Detailed Rationale

Crisil Ratings has reaffirmed its 'Crisil AA/Stable/Crisil A1+' ratings on the non-convertible debentures (NCDs) and commercial paper programme of Tata Projects Ltd (TPL).

 

The ratings centrally factor in the strong managerial and financial support to TPL from Tata Sons Pvt Ltd (Tata Sons; ‘Crisil AAA/Stable’), which holds 57.31% equity stake in TPL. The company’s established market position, large-scale operations and diversified order book of complex projects also support the business risk profile. These strengths are partially offset by large working capital requirement and modest financial risk profile.

 

Operating margin declined to 3.1% for nine months of fiscal 2025, after improving to 4.1% in fiscal 2024, owing to a slowdown in execution of large projects, along with additional costs related to scope and rate variations and project prolongation incurred on its key large projects during the period. Unexecuted portion of the order book moderated slightly to Rs 40,703 crore as on December 31, 2024, compared with Rs 43,493 crore as on March 31, 2024, as the company has a prudent bidding strategy. Nevertheless, the current order book continues to provide healthy revenue visibility over the medium term. Crisil Ratings understands that necessary provisions for TPL’s legacy projects have been taken on the books and therefore operating profitability is expected to improve over the medium term. Moreover, TPL has a sizeable claim book, part of which is recognised in the balance sheet. Part of these claims is expected to be recovered gradually, thereby improving cash flow.

 

Gross current assets (GCAs), excluding cash, remained sizeable and are expected to remain elevated as the company completes some of its large orders and will likely improve gradually over the medium term with higher expected execution and better collection. Net debt increased in fiscal 2025 to fund incremental working capital requirement. Along with claim realisation, moderation in indebtedness will remain monitorable. Weakening of the payment track record of central and state government entities, resulting in sustained pressure on GCAs and overall indebtedness of TPL, will also bear watching.

Analytical Approach

Crisil Ratings has applied its parent notch-up framework to factor in the extent of support available from Tata Sons. Crisil Ratings has combined the financials of TPL's subsidiaries to reflect the operational and financial linkages with these entities.

 

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:

• Established pan-India position with a healthy, diversified order book: TPL is a large and diversified player in the engineering, procurement and construction (EPC) space, with presence across urban built form, metros and tunnels, bridges, airports and ports, environment, power and metals, transportation, oil and gas hydrocarbon, transmission and distribution, and international business.

 

Strong order inflow in urban built form, metros and airport projects has led to a diversified order pipeline. Order book of around Rs 40,700 crore (as of December 2024), well-diversified across different segments, and the growing share of urban infrastructure orders offer strong revenue visibility for the next 3-4 years.

 

TPL has executed complex projects such as the freight corridor, metros and heavy civil projects through joint ventures with strong partners, aiming to build execution capabilities in new segments. The company has undertaken more independent projects in the past 2-3 years and bagged several large projects in the refinery, industrial and power segments. It maintains a prudent bidding strategy and has improved its pre-bid risk management practices with focus on cash flow management, execution and profitability. The large share of projects from private and Tata group entities, along with focus on high-margin projects, should improve profitability over the medium term.

 

• Strong managerial and financial support from Tata Sons, lending substantial financial flexibility: TPL, part of the Tata group, has gained prominence due to its increasing scale of operations, execution of complex and prestigious projects, size of the addressable market in the EPC industry and ability to generate healthy returns in the long term. The company is jointly held by several Tata group companies, with Tata Sons being its largest shareholder with 57.31% stake, and has senior Tata group executives on its board. Being part of the Tata group, TPL derives significant financial flexibility and access to low-cost funds from banks and capital markets. Crisil Ratings expects Tata Sons to continue providing need-based support to TPL, including support to strengthen the balance sheet in the near term, which along with the sustenance of Tata Sons’ ownership share in TPL, will remain key rating sensitivity factors.

 

Weaknesses:

• Working capital-intensive operations: TPL has sizeable retention money blocked in completed as well as ongoing projects. Total receivables (including retention money) remained large at Rs 6,300 crore as on December 31, 2024. Moreover, substantial claims related to change in scope and price variations continue to constrain the working capital cycle. Accordingly, the GCAs, excluding cash, remained sizeable at 383 days as on March 31, 2024, as against 374 days a year earlier. The risk of bad debt is mitigated as over 60% of the orders are for government bodies and public sector enterprises. Moreover, arrangements with sub-contractors in sync with milestone payments, claims and retention money help ease the pressure. While the working capital cycle is expected to remain stretched in the near term, the management’s intent to focus on collection, liquidation of claims and judicious bidding for new projects should keep the working capital requirement in check.

 

• Modest financial risk profile: Large working capital requirement and low capitalisation led to high total outside liabilities to tangible networth (TOLTNW) ratio of over 6.4 times as on March 31, 2024, as against 6.2 times as on March 31, 2023. Higher debt of ~Rs 5,130 crore as on March 31, 2024, amid slow collection of receivables and modest operating profit constrained the interest coverage ratio, even though it improved to 1.31 times in fiscal 2024, against negative levels in fiscal 2023. Overall debt increased substantially to ~Rs 7,540 crore as on December 31, 2024, on account of slower billing and collection and higher working capital requirement, and the management expects debt to moderate gradually over the next 1-2 fiscals. Expected improvement in profitability and cash flows from collection as well as claims should reduce the level of indebtedness and strengthen the debt protection metrics over the medium term. Improvement in debt and debt protection metrics will remain key monitorable.

Liquidity: Strong

TPL had unencumbered cash balance of around Rs 637 crore as on December 31, 2024, against debt obligation of Rs 750-800 crore and capex plans of Rs 200-250 crore for the next 12 months. The fund-based bank limit was utilised at a moderate 60% on average in the 12 months through December 2024, resulting in unutilised bank limits of around Rs 750 crore. The financial flexibility is strong from being a part of the Tata group. TPL has also demonstrated the ability to successfully refinance its long-term debt obligation consistently in the past.

Outlook: Stable

Crisil Ratings believes TPL will continue to benefit from its established market position in the EPC industry and receive strong managerial and financial support from the parent, Tata Sons.

Rating sensitivity factors

Upward factors

• Strong operating performance with sustained improvement in operating margin and capital structure, leading to improvement in interest coverage ratio above 3 times on a sustained basis
• Significant improvement in the working capital cycle

 

Downward factors

• Diminution in support philosophy or deterioration in the overall credit risk profile of Tata Sons by one notch or more
• Stretched working capital cycle constraining the capital structure on a sustained basis and continued pressure on credit metrics

About the Company

TPL, incorporated in 1979, is one of India's leading EPC companies. It operates through three strategic business groups: energy and industrial infrastructure, urban infrastructure, and services. A brief profile of TPL’s business segments:

 

Strategic business group	Description
Energy and industrial	Energy and Resources
	Transmission and Distribution
	Advanced Tech. Facilities
	Services
Buildings and infrastructure	Urban Spaces
	Mobility and Strategic Infra

 

TPL is held by several Tata group companies. The largest shareholder is Tata Sons, which holds 57.31% of the subscribed equity shares of TPL. Other stakeholders include The Tata Power Company Ltd ('Crisil AA+/Stable/Crisil A1+'; 30.81%), Tata Chemicals Ltd ('Crisil AA+/Stable/Crisil A1+'; 6.16%), Voltas Ltd (4.3%) and Tata Industries Ltd ('Crisil AAA/Stable'; 1.42%).

 

The Tata group is a global enterprise, headquartered in India, comprising over 100 independent operating companies.

Any other information: Not Applicable