Detailed Rationale

CRISIL Ratings has upgraded its ratings on the bank facilities of Ram Ratna Infrastructure Private Limited (RRIPL) to ‘CRISIL BBB-/Stable/CRISIL A3’ from ‘CRISIL BB+/Stable/CRISIL A4+’.

 

The upgrade in ratings reflects the improvement in business risk profile of RRIPL, marked by strong growth in scale of operations and operating profitability during fiscal 2023. CRISIL Ratings expects the revenues to continue growing at a steady pace over the medium term with operating margins sustaining around 12-14% following revision in pricing and inclusion of escalation clause to safeguard profitability metrics from steep volatility in input prices. The rating action also factors in the adequate but improving financial risk profile, as indicated by modest but improving adjusted networth and improving balance sheet strength.

 

Revenues during fiscal 2023 increased by around 64% year-on-year (y-o-y) to Rs. 208 crore owing to an uptick in order execution, favorable product mix, and price hikes across product portfolio following sharp spike in raw material prices witnessed during fiscal 2022 and re-negotiation of contracts with existing customers. Operating margins improved substantially to around 12% during the said fiscal from an impacted base of around 2% in fiscal 2022 owing to sharp claw back in gross margins on the back of favorable product mix, price hikes and stabilization in commodity prices, coupled with positive operating leverage gains emanating from strong volume growth.

 

During the first half of fiscal 2024, the company has registered revenues of around Rs.127 crore with operating margins of around 14%. Revenue continued to grow in mid-high double digits in fiscal 2024 and is expected to grow 7-10% over the medium term with operating margin of 13-14% given the strong order book.

 

The financial risk profile though adequate shall continue to witness improvement owing to improving scale of operations and operating profitability. As of September 30, 2023, the company’s balance sheet is gross debt free. Capital structure has improved as indicated by total outside liabilities to adjusted networth (TOL / ANW) ratio of 1.76 times as on March 31, 2023, compared with 2.24 times a year earlier, on the back of substantial improvement in profitability, reduction in debt, and effective working capital management. TOL / ANW will likely improve to 1.2-1.4 times over the medium term owing to improvement in internal accruals vis-à-vis modest capital expenditure (capex) and efficient working capital management. Key debt protection metrics are adequate, with interest coverage ratio expected above 10 times, indicating sufficient buffer to cash flow.

 

The ratings continue to reflect the adequate business risk profile as indicated by adequate order book & diversified product mix, and adequate but improving financial risk profile marked by improving but high TOL / ANW and adequate adjusted networth. The ratings also factor support from promoters by way of unsecured loans or equity infusion. These strengths are partially offset by moderate scale of operations and historical high volatility in operating margins, susceptibility to cyclicality in the real estate sector, and large working capital requirement.

Analytical Approach

CRISIL Ratings has evaluated the business and financial risk profile of RRIPL on a standalone basis, as the company has no subsidiaries, associate companies, or joint ventures.

Key Rating Drivers & Detailed Description

Strengths:

• Adequate order book and diversified product mix: RRIPL manufactures mechanised car parking systems. As on March 31, 2023, the company had an order book of Rs 389 crore (Rs 297 crore as on June 30, 2022), which provided sufficient medium-term revenue visibility. Upcycle in the real estate industry, increasing re-development projects and floor space index (FSI), and rising demand for automated parking as against conventional parking, have aided growth in the order book of RRIPL. The growth is also supported by diverse product offerings vis-à-vis demand opportunities, with increasing proportion of more remunerative/high-margin products in the revenue mix.

 

• Adequate but improving financial risk profile: The financial risk profile is constrained by modest adjusted networth of Rs 53 crore as on March 31, 2023, but supported by improving leverage with nil gross debt as on September 30, 2023. TOL / ANW improved to 1.76 times as on March 31, 2023, from 2.24 times as on March 31, 2022, and is expected at 1.2-1.4 times over the medium term. Improving profitability, along with nil debt obligation, modest capex, and efficient working capital management, will further improve the TOL / ANW. Capex will be limited to maintenance capex of Rs 5-6 crore per annum over the medium term. Fixed obligations shall be met through internal cash accrual. Hence, RRIPL will maintain its gross debt-free balance sheet over the medium term.

 

• Support from promoters by way of unsecured loans: The company will receive funds from the promoters by way of debt or equity during distress, and its liquidity benefits from loans and advances from the promoters. In fiscal 2020, the promoters provided Rs 20 crore loan due to funding mismatch between internal cash accrual and capex requirement. In fiscal 2019, the promoters had infused equity of Rs 5 crore.

 

Weaknesses:

• Large working capital requirement: The business is working capital-intensive, marked by the high gross current asset (GCA) days net of cash of around 121 days as on March 31, 2023. Gross current assets have improved from over 160 days (fiscals 2019-21) to around 121 days during fiscal 2023, on the back of improving debtor days owing to improving collection efficiency and improving inventory days on account of better material fungibility due to increasing order book size. Despite improvement in GCA days net of cash, the same continues to remain high at above 100 days and over the medium term the same is expected to remain around 120-130 days.

 

• Moderate scale of operations and historical high volatility in operating margins: The concept of multi-level car parking systems in India, though growing, is still in nascent stage. Hence, RRIPL’s scale of operations remains modest, as reflected in revenue of Rs 208 crore in fiscal 2023. RRIPL’s operating margins have been highly volatile over the past five fiscals. The margin contracted sharply in fiscal 2022 to 2.0% from around 11.5% in the previous fiscal owing to sharp spike in raw material prices, especially steel, and absence of escalation clause in contracts, constraining the ability to pass on input cost inflation. That said, the margin recovered to 12% in fiscal 2023 riding on price hikes across the product portfolio and re-negotiation of contracts with existing customers. In addition, the company has included escalation clauses in ongoing contracts, thereby safeguarding profitability. Sustenance of the operating margin over the medium term shall be a key monitorable.

 

• Susceptibility to cyclicality inherent in real estate sector: The real estate sector is cyclical and susceptible to volatility in prices and intense competition. Though the company deals with reputed customers with good credit quality, operations remain susceptible to cyclicality in the industry. 

Liquidity: Adequate

RRIPL has adequate liquidity, with cash and equivalents of Rs 23 crore as on March 31, 2023. Cash accrual is expected at Rs 14-16 crore over the medium term and will be more than sufficient to cover modest capex requirement of Rs 5-6 crore per annum and working capital requirement, with minimal dependence on external funding. The company’s liquidity also benefits from nil utilization of fund-based limits over the 12 months through September 2023. Instead, the company has high reliance on non-fund-based limits, which were utilized 80%, on average, over the 12 months through September 2023.

Outlook: Stable

CRISIL Ratings believes RRIPL’s business risk profile shall sustain over the medium term driven by steady growth in scale of operations on the back of healthy order book while maintaining healthy operating efficiencies. The financial risk profile shall also remain adequate owing to modest but improving networth and healthy capital structure.

Rating Sensitivity factors

Upward factors

• Three-year compound annual growth rate of 10% in revenue and sustained operating margin.
• Sustenance of healthy financial risk profile.

 

Downward factors

• Weakening of business performance or sharp decline in operating margins on a sustained basis.
• Weakening of financial risk profile due to higher-than-anticipated debt levels or stretch in working capital, for instance, total outside liabilities to adjusted networth (TOL / ANW) above 2.0-2.2 times on a sustained basis.

About the Company

RRIPL was incorporated in 1995. The company is promoted by the Kabra family of Vadodara, Gujarat, and manufactures mechanized car parking systems. The company primarily caters to the commercial real estate sector and has a fabrication facility in Khopoli, Maharashtra. The company is a part of the Ram Ratna group, which manufactures electric current carriers, power outlets and electrical switches.

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of Instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue Size (Rs Cr)	Complexity level	Rating Assigned with Outlook
NA	Cash Credit%	NA	NA	NA	6	NA	CRISIL BBB-/Stable
NA	Bank Guarantee^	NA	NA	NA	25	NA	CRISIL A3
NA	Bank Guarantee&	NA	NA	NA	14	NA	CRISIL A3
NA	Proposed Long-Term Bank Loan Facility	NA	NA	NA	3.75	NA	CRISIL BBB-/Stable

& - Interchangeable with letter of credit up to Rs. 6 crores; interchangeable with counter bank guarantee up to Rs. 10.5 crores

^ - Interchangeable with Letter of Credit up to Rs. 6 crore; interchangeable with SBLC for BC up to Rs. 5 crores; interchangeable with cash credit up to Rs. 10 crores; Interchangeable with working capital demand loan up to Rs. 5 crores; interchangeable with post shipment finance / pre-shipment finance up to Rs. 5 crores

% - Interchangeable with EPC/ PCFC up to Rs. 3 crores; interchangeable with bank guarantee up to Rs. 6 crores