| S P Singla Constructions Private Limited | ||||||
| Ratings continues on ‘Watch Developing’ | ||||||
| Rating Action | ||||||
| ||||||
| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings’ ratings on the bank facilities of S P Singla Constructions Pvt Ltd (SPSCPL) continue on 'Rating Watch with Developing Implications'.
CRISIL Ratings had, on June 14, 2023, placed the rating on watch following the damage on under construction bridge project (Bridge across River Ganga between Sultanganj (Bhagalpur District) And Aguwani Ghat (Khagaria District)) in Bihar, being constructed by SPSCPL.
As per the latest update, the investigations on the incident is under-process and the reason of damage is yet to be ascertained. In the mean while the company continues to execute the project on the road work section other than the damaged area (being investigated) and is also getting timely payments from the company corresponding to the billings.
CRISIL Ratings is in discussion with company’s management to understand reasons for damage on the bridge and assess any financial loss incurred, damages being claimed, extent and likelihood of invocation of Bank Guarantee (BG), blacklisting or any other punitive action likely to be taken by the state government. Post receipt of clarity on aforementioned aspects, CRISIL Ratings will assess its possible impact on credit risk profile of the company and take the necessary rating action. Total cost of the Bhagalpur project is Rs.1113 crore, out of which Rs. 896.50 crore of work is executed as on June 30, 2023 (Rs. 887.50 crore as on April 30, 2023). As on July 31, 2023, nil debtors were outstanding pertaining to the project. Operating performance moderated during fiscal 2023 with decline in revenue by 8% to Rs 2,904 crore. The revenue declined as the company was not able to book revenue in few newly received orders in the month of March. However, revenue is expected to grow at 10-13% over the medium term backed by strong order book position of around Rs 12,165 crore as on June 30, 2023 (order book to revenue ratio of 4.2 times considering revenue of fiscal 2023) provides good revenue visibility for the medium term and healthy pace of execution. SPSCPL has a track record of undertaking large, complex projects, on its own, or could offer sub-contracting options to other developers.
Operating margin stood healthy at 9.1% during fiscal 2023 (8.7% during fiscal 2022) and will sustain at ~11.0% as the company has minimal dependence on subcontractors and will keep margins intact while bidding for projects. As a result, the net cash accruals are expected to improve from Rs. 174 crore in fiscal 2023 to Rs. 210-230 crore in fiscal 2024.
The financial risk profile continues to remain healthy, with the total outside liabilities to adjusted networth (TOL/ANW) ratio improving to 1.39 times as on March 31, 2023 (1.48 times a year ago) and gearing ratio at 0.45 times (0.53 times a year ago). Further, debt protection metrics were comfortable, supported by healthy cash accrual and moderate capital expenditure (capex). The financial risk profile is expected to further improve over the medium term as the interest coverage is estimated to improve to more than 4.5 times in next few fiscals due to improvement in profitability as compared to 3.85 times in fiscal 2023.
The ratings continue to factor healthy business risk profile, with an established market position and extensive experience of the promoter in executing river over bridge projects, healthy financial risk profile, and efficient working capital management. These strengths are partially offset by exposure to cyclicality inherent in the construction industry and limited segmental diversity. |
Analytical Approach CRISIL Ratings has taken a standalone view on SPSCPL. Also, CRISIL Ratings has considered interest-bearing mobilisation advances as part of debt. In line with the moderate consolidation approach of CRISIL Ratings, the equity requirement, expected cost overrun and support needed for underlying HAM project has been factored into the financials of the company.
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: Healthy business risk profile Business risk profile is healthy supported by healthy order book and track record of project execution. Although the total operating income has degrown by 9% in fiscal 2023, the operating margin stood at 9.1%. Further, a strong order book of Rs. 12165 crore as on June 30, 2023 which is 4.2 times the revenue in fiscal 2023 provides good revenue visibility for the medium term. Further, the company has been declared L1 in one additional orders amounting to Rs 260 crore in fiscal 2024 which should further add to the order book. Healthy order execution and higher revenue should continue improving operating profitability in the near term. The company is expected to win more orders of higher ticket size, which should boost the operating margin. However any impact of the recent incidence of damage of Bhagalpur bridge on the future bidding and the order book of the company shall be a key monitorable. SPSCPL recently won major HAM project in Shimla worth Rs. 1841 crore. As a result of healthy order book, strong execution capabilities, scale is expected to improve to over Rs 3200-3300 crore by fiscal 2024 along with improvement in operating margin to 11%.
Extensive experience of promoter and established track record in executing river over bridge projects The company is led by Mr Sat Paul Singla, who is a civil engineer and has experience of about three decades in designing, engineering and construction of bridges over rivers. The top management comprises qualified and experienced members, with average experience of more than three decades. The company has expertise in constructing various types of bridges such as girder, extra dosed, and cable stayed, and has constructed the highest number of cable-stayed bridges in the country. It has adequate technical and project management capabilities to handle multiple projects at a time. The company has completed more than 400 bridges, including flyovers and railway over bridges, across 16 states of India.
Healthy financial risk profile with efficient working capital management The operating performance in fiscal 2024 is expected to be stronger than fiscal 2023. As a result, net cash accruals are expected to be over Rs 220 crore with moderate capex of around Rs 50 crore resulting in total debt (including interest bearing mobilization advances) remaining between Rs 350-450 crore levels over next 3 fiscals vs Rs 451 crore as of March 2023.
Steady cash accrual and moderate debt led to adequate debt protection metrics; TOL/ANW, net cash accrual to total debt and adjusted interest coverage ratios were 1.39 times, 0.39 times and 3.85 times, respectively, for fiscal 2023 as against 1.48 times, 0.37 times and 3.65 times respectively in fiscal 2022. Going forward, TOL/ANW is expected to remain below 1.1 times in the medium term and adjusted interest coverage ratio is expected to improve to over 4.0 times in the medium term with improvement in profitability.
With one HAM project, the additional equity investment will be Rs.55.00 Crores over medium term which can be easily met from internal accruals. Significant high cost overruns in existing HAM project, or substantial exposure to new ones, necessitating sizeable equity investment, are key rating sensitivity factors. Any financial loss to the company on account of the recent incidence of damage of Bhagalpur bridge shall be a key monitorable. The company shall maintain adequate liquidity to meet any of such liability arising in the near future.
The company does not take developmental risks and executes engineering, procurement, construction projects, which limit its requirement of equity infusion in the projects. However, it plans to take up projects offered on the hybrid annuity model if they have significant structural work (more than 60% of the total work). The impact of any such large capital investment on debt levels and the capital structure will be a monitorable.
On working capital front, the company makes prudent selection of projects with strong counterparties to ensure timely payments. This led to healthy cash flow and moderate gross current assets of around 154 days as on March 31, 2023. The gross current assets are expected to remain from 130-160 days over next 3 fiscals along with RoCE ranging from 20-25%.
Weaknesses: Exposure to cyclicality inherent in the construction industry Revenue remains susceptible to economic cycles that impact the construction industry. Furthermore, the company mainly caters to government agencies, expenditure of which is directly linked to the economy. Numerous players in the construction segment results in intense competition, which may continue to constrain scalability and profitability. This risk is, however, mitigated by the presence in construction of bridges, which requires higher technical expertise, thereby limiting the number of qualified bidders.
However, given the cyclicality inherent in the construction industry, the ability to improve profitability while maintaining operating efficiency becomes important. Also, the requirement of equipment is higher in case of bridge projects, relative to roads, which also impacts the operating profitability. However this company keeps adding the required equipments /machinery from time to time and has builtup a good level of inventory to execute all type of project at its own.
The profitability remains vulnerable to sharp increase in raw material as seen in recent past. Although increase in raw material prices are covered under cost escalation clause, any increase higher than as allowed under the clause impact the profitability.
Limited segmental diversity Operations continue to be focused on bridge projects, which contribute the bulk of the revenue, unlike EPC players with presence in multiple segments such as commercial, residential, and industrial construction and infrastructure (railways, irrigation, dams, and power). Nevertheless, increasing plans to expand into other segments would mitigate concentration risk in longer run. |
Liquidity: Strong Liquidity is supported by healthy annual cash accrual, unutilised bank lines, and moderate cash and cash equivalents. Cash accrual is expected at over Rs 220 crore in next few fiscals, are sufficient to service average maturing debt obligation of Rs 40 crore per annum. Fund-based bank limit utilisation remained moderate at around 84% during the 12 months through Aug 2023 and should be adequate to meet the fund based working capital requirement during fiscal 2024. The company also uses non-fund-based facilities for meeting working capital requirement. Timely and sufficient enhancement in the bank lines is critical to support growth. Unencumbered cash and equivalents were Rs 46 crore as on July 31, 2023. As per the management, the company shall maintain adequate liquidity to meet any financial loss/liability arising out in the near future on account of damage of the Bhagalpur bridge. |
Rating Sensitivity factors Upward factors
Downward factors
|
About the Company SPSCPL, based in Panchkula, Haryana, and incorporated in 1996, is promoted by Mr Sat Paul Singla, a civil engineer. Activities include investigative works, and designing, engineering and constructing bridges over rivers. It also constructs roads over and under bridges at railway crossings, flyovers, underpasses, and grade-separators across cities in India. It has a subsidiary, SPS Realtors Pvt Ltd; however, currently no operations are being carried out in this entity. To increase its technical expertise and execute large projects, the company has entered into joint ventures with Gammon India Ltd and Arvind Techno Engineers Pvt Ltd and two JVs with PNC Infratech Ltd. |
Key Financial Indicators (Standalone)*
*as per analytical adjustments made by CRISIL Ratings |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
|
Annexure - List of Entities Consolidated
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Criteria Details
|