain set of orders stands moderated, thereby further strengthening the market position. Counter parties include industry majors such as National Highway Authority of India (Crisil AAA/Stable), Ministry of Road Transport and Highways of India, Public Work Department etc. leading to low counter party risk. Additionally with orders from Telangana, Uttar Pradesh (UP), Uttarakhand, Odisha, Maharashtra and Punjab etc. the concentration risk to any single geography remains low. The group has a track record of completing complex structural projects and with the current order book, which is ~3 times the expected revenue of fiscal 2025, Crisil believes the market position of the group will further improve over the medium term.

 

• Robust financial risk profile: The financial risk profile should remain supported by steady accretion to reserve. Networth is expected to be healthy around Rs 560-570 crore as on March 31, 2025, as against Rs 431 crore as on March 31, 2024, backed by steady accretion to reserve.   Amid steady accretion to reserve on the back of improved profitability along with reduced dependence on external borrowings, capital structure stands improved with gearing and total outside liabilities to tangible networth (TOL/TNW) ratios expected around 0.4-0.5 time and 0.6-0.7 time, respectively, as of Mar 31, 2025. Furthermore, with limited exposure to external borrowings and healthy operating profitability, debt protection metrics shall also remain comfortable, as reflected in interest coverage improving to over 10 times and net cash accrual to adjusted debt (NCA/AD) ratio around 0.6-0.70 time during fiscal 2025. However, Crisil Ratings notes that RKCPL has provided a corporate guarantee to PSHPL for the entire tenure of the debt. Thus, any major debt-funded capex or more than expected investments in joint ventures (JVs) will remain a key monitorable.

 

Weaknesses:

• Moderate Scale of operations: The group has witnessed substantial growth in the topline with CAGR nearly 51% during the past four fiscals through fiscal 2024. However, despite the stated improvement, the scale remains moderate with revenue of Rs. 1076 crores during fiscal 2024. While the group is expected to clock revenue growth of 15-20% during fiscal 2025, supported by revenue of Rs. 950 crores booked till January’25, the overall revenue shall remain moderate at Rs 1200-1300 crore. Revenue growth is dependent upon timely receipt of orders and their execution thereafter. However, given the delay in required clearances, the group witnesses a delay in its order execution and subsequent apply for extension in time, thereby impacting the revenue growth. While the outstanding order book provides healthy revenue visibility over the medium term, its timely execution amidst efficient working capital management will remain a key rating sensitivity factor.

 

• Timely completion of HAM project with no cost overruns: RKCPL has three HAM projects under its three different SPVs (special purpose vehicle) which are under process. Though the group has surplus reserves to fund the equity requirement pertaining towards the projects concerned, timely execution of construction remains key monitorable. RKCPL is expected to contribute around Rs.228 crore (~Rs 175 crore infused till 31st January 2025) in these SPVs in the form of equity which is expected to be 35-40% percent of its estimated net worth of Rs 560-570 crore in fiscal 2025.  Any time or cost overruns related to execution or completion of HAM projects can adversely impact the financial risk profile and liquidity position of RKCPL and hence will remain a key rating sensitivity factor.

 

• Exposure to intense competition inherent in the construction industry: With increased focus of the central government on the infrastructure sector, especially roads and highways, RKCPL is expected to reap benefits over the medium term. However, most of its projects are tender-based and face intense competition, which may hence require it to bid aggressively to get contracts. Competition has intensified due to the recent relaxation in bidding norms by National Highway Authority of India (Crisil AAA/Stable). Also, given the cyclicality inherent in the construction industry, the ability to maintain profitability margin through operating efficiency becomes critical.

Liquidity: Strong

Utilisation of fund-based limits was around 29% during the 12 months through December 2024. Expected annual cash accrual of Rs 160-170 crore will be more than sufficient to meet yearly term debt repayment obligation of Rs 18-20 crore, over the medium term; the remaining accrual will cushion liquidity. In addition, it shall enhance financial flexibility to cushion any exigencies, incremental working capital requirement or capex plans.  

 

Healthy unencumbered liquidity in the form of cash and bank balance, fixed deposits and investments of around Rs 150 crore as on January 31, 2025, further support liquidity.  The current ratio is expected to be healthy over 3 times going forward enhancing financial flexibility. Low gearing and strong networth support financial flexibility and provide the necessary financial cushion in case of any adverse conditions or downturn in the business. Incremental working capital requirement is expected to be funded by internal accrual, equity infusion and enhancement in non-fund based external borrowings.

Outlook: Stable

Crisil Ratings believes RKCPL will benefit from the extensive experience of its promoters and track record of execution of complex projects.

Rating sensitivity factors

Upward factors

• Timely execution of HAM projects
• Increase in revenue to over Rs 1800-1900 crore with sustained operating margin of 18-20% leading to higher-than-expected net cash accrual
• Sustenance of healthy financial risk profile with amidst efficient working capital management and no large debt funded capex.

 

Downward factors

• Lower than expected revenue and/or operating margin leading to cash accrual of below Rs 100 crore
• Cost/time overrun in execution of HAM projects or more than expected debt funded capex, impacting the financial risk profile and liquidity

About the Group

Established in 2021 and based in Haryana, RKCPL is owned and managed by Mr Naresh Kumar, Mr Ram Kumar Goyal, Mr Krishan Kumar and others. The group undertakes civil construction works, such as construction of foot over bridges, elevated roads, road highways and railway under bridges. The group took over operations of erstwhile partnership firm, Ram Kumar Contractor, in November 2021.

 

PSHPL is an SPV formed in June 2022 by RKCPL. It undertakes road projects awarded by NHAI in Himachal Pradesh and Uttarakhand under HAM. RKCPL has provided a corporate guarantee for debt of Rs 183.0 crore of PSHPL for the entire tenure of the term loan.

 

BLHPL is an SPV formed in September 2021 by RKCPL. It is undertaking a road project awarded by NHAI in Punjab under HAM. RKCPL has provided a corporate guarantee for its debt till receipt of second annuity.

 

ARHPL is an SPV formed in April 2023 by RKCPL. It is undertaking a road project awarded by NHAI in Haryana under HAM. RKCPL has provided a corporate guarantee for its debt till receipt of second annuity.

Any other information: Not Applicable