Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the bank facilities of thyssenkrupp Uhde India Private Limited (tkUIPL; Formerly known as thyssenkrupp Industrial Solutions (India) Private Limited) at ‘CRISIL A+/Stable/CRISIL A1’.

 

The ratings continue to reflect tkUIPL’s established market position in the engineering, procurement, and construction (EPC), and EPC management (EPCM) segments in India, backed by strong business linkages with the parent, thyssenkrupp Industrial Solutions AG (tkIS AG; a subsidiary of thyssenkrupp AG; rated 'BB/Stable/B' by S&P Global Ratings), healthy order book position providing revenue visibility in medium term and strong financial risk profile. These strengths are partially offset by exposure to intense competition and cyclicality in the EPC and EPCM segments, and modest operating profitability.

 

Operating income of the company grew by 51% in fiscal 2024 as the company was able to achieve milestones in higher number of EPC projects during the year. Earnings before interest taxes depreciation amortization (Operating) margin moderated to 3.6% in fiscal 2024 as against 5.3% in fiscal 2023 on account of higher execution of fixed prices projects where the actual cost increased on the back of Russia- Ukraine war leading to increase in procurement cost due to price rise and disturbance in shipping lines. Moreover, since these projects are fixed price contracts, there is no space for renegotiation making it difficult to pass on to the clients. The company has a sizeable order book of Rs. 3,549 crore as on September 30, 2024 (Rs 3,398 crore as of June 30, 2023) which will provide revenue visibility over the medium term. Order book to revenue ratio stood at 2.2 times as on September 30, 2024, considering fiscal 2024 revenue.

 

Revenue is expected to remain at around Rs.1,250-1,500 Crore in medium term based on the expected milestones and execution of outstanding order book. The operating margins are expected to remain around  3%-5% in current fiscal due to execution of the older fixed price contracts and will improve going forward driven by execution of recently received orders at a higher margin. Moreover, company is bidding for more private projects and is also linking the projects cost with different benchmarks which should be able to help in terms of passing on the prices to the customers. However, the recovery in operating margins going forward will remain a key monitorable.

Analytical Approach

For arriving at its ratings, CRISIL Ratings has analyzed the standalone business and financial risk profiles of the company, tkUIPL.

Key Rating Drivers & Detailed Description

Strengths:

• Established position in the EPC and EPCM segments, backed by strong business linkages with the parent: tkUIPL’s business risk profile is expected to remain comfortable, backed by a track record of more than three decades in the EPC and EPCM segment, strong technical expertise, and healthy relationships with a diverse customer base, including Public Sector Undertakings (PSUs). The company leverages the established global business position and brand name of its parent, tkIS AG, and its established track record of execution to get orders from the chemical, petrochemical, fertilizer, refinery and metallurgical segments.

 

Cost effectiveness of technically skilled manpower in India makes tkUIPL the preferred provider of engineering design support for the global EPC projects of its parent. Moreover, the company will remain critical to the parent’s operations in India especially in the field of coke oven and green hydrogen/ammonia, further tkUIPL will continue to enhance the competitive advantages of its parent globally. While tkUIPL operates as an independent subsidiary, it also benefits from operational support through transfer of technological know-how from its parent including new technologies like coke oven for steel industry and green hydrogen/ammonia for chemical and fertilizer industries. Some more techniques such as nitric acid, and caustic Soda have been acquired through technology sharing with group companies, and should drive growth going forward.

 

• Healthy order book position providing revenue visibility in medium term: The company is present in the chemical, petrochemical, fertilizer, refinery and metallurgical segments and has executed orders for varied end-user segments. The overall order book stood at Rs. 3,549 crore as on Sep 30, 2024 (Rs. 3,398 crore as on June 31, 2023), with order book-to-revenue ratio of 2.2 times, providing healthy revenue visibility over the medium term.  Further, the company is venturing into projects utilizing newly acquired technologies of coke oven and green hydrogen/ammonia in the medium term. The company is also focusing on diversifying the order book both in terms of counterparties (public and private) as well as technology (own and third party).     Focus on new technology will improve order book diversity and revenue visibility over the medium term.

 

• Strong financial risk profile: The financial risk profile continues to remain strong with the company remaining net debt negative. The company has strong capital structure with no external debt on its books, leading to low financial charges (only financial charges being commissions on bank guarantees and interest on customer advances).The unencumbered cash surplus was Rs 311 crore as on March 31, 2024. Annual capex plans remain around 10-15 crore over the medium term which will be funded with internal accruals. With expected improvement in operating performance, debt metrics such as TOL/TNW is expected to improve to around 1 times as on March 31, 2025 (1.3 times as on March 31, 2024) while adjusted interest coverage is expected to improve to 6.5-7 times during fiscal 2025 (5.8 times during fiscal 2024). Going forward, TOL/TNW is expected to remain below 1 times while adjusted interest coverage is expected to improve to more than 8 times over the medium term with expected reduction in mobilisation advances.

 

Despite being in the highly working capital-intensive construction industry, the working capital cycle has been moderate as reflected in GCA days (net of cash) of 126 days, as the business model entails execution of EPC/EPCM projects against customer advances and back-to-back arrangements with the suppliers leading to nil fund based working capital utilization. Annual capex plans remain around 10-15 crore over the medium term.

 

Weaknesses:

• Exposure to intense competition and cyclicality in the EPC and EPCM segments along risk related to contingent liabilities: Revenue remains susceptible to economic cycles that impact the EPC and EPCM segments. Furthermore, the company mainly caters to government agencies and PSUs, expenditure of which is directly linked to the economy. Any delay or deferment of capital expenditure (capex) in end-user industries could adversely affect revenue. The risk is mitigated owing to the strong reputation of the company in diversified segments such as petrochemicals, refinery and fertilizers.

 

Due to the nature of business, tkUIPL has sizeable off-balance sheet liabilities, primarily bank guarantees given to clients. Hence, the company is exposed to the liquidity risk that may arise out of these contingent liabilities.

 

• Modest operating profitability: Operating margin moderated to 3.6% in fiscal 2024 as against 5.3% in fiscal 2023 on account of higher execution of fixed prices projects where the actual cost increased on the back of Russia- Ukraine war leading to increase in procurement cost due to price rise and disturbance in shipping lines. Moreover, since these projects are fixed price contracts, there is no space for renegotiation making it difficult to pass on to the clients.

 

However, operating margins are expected to remain around 3%-5% in current fiscal due to execution of the older fixed price contracts and will improve going forward driven by execution of recently received orders bid at a higher margin. Moreover, company is bidding for more private projects and is also linking the projects cost with different benchmarks which should be able to help in terms of passing on the prices to the customers. However, the recovery in operating margins going forward will remain a key monitorable.

Liquidity: Strong

Unencumbered cash and cash equivalents stood at Rs. 468 crore and the fund based bank lines of Rs. 25 crores remain completely unutilized as on September 30, 2024. The company primarily depends on non-fund-based facilities to fund its working capital requirement, wherein utilisation averaged 63% for the 12 months through October 2024. Annual cash accrual, though expected to be moderate over Rs 50 crore for the next few fiscals, should remain comfortable to fund any incremental working capital requirements and regular dividends in the absence of any repayment obligation and major capex over the medium term.

Outlook: Stable

CRISIL Ratings believes tkUIPL will continue to benefit from its healthy financial risk profile backed its net debt free position, adequate working capital cycle and strong liquidity to tide over exigencies, if any. The business risk profile should also be supported by established market position and execution capabilities and healthy order pipeline.

Rating sensitivity factors

Upward factors:

• Increase in the order book position resulting in strong revenue visibility and growth along with operating margin exceeding 5-7% on a sustained basis
• Improvement in the working capital cycle further strengthening the liquidity position while sustaining the strong financial risk profile.

 

Downward factors:

• Higher than expected decline in revenue and/or any further reduction in operating margin, leading to lower-than-expected net cash accrual
• Significant stretch in the working capital cycle or higher than expected dividend payout impacting the liquidity position
• Any debt-funded acquisition/ capex resulting in deterioration in the financial risk profile; TOLTNW ratio going above 1.5-1.7 times on a sustained basis

About the Company

tkUIPL, (formerly known as thyssenkrupp Industrial Solutions (India) Private Limited) is a premier Indian Engineering Company for EPCM / EPC-LSTK implementation of Chemical and Industrial Plants.

 

Operating from Mumbai and Pune, tkUIPL’s solutions encompass the entire range of services for Fertiliser, Petrochemical, Refinery, Electrolysis, Metallurgical, Low Temperature Storage and Industrial projects. tkUIPL’s experience spans four decades and in excess of 850 contracts globally. They have carefully converted their business opportunities to carve a niche for themselves as a premier EPC-LSTK and EPCM (Engineering, Procurement & Construction Management) company in India.

 

tkUIPL is a subsidiary of thyssenkrupp Industrial Solutions AG with 80.43% shareholdings. (part of thyssenkrupp AG group headquartered in Germany)

Key Financial Indicators (Standalone)*

Financials as on / for the period ended March 31		2024	2023
Operating Income	Rs crore	1636	1083
Profit after tax (PAT)	Rs crore	59	35
PAT margin	%	3.6	3.2
Adjusted debt/adjusted net worth^	Times	0.0	0.0
Adjusted Interest coverage	Times	5.8	7.5

*CRISIL Ratings adjusted numbers

^Excluding interest bearing mobilisation advances from customers

Any other information: Not Applicable