Tarmat Ltd.

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 65.75 Crs. of Tarmat Ltd. ('Tarmat' or 'The Company')

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (23 Sep 2020)	Present
Fund Based	5.75	5.75	Long Term	BWR BBB/Stable Upgrade	BWR BBB /Stable Reaffirmation
Non Fund Based	60.00	60.00	Short Term	BWR A3+ Upgrade	BWR A3 + Reaffirmation
Grand Total	65.75	65.75	(Rupees Sixty Five Crores and Seventy Five 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) has reaffirmed the ratings at ‘BWR BBB/Stable/BWR A3+’ for the bank loan facilities of Tarmat Ltd.

The reaffirmation factors in the extensive experience of the management, the moderate scale of operations, and order pipeline, the moderate financial risk profile, and efficient working capital management. These rating strengths are partially offset by the limited geographic and segmental diversity in orders, exposure to cyclicality, and intense competition inherent in the construction industry.

Outlook: Stable

BWR believes that Tarmat’s business risk profile will be maintained over the medium term benefiting from the extensive experience of its management. The Stable outlook indicates a low likelihood of a rating change over the medium term.

KEY RATING DRIVERS

Credit Strengths:

Moderate Financial Risk Profile :
The financial risk profile remains moderate, supported by improving operating margin and increasing cash accrual. Networth is comfortable at Rs 61 crore as on March 31, 2021, with gearing and total outside liabilities to tangible networth ratio of 1.47 times (FY20: 1.97 times) and 1.42 times (FY20: 1.92 times), respectively. Furthermore, with the conversion of unsecured loans from promoters' friends and family into equity, the capital structure is expected to improve significantly over the medium term.
Extensive experience, the moderate scale of operations, and order pipeline :
The established track record of the companies’ new management spanning over two decades in the civil construction business is expected to continue to support the business. Tarmat mainly undertakes projects related to roads and airport infrastructure development, for various government departments across India. Additionally, experienced management ensures sharp and sustained revenue growth over the medium term.

With turnover at Rs 198.1 crore for FY2021 as against Rs 263.7 crore for FY2020 (impacted on account of the covid-19 pandemic resulting in a weak H1|FY2021), albeit with a healthy compound annual growth rate of over 23% over the past three fiscals, the scale remains moderate. Orders worth around Rs 290 crore to be executed over the next 18 - 24 months offer revenue visibility for the medium term. An increase in the Order book and timely execution of these orders would remain a key monitorable going forward
Efficient working capital management :
The company mainly caters to government departments in the engineering, procurement, and construction sector, and payment is received in 30-45 days. The receivables cycle has improved; with efficient execution of work, and payments from authorities being received in time; to 33 days on March 31, 2021, against 76 days as on March 31, 2019, which supports the working capital management.

Nonetheless, the firm has substantial dependence on its suppliers and creditors to support the working capital; with security deposits and retention from its subcontractors. Sustained improvement in payables will remain monitorable.

Credit Risks:

Exposure to cyclicality and intense competition, inherent in the construction industry :
Revenue remains susceptible to economic cycles that impact the construction industry. Furthermore, the company mainly caters to government agencies, expenditure of which is directly linked to the overall economy. The tendering nature of business and large number of players in the mid-sized segment intensify competition and could significantly impact the operating margin.
Limited geographic and segmental diversity in orders :
Orders have been concentrated in Tamil Nadu, the company has diversified into other states in the recent past. However, the top two orders constitute around 71% of the overall order book. Also, the revenue profile of the company is not diversified as it majorly comprises projects in Airport Infrastructure. Nonetheless, successful and sustained diversification and the ability to sustain healthy growth amid intense competition will be monitorable.

ANALYTICAL APPROACH - Consolidated

BWR has essentially relied upon the consolidated audited financials of the company up to FY2021, projections up to FY23, publicly available information and information/clarifications provided by the management. To arrive at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria.

RATING SENSITIVITIES

Upward

Improvement in the order book position leading to significant and sustained improvement in revenues, coupled with sustained improvement in profitability

Downward

Inability to achieve the envisaged improvement in the scale of operations and improved order book, or deterioration in the profit margins, capital structure, debt coverage indicators & liquidity profile

LIQUIDITY INDICATORS - Adequate

The company is expected to generate cash accruals of over Rs 8.5 crore against repayment obligations of Rs 1.87 crore in FY 2022. The current ratio stood comfortable at 2.13 times as on March 31, 2021 (vis-à-vis 1.97 times as on March 31, 2020). Moreover, the company is not dependent on any working capital bank limits for managing its working capital requirements. Furthermore, the company has free cash & cash equivalents balance of ~Rs.11 crore as on September 30, 2021, and fund support in the form of unsecured loans from promoters friends, and family to the tune of Rs 84.57 crore as on March 31, 2021, thereby comforting liquidity.

ABOUT THE ENTITY

Tarmat was established in 1986 by Mr. Jerry Varghese. The company is in the business of infrastructure development. The company specializes in the construction of runways & highways. The company is engaged in the construction of various airfields, runways, parking bays, aprons, taxiways, etc. The company had its IPO in 2007 and got listed on BSE and NSE.

Due to recent restructuring, new investors have stepped into the company and the management is professionally controlled by them. These directors viz. Mr. Amit Shah and Mrs. Regina Sinha possess over 2 decades of experience in the construction business. Their experience in the industry has helped the company establish a strong relationship with its suppliers & customers, whereas their technical expertise has helped the company to bid & win new orders.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	172.97	220.50
EBITDA	Rs.Crs.	7.14	10.97
PAT	Rs.Crs.	5.09	6.92
Tangible Net Worth	Rs.Crs.	61.08	55.98
Total Debt/Tangible Net Worth	Times	1.46	1.97
Current Ratio	Times	2.53	2.64

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	5.75	BWR BBB/Stable (Reaffirmation)	23Sep2020	BWR BBBStable (Upgrade)	19Sep2019	BWR BB+Stable (Assignment)	NA	NA
Non Fund Based	ST	60.00	BWR A3+ (Reaffirmation)	23Sep2020	BWR A3+ (Upgrade)	19Sep2019	BWR A4+ (Assignment)	NA	NA
Grand Total		65.75	(Rupees Sixty Five Crores and Seventy Five lakhs Only)

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
Arbez Noshir Karbhari Ratings Analyst arbez.k@brickworkratings.com	Chintan Dilip Lakhani Director- Ratings chintan.l@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Tarmat 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	ICICI Bank	Term Loan - Sanctioned	5.75	_	5.75
2	Union Bank of India	Bank Guarantee - Proposed	_	60.00	60.00
Total			5.75	60.00	65.75
TOTAL (Rupees Sixty Five Crores and Seventy Five lakhs Only)

ANNEXURE-III

List of entities consolidated

Name of Entity	% Ownership	Extent of consolidation	Rationale for consolidation
NG Tarmat Gujarat JV	60	Full	Significant, Operational and Financial Linkages
NG Tarmat Goa JV	74	Full	Significant, Operational and Financial Linkages
MSKEL Tamat JV	51	Full	Significant, Operational and Financial Linkages
Sonai Tarmat JV	80	Full	Significant, Operational and Financial Linkages

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