Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs.69.27Crs of Avadh Rail Infra Ltd.
ParticularsFacilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
---|---|---|---|---|---|
Previous | Present | Previous (18 Feb 2021) |
Present | ||
Fund Based | 36.77 | 34.27 | Long Term |
BWR BBB-/Stable
Reaffirmation |
BWR BBB -
/Stable Reaffirmation |
Non Fund Based | 35.00 | 35.00 | Short Term |
BWR A3
Reaffirmation |
BWR A3
Reaffirmation |
Grand Total | 71.77 | 69.27 | (Rupees Sixty Nine Crores and Twenty Seven lakhs Only) |
The reaffirmation in the ratings of Avadh Rail Infra Ltd (ARIL, or ‘the company’), factors in the improved PBILDT margins over the previous year and satisfactory debt protection metrics. The ratings continue to derive comfort from the promoters’ extensive business experience in railway wagon parts manufacturing industry, established relationships with reputed customers namely, the Indian Railways and metro rail corporations, with a comfortable order book position. The ratings, however, are constrained by the decline in scale of operations in FY21 (though recovery experienced in FY22, so far) , customer concentration risks, and risks arising out of substantial investments in sister concerns.
Rating Outlook: Stable
BWR believes ARIL's business risk profile is likely to be maintained over the medium term. The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. The rating outlook may be revised to 'Positive' if the revenues and profit show sustained improvement. The rating outlook may be revised to 'Negative' if the revenues go down and profit margins show lower than expected figures.
Credit Strengths:
The promoter director of the company, Mr Subhash C Saraff, has a business experience of over 4 decades and is assisted by his son, Mr Abhishek Saraff, along with various qualified engineers, professional managers and experienced consultants. The company’s R&D initiatives and technical collaboration with many global industry majors have helped ARIL establish long-term relationships with its clients, namely, the Indian Railways and metro rail corporations.
A consistent improvement in the PBILDT margins has been witnessed over the last three financial years, with the PBILDT margins improving further to 9.70% in FY21 from 9.01% in FY20. This was mainly owing to company’s strategic decision to participate in higher margin giving tenders. The NPM, however, continues to remain flat at 3.52% in FY21.
ARIL’s debt protection metrics continue to remain satisfactory, marked by Interest coverage ratio (ISCR) of 3.03x in FY21 (same level as last year) and overall gearing (total debt/ networth) of 0.68x, as on March 31, 2021 (Previous year: 0.85x).
The company has a healthy order book position of ~Rs.340 Crs, as on Dec-2021. The same is expected to provide revenue visibility to the company in the medium term.
The company derives almost 100% of its operating revenues from the Indian Railways, resulting in customer concentration risks.
The company has made substantial investment (~Rs.21 cr. as on March 31, 2021; PY: 20.31Cr.) in its sister/group concerns, coupled with some investments in real estate. Though the amount has marginally increased in the last two years, any increased outflow to the group concerns (or towards non-core assets) shall remain a key rating sensitivity going forward.
ARIL primarily works for the government sector / public sector units where orders are acquired through tenders. Being in a tender-based business, the company's growth depends on success in procuring tenders. Thus, it has low bargaining power with its customers. On account of the Covid-19 pandemic and the challenges associated with the same, the company saw a year-on-year decline of 20.89% in its total operating income in FY21. However, on the back of steady order flow, the company had achieved an operating income of Rs.140Cr., till Dec-2021.
For arriving at its ratings, BWR has applied its rating methodology on a standalone basis as detailed in the Rating Criteria detailed below.
RATING SENSITIVITIES
Positive: Significant growth in the scale of operations, coupled with an improvement in the profitability margins and solvency profile will remain positive for the company.
Negative: BWR may revise the ratings downwards if there is a consistent decline in the scale of operations of the company coupled with a significant deterioration in the solvency profile. Increased outflow towards the group entities or non-core assets shall also be negative for the company.
An adequate liquidity as indicated by Current ratio 2.42x, as on March 31, 2021. Further, the average utilization of its cash credit limits stood at a comfortable level of around 7% in the past 12 months from Jan 2021 to Dec 2021. Low limit utilization levels provide a liquidity buffer to the company in case any need arises in the future. The company has been generating adequate cash accruals to service its debt obligation in the past. It generated net cash accruals of around Rs.9.12 Crs in FY21 vis-a-vis repayment obligation of 2.38Cr. in FY21. The company has a repayment obligation of Rs.7.03Crs in FY22, which is expected to be met through its cash accruals. The company plans to incur a capex (of ~Rs.20-25Cr.) in the period of next 2-3 years for which they plan to avail a term loan of ~Rs7-8Crs. However, as of now the management doesn't have any concrete plans pertaining to the same.
ABOUT THE ENTITYAvadh Rail Infra Limited (ARIL) was established Avadh Rubber Ltd and was incorporated on 23 July 1980.ARIL Indian Railways’ foremost manufacturer and RDSO approved supplier for critical rubber and rubber-to-metal bonded components for freight wagons, passenger coaches, locomotives and tracks. The company has its own R&D and technical collaborations with renowned railway infrastructure providers worldwide like Alstom, Delkor, Galland etc. ARIL has four production units in Lucknow, Chennai and 2 in Haridwar. All units are ISO-9001: 2008 certified.
Key Parameters | Units |
FY 20-21 (Audited) |
FY 19-20 (Audited) |
---|---|---|---|
Operating Revenue | Rs.Crs. | 146.40 | 185.06 |
EBITDA | Rs.Crs. | 14.20 | 16.68 |
PAT | Rs.Crs. | 5.16 | 6.54 |
Tangible Net Worth | Rs.Crs. | 64.96 | 59.80 |
Total Debt/Tangible Net Worth | Times | 0.68 | 0.85 |
Current Ratio | Times | 2.42 | 1.64 |
Facilities | Current Rating (2022) | 2021 | 2020 | 2019 | |||||
---|---|---|---|---|---|---|---|---|---|
Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating |
Fund Based | LT | 34.27 |
BWR BBB-/Stable
(Reaffirmation) |
18Feb2021 |
BWR BBB-Stable
(Reaffirmation) |
NA |
NA
|
30Dec2019 |
BWR BBB-Stable
(Upgrade) |
Non Fund Based | ST | 35.00 |
BWR A3
(Reaffirmation) |
18Feb2021 |
BWR A3
(Reaffirmation) |
NA |
NA
|
30Dec2019 |
BWR A3
(Upgrade) |
Grand Total | 69.27 | (Rupees Sixty Nine Crores and Twenty Seven lakhs Only) |
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 CriteriaAnalytical Contacts | |
---|---|
Neha Jain Senior Rating Analyst Board : +91 11 2341 2232 neha.j@brickworkratings.com |
Sudeep Sanwal Associate Director - Ratings sudeep.s@brickworkratings.com |
1-860-425-2742 | media@brickworkratings.com |
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 | Cash CreditSanctioned | 25.00 | _ | 25.00 |
2 | Union Bank of India | Bank GuaranteeSanctioned | _ | 35.00 | 35.00 |
3 | Union Bank of India | GECLSanctioned | 8.58 | _ | 8.58 |
4 | Union Bank of India | Common Covid Emergency Line of Credit (CCECL)Sanctioned | 0.69 | _ | 0.69 |
Total | 34.27 | 35.00 | 69.27 | ||
TOTAL (Rupees Sixty Nine Crores and Twenty Seven lakhs Only) |
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