AG Construction

Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs. 120.00 Crs. of AG Construction (AGC or The Firm)

Particulars

Facilities**	Amount(Rs.Crs.)	Tenure	Rating#
Fund Based	30.00	Long Term	BWR BBB - /Stable Assignment
Non Fund Based	90.00	Short Term	BWR A3 Assignment
Grand Total	120.00	(Rupees One Hundred Twenty Crores Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure RATING ACTION / OUTLOOK

The ratings factor in the extensive experience of the partners in the construction industry, the firm's healthy order book, strong counter party and comfortable financial risk profile. These strengths are partially offset by large working capital requirements, exposure to intense competition, and susceptibility to risks inherent in tender-based nature of business.

BWR believes that AGC’s business risk profile will be maintained over the medium term. The Stable outlook indicates a low likelihood of a rating change over the medium term.

KEY RATING DRIVERS

Credit Strengths:

Healthy Order Book :
AGC has a healthy unexecuted Order book of Rs 600.78 crore as on July 2021 which is to be executed in 24-30 months and a 2.9 times Order book / Revenue ratio thus resulting in revenue visibility over the medium term. The orders are diversified in terms of segments and geographies, allaying concentration risk.
Comfortable financial risk profile :
AGC has a comfortable networth of Rs 84.27 crore and limited dependence on external debt resulting in TOL/TNW of 1.35 times as on March 31, 2021. Debt protection metrics are robust as reflected in interest coverage of more than 5.8 times in FY21 Prov. (FY20: 4.72), supported by healthy and sustained profitability, sizeable cash accrual, and improved accretion to reserves.
Extensive experience of the partners :
The experience of more than 20 years of managing partner Mr Arif Khan has helped AGC establish its position in the construction industry. The firm has executed several projects in the past, primarily for the irrigation, railways, bridges, and roads segment. It has successfully entered different work segments and geographies. Before fiscal 2017, majority of the revenue came from Maharashtra and from irrigation projects. However, AGC has diversified into other states such as Rajasthan and Gujarat and segments such as roads, highways, bridges, and railways, which has helped drive revenue growth. This diversification has also resulted in improved counterparty credit profile with National Highways Authority of India being one of the major clients. AGC's track record and experienced management will bolster its business risk profile over the medium term.

Credit Risks:

Working Capital Intensive Nature of Business :
Despite improving, the working capital cycle is stretched, with a conversion cycle of 59 days as on March 31, 2021, driven by receivables and inventory of 44 days and 25 days, respectively. With large orders in hand, working capital requirements will increase sharply. The firm has total current investments of Rs, 49.18 Crs. in FY21 (FY20: Rs. 48.70 Crs.) consisting of earnest money deposits, retention money and Fixed Deposit with banks. and hence, working capital management remains a key rating sensitivity factor. The bank guarantees are almost fully utilised necessitating the need for enhancement, which we understand is currently under process.
Exposure to intense competition and to risks inherent in tender-based business :
Though the firm reported healthy growth in revenue, its scale remains moderate and revenue depends on the quantum of tenders floated by government agencies. Government investment in infrastructure segments and the firm’s ability to win tenders remain critical. Furthermore, the firm remains exposed to intense competition and to risks inherent in tender-driven business which may impact profitability.
Capital withdrawal risk :
The firm is exposed to risk of capital withdrawal considering its partnership constitution. However, no such instances have been observed during the period understudy.

ANALYTICAL APPROACH - Standalone

BWR has applied its rating methodology as detailed in the Rating Criteria below (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Positive: Sustained and substantial improvement in revenues, sustenance of order book growth, profitability, stable financial risk profile and adequate liquidity.

Negative: Deterioration in order book, profitability, financial risk profile and Liquidity.

LIQUIDITY INDICATORS - Adequate

Liquidity is expected to remain adequate over the medium term. Fund-based bank limit was utilised at an 82% on an average over the last 6 months through July 2021. There is likely to be a healthy cushion between expected cash accrual of Rs 25-30 crore in FY22 against the scheduled debt obligation of Rs 5-6 crore. The firm had unencumbered cash and bank balance of Rs 0.59 crore as on March 31, 2021. However, with large orders in hand, working capital requirements will increase. Hence, working capital management and its impact on liquidity will remain key rating sensitivity factors.

ABOUT THE ENTITY

The firm M/s. A G Construction was established in 1994 by founder Late Mr. Abdul Gaffur Khan as a proprietorship firm. He had started his career as a Government contractor in Aurangabad & has completed many projects related to Road, Building, Dam and Canal works. Later in 2004 Mr. Abdul Gaffur Khan transferred the business to his three sons - Mr Aslam Khan, Mr Arif Khan, and Mr Mohsin Khan who converted the proprietorship firm to a Partnership Firm named M/s. A G Construction in the year 2004. AGChas executed many government projects in Maharashtra & Rajasthan.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	169.62	245.53
EBITDA	Rs.Crs.	26.12	31.58
PAT	Rs.Crs.	16.59	23.47
Tangible Net Worth	Rs.Crs.	69.84	63.86
Total Debt/Tangible Net Worth	Times	0.79	0.64
Current Ratio	Times	0.99	1.19

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

RATING HISTORY FOR LAST THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2021)			2020		2019		2018
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	30.00	BWR BBB-/Stable (Assignment)	NA	NA	NA	NA	NA	NA
Non Fund Based	ST	90.00	BWR A3 (Assignment)	NA	NA	NA	NA	NA	NA
Grand Total		120.00	(Rupees One Hundred Twenty Crores Only)

Rating Advisory, as on 31Jan1921
Press Release, as on 31Jan1921
COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.

Hyperlink/Reference to applicable Criteria

Analytical Contacts
Sagar Harendra Desai Ratings Analyst sagar.d@brickworkratings.com	Chintan Dilip Lakhani Director- Ratings chintan.l@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

AG Construction

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Bank of Maharashtra	Cash Credit - Sanctioned	20.00	_	20.00
2	Bank of Maharashtra	Cash Credit - Proposed	10.00	_	10.00
3	Bank of Maharashtra	Bank Guarantee - Sanctioned	_	50.00	50.00
4	Bank of Maharashtra	Bank Guarantee - Proposed	_	40.00	40.00
Total			30.00	90.00	120.00
TOTAL (Rupees One Hundred Twenty Crores Only)

Print and Digital Media

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