Amrutha Constructions Pvt. Ltd.

Brickwork Ratings reaffirms the ratings with a revision in outlook for the Bank Loan Facilities of Rs.500.00 Crs of Amrutha Constructions Pvt. Ltd.

The revision in outlook on Amrutha Constructions Private Limited (ACPL or the company) factors the improved financial performance during FY21 with ~11% y-o-y growth in operating income with stable margins, despite the Covid-19-impact on the company’s operations during Q1FY21. ACPL's capital structure has also improved during this period, as marked by the debt-equity ratio of 0.29 times as on 31 Mar 2021 from the level of 0.65 times, a year ago. The outlook revision also factors the notable improvement in the company’s order book position. The total orderbook size of the company has grown to ~Rs.8046 Crs as on 31 Aug 2021, of which the unexecuted portion was ~Rs.4295 Crs as against the unexecuted orders worth ~Rs.3327 Crs as on 31 Mar 2021, showing steady accretion in the order book and thereby ensuring medium-term revenue visibility for the company. Brickwork Ratings (BWR) also takes note of the visible improvement in the debtor realisation of the company. The company’s receivables position has improved to ~Rs.166 Crs as on 31 Mar 2021 from a relatively higher level of ~Rs.206 Crs as on 31 Mar 2020. This has further reduced to ~Rs.147 Crs, as on 31 Aug 2021, of which over 90% of the receivables were less than four months old. The outlook revision also factors in the Positive industry/business outlook, especially in view of the improved government focus on infrastructure spending through various initiatives for promoting irrigation/water supply under schemes such as Jal Jeevan Mission and Pradhan Mantri Krishi Sinchai Yojana and the push for infrastructure development through the implementation of the National Infrastructure Pipeline.

The rating reaffirmation continues to factor in the extensive experience of the promoters of  the company in the Engineering, Procurement and Construction (EPC) contract industry, established operational track record and demonstrated execution capabilities of ACPL, the company's moderate financial risk profile and long standing relations with various government bodies and promoters’ resourcefulness to support business operations. However, the ratings are constrained by the company’s dependence on government contracts and geographically, sectorally and client-wise concentrated nature of unexecuted orders. Project execution risk, uncertainty inherent in the tender-based contract execution business, the vulnerability of profitability to margin-based competitive bidding and fluctuation in construction material prices and the working-capital-intensive nature of business operations continue to be rating constraints. As clients are mainly government bodies and public-sector entities, any delay in the release of payments and retention money withheld by clients can impact the company’s cash flows.

Credit Strengths:

• Experienced management and established track record :

  The main promoters of ACPL, a closely held family business, have over three decades of experience in the EPC business. ACPL, with an established operational track record of around 15  years, is registered as a Class-I contractor with various departments of the governments of Karnataka, Maharashtra and Gujarat and Special Class contractor with various departments of the governments of Andhra Pradesh and Telangana. The company has expertise in the construction of lift irrigation schemes, minor irrigation tanks, barrages, bridge-cum-barrage, canals, aqueducts, and other structures/works on canals and in infrastructure projects including national highways, layouts including industrial layouts, commercial buildings and IT parks, among others. Thus, the company has demonstrated its project execution capability in the sector and has been able to win repeat orders from various government agencies based on its track record.
   

• Reputed client base and revenue visibility through healthy order book :
  The company's current projects under execution have been bagged from various state government agencies. Around 98% of the projects under execution are Karnataka government sponsored projects and the majority of the irrigation segment projects are NABARD-funded. Key clients include Karnataka PWD (KPWD), Karnataka Industrial Areas Development Board (KIADB), National Highway Authority of India (NHAI), Cauvery Neeravari Nigama Limited (CNNL), Krishna Bhagya Jala Nigam Ltd (KBJNL), Karnataka Neeravari Nigam Ltd (KNNL) Minor Irrigation Division-Karnataka, Irrigation Department- Telangana, Bengaluru Development Authority (BDA) and Bruhat Bengaluru Mahanagara Palike (BBMP). The company has been associated with these clients for a long time, and the successful execution of the projects has also helped it in getting repeat orders. The total orderbook size of the company was ~Rs.8046 Crs as on 31 Aug 2021, of which the unexecuted order position was ~Rs.4295 Crs, to be completed within the next 2-3 years, which ensures medium term revenue visibility for the company. Due to reputed client profiles, the company has low counterparty credit risk although at times, there can be delays in the realisation of some bills. 

• Moderate financial risk profile :
  Contract receipts increased from Rs.998.44 Crs in FY20 to Rs.1108.56 Crs in FY21(P). Operating profit increased from Rs.91.74 Crs to Rs.104.66 Crs and net profit from Rs.41.53 Crs to Rs.52.82 Crs over the same period. Total debt reduced to Rs.77.08 Crs as on 31 March 2021(P)  (PY: Rs.137.83 Crs). The tangible net worth (TNW) improved to Rs.265.38 Crs as on 31 March 2021(P) (PY: Rs.212.56 Crs) by way of profit retention. The gearing continued to be comfortable with improvement to 0.29 times ) as on 31 March 2021(P) (PY: 0.65 times). Debt protection metrics  is comfortable as marked by the  ISCR and DSCR of  7 times and 3.11 times, respectively, as on 31 March 2021(P). The net and operating profit margins for FY21 were stable at 4.76% and 9.44%, respectively. [P → Provisional]

• Geographical, segmental and customer concentration :
  Karnataka state alone accounts for ~98% of the overall unexecuted orders. This makes a substantial portion of the company’s operations vulnerable to political and environmental changes in the state. On the other hand, as more than 50% of the under-execution-irrigation-projects are NABARD-funded, the cash flow risk is mitigated to some extent. The current composition of the projects under execution is skewed towards the irrigation segment, which accounts for ~78% of the total unexecuted order book. However, the government’s policy focus on irrigation/water supply is seen as a positive for the company. The top five projects constitute ~58% of the total unexecuted order book. This exposes the company to customer concentration risk. Nonetheless, since the top customers are all government entities the counterparty risk is low for the company. 

• Working-capital-intensive nature of operations :
  The company’s operations are working-capital-intensive due to the high cost of construction material, high labour cost, advance to suppliers and delays in getting payments from government departments, among others. However, the company has been able to improve marginally on this front by being able to lower the days receivables from 68 days as on 31 March 2020 to 61 days as on 31 March 2021(P). The days payables also slightly contracted from 222 days as on 31 March 2020 to 212 days as on 31 March 2021(P). The adequate net cash accruals help the company minimise its dependence on external working capital funding. [P → Provisional]

• Execution risk and susceptibility to industry competition and volatility in raw material prices :
  The company’s operations are susceptible to many external factors such as timely clearances from various regulatory bodies, the handover of sites, the mobilisation of funds, the change in governments policies and directives, cost escalation due to departmental delays, labour unrest and climatic vagaries. The effect of any of these could be substantial on the company's timeline of the completion of projects, working capital utilisation level and overall profitability. Since all of the operations are tender-based, revenue and profitability are expected to remain susceptible to risks inherent in tender-based operations and a competitive landscape. The company has limited control over the prices of raw materials such as cement and steel used by it during the project execution. The current contracts of the company are a mix of fixed price and those with price escalation provisions. In the case of the fixed-price contracts, the company has to bear the cost escalation of raw materials, which affects its profitability. Impact of any fresh wave of the Covid-19 will be a key monitorable.

For arriving at its ratings, Brickwork Ratings has applied its rating methodology as detailed in the Rating criteria below (hyperlinks provided at the end of this rationale).

Positive:

• An improvement in the scale of operations and profitability on a sustained basis with the timely completion and delivery of projects
• Geographical and sectoral diversification of operations

Negative:

• Delays in the execution of ongoing orders, a reduction in fresh order inflows or a stretch in the receivables cycle of the company
• Any steep decline in the profitability margins
• Specific credit metrics that could lead to a downgrade include TOL/TNW higher than 2.50 times and current ratio below 1 on a sustained basis.

Amrutha Constructions Private Limited (ACPL), Bangalore, was established as a proprietorship firm under the name of P. Venkateswara Rao & Co. in 1988 and was converted into a private limited company in 2006. The company has its branches in Sindhanur and Gulbarga. ACPL, engaged in the EPC contract business, is registered as a Class-I contractor with various departments of the governments of Karnataka, Maharashtra and Gujarat and Special Class contractor with various departments of the governments of Andhra Pradesh and Telangana. ACPL receives orders through a competitive bidding process and bids primarily for projects funded through a mix of central government, state government and global development funding agencies. The company has a major presence in irrigation, water supply, infrastructure and road construction.

Shri. P Venkateshwar Rao is the Managing Director. Other directors are Smt. P Amrutha, Smt. P Padmavathi, Smt. P Amala, Shri. M Shrinivasa and Smt. P Amulya. The company is a family-owned business

The terms of sanction include standard covenants normally stipulated for such facilities.

N.A.

Nil

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• Short Term Debt