| Subhash Infraengineers Private Limited | ||||||
| Ratings reaffirmed at 'CRISIL BBB+/Stable/CRISIL A2' | ||||||
| Rating Action | ||||||
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| 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 has reaffirmed its rating at ‘CRISIL BBB+/Stable/CRISIL A2’ on the bank facilities of Subhash Infraengineers Pvt Ltd (SIPL).
Operating performance remained healthy during fiscal 2023, with increase in revenue by 55% to Rs 374 crore while operating margin was 8.8% (9% in fiscal 2022). This improved net cash accrual to Rs 25 crore from Rs 16 crore. Also, a robust order book of Rs 2,016 crore (including operations and maintenance bid) as on September 30, 2023 (order book to revenue ratio of 5.4 times), provides revenue visibility. Timely execution of projects will be monitorable.
Financial risk profile is also comfortable, with total outside liabilities to tangible networth (TOLTNW) ratio of 2.09 times as on March 31, 2023 (1.54 times previous fiscal); and interest coverage ratio of 5.09 times during fiscal 2023 (6.63 times). In the absence of any large, debt-funded capital expenditure (capex), financial risk profile is expected to remain steady over the medium term.
The ratings continue to reflect the established track record of SIPL in the construction industry, healthy financial risk profile and efficient working capital management. These strengths are partially offset by concentration in order book and exposure to intense competition. |
Analytical Approach CRISIL Ratings has considered the standalone financials of SIPL and has moderately consolidated other special-purpose vehicles to the extent of support required over the medium term.
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:
Strong technical expertise in constructing ash dykes for thermal power plants has enabled the company to establish healthy relationships with government clients such as National Thermal Power Corporation Ltd (‘CRISIL AAA/Stable’) and its subsidiaries and joint ventures, Indian Railway Construction International Ltd, Rail Vikas Nigam Ltd, and Delhi Jal Board (comprise 70% of order book). The company has further diversified to roads, railways, irrigation, sewage treatment plants and infrastructure projects. Also, orders are spread out geographically across 7-8 states. While diversification offers some stability, the company remains exposed to intense competition in these sectors.
Steady cash accrual led to comfortable debt protection metrics, with interest coverage and net cash accrual to adjusted debt (NCAAD) ratios of 5.1 times and 0.31 time, respectively, in fiscal 2023 (6.63 times and 0.31 time, respectively, previous fiscal). Though above average, TOLTNW ratio weakened marginally to 2.09 times as on March 31, 2023, from 1.54 times as on March 31, 2022, due to on-year increase in debt to Rs 79 crore from Rs 51 crore as the company availed of equipment loans, term loans for its road project, and substantially utilised fund-based limit to meet increased order book. Though debt is likely to increase further with ramp-up in operations, TOLTNW ratio will remain steady at 1.5-2 times over the medium term. Net cash accrual of Rs 35-40 crore will continue to keep NCAAD and interest coverage ratios strong at over 0.4 time and 5 times, respectively.
GCA days stood at 225 days as on March 2023 (215 days as on March 2022). Receivables position has improved from 106 days in fiscal 2022 to 90 days in fiscal 2023 and inventory days has increased to 47 days as on March 2023 from 4 days as on March 2022 due to pending approval of change of scope in its road projects at year end and has been partly offset by increase in creditor days. Going forward, GCA days are to remain comfortable at around 200 days with faster realization of debtors from the road project and expected approval of change in scope. Although, the working capital cycle remained high, the company has been able to achieve healthy return on capital employed (ROCE) of 19-21% over past 3 years. However, the working capital position will remain key monitrables going forward.
Weaknesses
As on September 30, 2023, four orders (one each from the road, ash dyke, railway and sewage segments) formed around 70% of the order book. The road project has been delayed due to ROW (right of way) issues, and the scheduled commercial operation date will be revised. Any delay in execution of large orders and commencement of other projects could adversely impact operating performance.
The company, which used to previously undertake small orders, has been recently awarded large projects in sewage treatment, road EPC (engineering, procurement, construction) as well as railway. Hence, track record of tying up funding and executing large projects is limited.
The company remains exposed to inherent cyclicality in the construction industry and volatility in profits amid high fragmentation in the EPC segment. Though the industry’s medium-term prospects seem bright with increased central government focus on the infrastructure sector (especially roads and highways), most of the projects are tender-based, which limits material improvement in operating profitability as players have to bid aggressively due to intense competition. |
Liquidity: Adequate Cash accrual expected at over Rs 35 crore, should comfortably cover annual debt obligation of Rs 8-11 crore, On average, fund-based limit was utilised 73% and non-fund-based limit was utilised 73% in the 12 months through September 2023. Cash and equivalent stood at Rs 55 crore as on March 31, 2023, of which Rs 12 crore was unencumbered. |
Outlook: Stable The company will continue to benefit from its healthy and diversified order book and strong financial risk profile over the medium term. |
Rating Sensitivity factors Upward factor
Downward factor
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About the Company SIPL was set up in 1996 as a partnership firm, Subhash Construction Co, and was reconstituted as a private limited company in 2009. It provides industrial construction services, such as construction of ash bunds and raising of ash dykes. The company has also diversified into roads, railways, irrigation and sewage treatment plants. It lays pipelines and develops roads for civic authorities. In fiscal 2017, it set up a 1-megawatt solar power project at Narnaul, Haryana. |
Key Financial Indicators*
*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)
& - Interchangeable with fund based limit of Rs 5 crore |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||
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Criteria Details
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