SSC Projects Pvt. Ltd.

Brickwork Ratings downgrades the ratings for the Bank Loan Facilities of Rs. 98.47 Crs. of SSC Projects Pvt. Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (19 Jun 2020)	Present
Fund Based	24.00	17.47	Long Term	BWR BB+ /Stable Assigned	BWR BB /Stable Downgrade
Non Fund Based	126.00	81.00	Short Term	BWR A4+ Assigned	BWR A4 Downgrade
Grand Total	150.00	98.47	(Rupees Ninety Eight Crores and Forty Seven lakhs 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

Brickwork Ratings (BWR) downgrades the bank loan rating of the SSC Projects Private Limited (SSCPPL) of Rs. 98.47 cr on the basis of concerns on liquidity, increased borrowing level, limitations of the company to scale up operations, and inherent risk in the infrastructure industry. The rating was however supported by strong promoter experience, reputed clientele and healthy order book of Rs. 380.0 cr.

The 'stable' outlook indicates a low likelihood of rating change over the medium term, BWR expects that SSCPPL's business risk profile shall be maintained over the medium term. The outlook of the company may be revised to 'Positive' with significant and sustained increase in the level of operations, early debtor realization, diversification in the customer profile. The rating outlook maybe revised to 'Negative' in case of delayed project executions, reduction in order book, increase in receivable position and poor liquidity.

BWR has principally relied upon the standalone audited financials of SSCPPL for FY20, provisional financials for FY21, projected financials for FY22 and FY23 and publicly available information/clarifications provided by the company's management.

KEY RATING DRIVERS

Credit Strengths:

Extensive Promoter experience and established operational track record :
The company and the promoter, Mr. Sunand Surapaneni have a long track record of around two decades and extensive experience in the civil construction work, Heating, Ventilation and air-conditioning (HVAC) and other electrical works industries which has helped in understanding the business cycles, establishing relationships with suppliers and customers, obtaining repeat orders and addressing associated business risks.
Reputed clientele :
SSCPPL is one of the fifteen empanelled special contractors for reputed government clientele like Defence Research and Development Organisation (DRDO), Aeronautical Development Agency (ADA), RITES Ltd, Central Public Works Department (CPWD), etc. The company has been associated with such customers for a long time and successful execution of the projects has also helped it in getting repeat orders.
Healthy Order book and revenue visibility :
The Company has orders in hand to the extent of ~Rs. 380 Crs. as of August 2021, leading to revenue visibility for the next 12-24 months. Until FY21, SSCPPL has executed projects worth Rs.850.0 Crs. out of which Rs. 262.50 Crs. The order book is from government clientele consisting of DRDO, CPWD, Rites Ltd, NFC, etc.

Credit Risks:

Stretched Liquidity considering elongated debtor realization :

The customers for the company are government agencies which take higher than normal time for payments. Hence the debtors position for the company continued to stay high at 267 days in FY20 which however improved to 222 days in FY21(Provisional). The working capital limits for the company are fully utilized and the company has been availing Temporary Overdrafts from the banker. The company has also availed covid loan of Rs. 3.88 cr from the banker payable in installments.
Limitations of the company to scale up operations :
The topline of the company has been constant in the past 3 years at around Rs. 90.0 cr despite huge orders in hand of Rs. 440.0 cr in the last year. Moreover the company has been unable to achieve projected TO for FY21 by 28% due to external factors being covid pandemic, shortage of labour, etc. The company has also revised its projected numbers for FY22 considering continued effect of the pandemic.
Customer Concentration :
The customer concentration is high as in FY21, top 5 customers contribute 64% of the overall sales of the company wherein around 15% of the sales happen to the sister concerns. Moreover, in the new work orders as procured by the company of Rs. 226.81 cr, orders to the value of Rs. 139.0 cr are from DRDO South which will increase customer concentration in the coming years.
Inherent risk in the Industry :
SSCPPL, like any other construction company, is exposed to the risks inherent in the construction sector including slowdown in new order inflows, risks of delays in execution, vulnerability of margins to adverse variation in the raw materials, labour and other input costs. In addition factors like timely clearances from various regulatory bodies, the handover of the sites, mobilisation of funds, change in governments policies and directives, cost escalation due to departmental delays, labour unrest and climatic vagaries also pose a risk. The effect of any of these could be substantial on the company's timeline of completion of the projects, working capital utilisation level and overall profitability. Since the nature of operations is tender based, the business will depend on the ability to bid for contracts successfully. Revenue and profitability are expected to remain susceptible to risks inherent in contract based operations. Tender based operations limit pricing flexibility in an intensely competitive industry
Covid-19 Impact :
The impact of the corona virus induced pandemic on the infrastructure industry has been significant considering lockdowns in early FY21 and FY22 leading to delayed projects and labour migration. Considering delay in project execution, the company was not able to achieve its projected numbers for FY21 and has also revised its numbers for FY22. The company has however availed Covid loan of Rs. 3.88 cr from the banker which has helped the company to run the operations. Further impact could be observed with probability of multiple coronavirus waves in the future.

ANALYTICAL APPROACH - Standalone

As it is a company, a standalone approach has been adopted and BWR has applied its rating methodology as detailed in the rating criteria (hyperlinks provided at the end of the rationale).

RATING SENSITIVITIES

Positives:

Ability of the company to increase scale of operations at a significant and sustained level along with reduction in the Trade Receivable position.
Diversified customer profile.

Negatives:

Delays in the execution of ongoing orders or reduction in fresh orders.
Increased trade receivable position of the company and poor liquidity.

LIQUIDITY INDICATORS - Stretched

Liquidity of the company remains stretched. The realization from the debtors continue to remain elongated and hence the customer has to rely on increased external borrowings for running the business. Debtors TO days continue to stay at more than 200 days in FY21. The working capital limits have been highly utilized and the company has been availing Temporary Overdrafts from the banker. Moreover, the company is expecting a drop in credit from the suppliers and reduced level of advances from the customers which will have an impact on the liquidity. The company has NCA of Rs. 5.9 cr against debt obligation of Rs. 3.57 cr. The company has unencumbered Cash & Bank balance of Rs. 2.63 cr as on 31.03.2021. However, additional fund support of Rs. 4.71 cr from directors in the form of loan has helped the company to sustain.

ABOUT THE ENTITY

SSC Projects Private Limited’ (SSCPPL) was started as 'SS Comfort Systems Pvt Ltd' in October 2001 at Hyderabad (Telangana) and later reconstituted as SSCPPL in August 2015. SSCPPL is engaged in civil construction activities on turnkey basis for government bodies (~80% of revenue) and the remaining from HVAC (Heating, Ventilation and Air-conditioning) services. In addition to government agencies, the company also undertakes infrastructure work for commercial and residential projects, school buildings, hospitals, auditoriums, hotels, etc. Mr. Sunand Surapaneni is the Managing Director and Mrs.Padmapriya Surapaneni is the Director of the Company. This is a family-owned business.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	89.95	89.92
EBITDA	Rs.Crs.	11.73	11.80
PAT	Rs.Crs.	3.81	4.19
Tangible Net Worth	Rs.Crs.	29.13	25.31
Total Debt/Tangible Net Worth	Times	0.63	0.66
Current Ratio	Times	2.34	1.93

RATING HISTORY FOR THE PREVIOUS 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	17.47	BWR BB/Stable (Downgrade)	19Jun2020	BWR BB+/Stable (Assigned)	NA	NA	NA	NA
Non Fund Based	ST	81.00	BWR A4 (Downgrade)	19Jun2020	BWR A4+ (Assigned)	NA	NA	NA	NA
Grand Total		98.47	(Rupees Ninety Eight Crores and Forty Seven lakhs Only)

Rating Advisory, as on 23Jun2021
Press Release, as on 23Jun2021
Rating Advisory issued due to non-receipt of available information required for review of rating.

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
Anuj Rastogi Ratings Analyst Board : 8040409940 anuj.r@brickworkratings.com	Hemant Sagare Senior Manager - Ratings Board : +91 80 4040 9940 hemant.s@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

SSC Projects Pvt. Ltd.

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	Union Bank of India	Bank Guarantee - Sanctioned	_	77.00	77.00
2	Union Bank of India	Bank Guarantee - Proposed	_	_	0.00
3	Union Bank of India	Letter of Credit - Sanctioned	_	4.00	4.00
4	Union Bank of India	Letter of Credit - Proposed	_	_	0.00
5	Union Bank of India	Cash Credit - Sanctioned	14.00	_	14.00
6	Union Bank of India	Secured OD - Sanctioned	_	_	0.00
7	Union Bank of India	Secured OD - Proposed	_	_	0.00
8	Union Bank of India	Covid -19 Emergency Line Credit - Out-standing	0.79	_	0.79
9	Union Bank of India	GECL - Out-standing	2.68	_	2.68
Total			17.47	81.00	98.47
TOTAL (Rupees Ninety Eight Crores and Forty Seven lakhs Only)

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