Detailed Rationale

Crisil Ratings has downgraded its ratings on the bank facilities of SEPC Ltd (SEPC) to ‘Crisil D/Crisil D’ from ‘Crisil BB+/Negative/Crisil A4+’.

 

The downgrade is on account of the company delaying its interest payment obligation on ~Rs. 6 crore of term loan outstanding due on February 28, 2026. Besides, Crisil Ratings also notes that there have been delays of over 30 days in clearing the letter of credit dues as well as overdrawals in its cash credit accounts in the recent past. The lenders informed Crisil Ratings of these delays on March 05, 2026, while the no-default statements are awaited from the company for the last two months.

 

As on end December 31, 2025, SEPC had ~Rs 150 crore of liquidity available from the recent rights issuance. While ~Rs 119 crore was earmarked for prepaying outstanding non-convertible debentures (NCDs), which are part of the unsustainable debt as per a recent restructuring exercise, the balance was largely available for regular operations. Crisil Ratings understands that due to the ongoing legal proceedings involving Twarit Consultancy Services Pvt Ltd (TCPL) and SEPC as respondents, the petitioners being GPE (INDIA) Ltd, GPE JV Ltd, Gaja Trustee Company Pvt Ltd (collectively called Gaja), the Madras High Court on February 19, 2026, ordered attachment of Rs 154 crore of SEPC’s receivables. While SEPC’s management continues to maintain that it is indemnified from this legal case, and any payment (if any) will be made by TCPL to Gaja, with no financial obligations on SEPC, the lenders had frozen the trust and retention account (TRA), which exacerbated the liquidity mismatch and led to delays in servicing debt obligations.

 

Further in recent months, the company continued to face operational challenges in terms of timely recoveries from customers – largely state government bodies, impacting its liquidity position. In the past, the company faced similar challenges; albeit timely financial support was extended by the promoters - Mark AB, wherein in addition to initial equity infusion of Rs 350 crore during stake transfer, successive quasi equity support cumulating to ~Rs 55 crore as of March 2025 was received over the years. In fiscal 2026 too, they had infused Rs 13 crore as short term loans to manage the liquidity position of the company. This was in addition to the ~Rs 150 crore of liquidity available from the recent rights issuance.   

Analytical Approach

Compulsory convertible debentures (CCDs) of Rs 100 crore have been treated as equity as they will be compulsorily converted to equity and will remain in the company for long (with redemption only in fiscal 2035), carrying effective yield of 4%. NCDs of Rs 175 crore held by the lenders as per the resolution plan has been treated as debt.

 

The cash flows from subsidiaries are not incorporated in the projections as there are no committed or financial obligations or inflows related to these subsidiaries. Additionally, these subsidiaries do not have any fund-based and non-fund-based debt.

 

Unsecured loans from the promoter has been treated as quasi equity as they have been availed at an interest rate of 0.01%, which is significantly below the market rates. Further, the repayment of these loans is in the form of a bullet repayment in fiscal 2035.

Key Rating Drivers - Weaknesses

Stretched liquidity position resulting in delays in debt servicing

The company has delayed its interest payment obligation on ~Rs. 6 crore of term loan that was due on February 28, 2026.  Besides, there have been delays of over 30 days in clearing the letter of credit dues as well as overdrawals in its cash credit accounts in the recent past.

 

Crisil Ratings understands the same occurred due to lenders freezing the TRA account of the company, as a response to the Madras High Court order issued on February 19, 2026 to attach Rs 154 crore of SEPC’s receivables. Operational challenges in terms of timely recoveries from its government bodies have also strained SEPCL’s liquidity position. Given SEPC’s presence in the EPC business with focus on water and P&M segments for government entities, its operations have remained working capital intensive.

 

Susceptibility to volatility in raw material prices

Profitability remains susceptible to fluctuations in the prices of polyethylene, polyvinyl chloride, polymer resin (for water segment) pipes, which are among the key components used in the water segment projects. These products are commodities, and their prices are determined by the demand-supply scenario and the price of petroleum. While SEPC can partially pass on the price volatility to customers for a large portion of its sales, its profitability remains susceptible to volatility in raw material prices for fixed price contracts.

Key Rating Drivers - Strengths

Long track record in the mid-sized EPC business, albeit working capital intensity is high:

SEPC (standalone) has an execution track record of more than two decades, backed by established relationships with clients in both, the water, and P&M segments, in India and abroad. In the water segment, the company primarily executes projects in the water and waste-water distribution and water treatment areas, where it has executed large contracts for Indian clients, including various state water supply and urban infrastructure departments as well as several overseas clients. In the P&M segment, it has executed several large and marquee projects, including a cement and limestone handling system plant for Sree Jayajothi Cements Ltd, a coal chemical plant for SAIL (Rourkela), and a new turnkey circular shaft with complete winding installation project for Hutti gold mines in Raichur district of Karnataka.

 

The company has over Rs.5000 crore of orders at present, spread across a host of sectors, but mainly from government bodies. Its current working capital limits are not adequate to support these large orders, necessitating additional limits/funds raise on sustained basis. Ability to arrange for adequate funding will be necessary to ensure uninterrupted operations, given recovery from existing projects tends to be delayed, as has been witnessed over the past few years.

 

Experienced management, in Mark AB, who is the single largest shareholder in the company:

Mark AB has had considerable experience in investing and managing EPC businesses around the world, including in Russia, Algeria and Kuwait. Its experience in the EPC business in the Middle East is expected to bring in globally accepted best practices to SEPC for timely project execution. Mark AB has taken over the operational and management control of SEPC. The promoters had also committed to meet any additional funding requirements. As of February 2026, they have infused approximately Rs 60 crore as quasi equity bearing 0.01% interest, which is payable via a single bullet repayment in fiscal 2035.

 

Continued fund infusion from Mark AB has helped strengthen the net worth of the company, even as profitability has been volatile.  Sustained timely support will be critical to support operations and also ensure timely debt serviving, until cash flows stabilize, and recoveries improve.

Liquidity Poor

The company’s fund-based limits of ~Rs 110 crore are currently overutilized. Its liquidity profile remains weak due to cashflow mismatches arising from delays in receivable recovery. Although the company has liquidity of around Rs 150 crore, including ~Rs 119 crore originally earmarked for prepayment of outstanding NCDs (for which it is currently seeking approval to revise the end-use to working capital usage), these funds are presently inaccessible as lenders have frozen the account. The company has sought permission from its shareholders to convert the end-use of the funds for working capital via a postal ballot, and these funds are expected to be made available shortly for the purpose, post banks removing the freeze from the TRA account.

Rating Sensitivity Factors

Upside factors:

• Track record of timely debt servicing for at least over 90 days
• Improvement in operating performance aiding cash generation

About the Company

SEPC (Shriram EPC Ltd till February 2021) was incorporated in June 2000. Mark AB has become its majority stakeholder since September 2022, post infusion of Rs 350 crore. SEPC specializes in executing EPC contracts, providing integrated solutions encompassing design, engineering, procurement, construction and project management services in water, P&M and infrastructure segments. Mark AB is the largest stakeholder in SEPC, with ~27% stake as on December 31, 2025.

 

For the first nine months of fiscal 2026, SEPC had a net profit of Rs 40 crore and operating income of Rs 781 crore, compared with Rs 15 crore and Rs 485 crore, respectively, during the corresponding period of the previous fiscal.

Any other information: Not Applicable