SSNR Projects Pvt. Ltd.

Brickwork Ratings upgrades the ratings for the Bank Loan Facilities of Rs. 81.14 Crs. of SSNR Projects Pvt. Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (25 Oct 2021)	Present
Fund Based	38.00	14.25	Long Term	BWR BB+ /Stable Downgrade/ISSUER NOT COOPERATING*	BWR BBB - /Stable Upgrade
Non Fund Based	100.00	66.89	Short Term	BWR A4+ Downgrade/ISSUER NOT COOPERATING*	BWR A3 Upgrade
Grand Total	138.00	81.14	(Rupees Eighty One Crores and Fourteen 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
Note: As the company has shared requisite details, the ratings are migrated from the ISSUER NOT COOPERATING category.

RATING ACTION / OUTLOOK

The upgrade of the ratings of the bank loan facilities of SSNR Projects Pvt Ltd ('SSNR' or 'the company') takes into account the consistent business and financial risk profile of the company. The company's turnover registered a growth of ~14% during FY 20 and ~6% during FY 21 (P) despite the Covid-19 disruptions. The company's profitability, debt protection metrics have remained stable and adequate during the corresponding period. The ratings continue to factor the operational track record of the company, experience of the promoters, established relationships with reputed clientele, healthy order book position with short to medium term revenue visibility and moderate financial risk profile marked by comfortable net worth and gearing and adequate debt protection metrics. However, the ratings remain constrained by the geographically and sectorally concentrated nature of unexecuted orders, project execution risk, vulnerability of profitability to fluctuation in raw material prices, working capital intensive nature of operations and the risks inherent in the EPC industry due to the tender based nature of operations and intense competition.

BWR notes that the company had availed relief under the COVID-19 moratorium package during Mar'20 - Aug'20 involving deferment of interest and sanction of emergency credit lines. The company has been regular in debt obligation payments in the post-moratorium period, as confirmed by the lender. BWR also notes the company has not availed the one-time restructuring (OTR) of loans under RBI Resolution Framework for Covid-19 related Stress.

The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. BWR believes SSNR’s business risk profile will be maintained over the medium term. The outlook may be revised to Positive if the company records significantly better-than-expected growth in revenues along with improvement in profitability levels and efficient working capital management, resulting in better debt coverage metrics and liquidity profile. The outlook may be revised to Negative if the company reports significantly lower than expected performance, resulting in lower than estimated coverage indicators and a weaker liquidity position. Furthermore, any significant decline in new order accretion and the orderbook position resulting in the subdued business profile may exert downward pressure on the ratings.

KEY RATING DRIVERS

Credit Strengths:

Experienced management and established track record :
The company was incorporated in 2012 and has an operational track record of ~10 years. The management has around three decades of experience in EPC business. The experience of the promoters and their understanding of the dynamics of the industry are expected to support the business risk profile. SSNR has expertise in implementation of Hydro power projects, Dams & Barrages, Irrigation projects, Railway projects, Canals, Tunnels and Roads & Bridges. The company has demonstrated its project execution capability in the sector and has been able to secure repeat orders based on its track record.
Established relationships with reputed clientele and moderate order book :
The company has established relationships with various divisions of Indian Railways [Northeast Frontier Railways and West Central Railways], Odisha Construction Corporation Limited, National Highways Authority of India etc as well as reputed companies such as Gammon Engineers and Contractors Pvt Ltd, Patel Engineering Limited etc. The company’s ability to get repeat business from such clients reflects favourably on its track record. The company has orders on hand worth ~Rs 986 Crs as on 01 Jan 2022 which are to be executed by FY 24 providing short to medium term revenue visibility.
Moderate financial risk profile :
The company recorded improvement in its operations as reflected in sales, EBITDA and PAT levels of the company which have improved to Rs.212.70 Crs, Rs.48.25 Crs and Rs.15.73 Crs during FY 20 as against Rs.186.63 Crs, Rs.43.23 Crs and Rs.8.44 Crs during FY 19 respectively. The TNW improved from Rs.84.22 Crs as on 31 March 2019 to Rs.101.95 Crs as on 31 March 2020. Resultantly, the gearing as reflected by Total Debt/ TNW improved from 0.75 time as on 31 Mar 2019 to 0.59 times as on 31 Mar 2020. The debt protection metrics have improved as reflected from ISCR and DSCR of 5.30 times and 1.75 times as on 31 March 2020. As per FY21 (P), The company has achieved sales of Rs.226.87 crs, EBITDA of Rs.40.06 crs and PAT of Rs.11.01 crs. The gearing was 0.55 times as on 31 March 2021(P). On a provisional basis, the company has achieved sales of ~Rs.176 crs for 9MFY22.

Credit Risks:

Project execution risk :
The company’s operations are susceptible to various external factors such as timely clearances from regulatory bodies, handover of sites, mobilisation of funds, change in government policies and directives, climatic vagaries etc. These factors can impact the company’s timelines for completion of projects, working capital utilisation level and overall profitability. The onset of Covid 19 has heightened the project execution risks for EPC contractors. Hence, the ability of the company to execute projects in a timely manner and achieve the projected revenue would be key monitorables
Geographical and sectoral concentration :
The order book continues to be healthy, however, it is vulnerable to the associated concentration risks. ~40% of the unexecuted orders are concentrated in Nepal while ~46% are in the North East. During FY21 (P), ~52% of revenue was generated from Hydroelectric projects in Nepal and in the existing order book, ~40% of the orders are from Hydroelectric projects in Nepal. This makes a substantial portion of the company’s operations vulnerable to social, political, economic and environmental changes in the region. As ~70% of the total unexecuted order book is from 2 clients viz SJVN Arun-3 Power Development Company Pvt. Ltd (SAPDC), Nepal and Gammon Engineers and Contractors Pvt Ltd , the company is also exposed to customer concentration risk. However, the risks are mitigated to a certain degree considering the lower counterparty risks and long associations with such clients.
Industry competition :
The company is exposed to competition and is susceptible to risks inherent in the tender based businesses. As the business is mainly tender based, the ability of the company to bid competitively is key for procurement of orders. Also, profit margins are susceptible to variations in raw material, labour and other input costs. Hence, revenue and profitability are expected to remain susceptible to risks inherent in tender based operations and a competitive landscape
Working Capital Intensity of operations :
The company's operations are moderately working capital intensive, as marked by almost full utilization of the sanctioned working capital facilities throughout the year. BWR also notes that the operating cycle has elongated to 100 days (PY:79 days) due to higher levels of inventory as on 31 Mar2020. The company has also been able to manage the working capital cycle by way of a higher payables period. The ability of the company to manage its working capital requirements including timely enhancements to augment its sales projections and support the liquidity remains a key monitorable.

ANALYTICAL APPROACH - Standalone

The company has entered into 2 Joint Ventures agreements under the name ‘SEW SSNR Joint Venture’ with SEW Infrastructure Ltd and ‘RSVCPL SSNR Joint Venture’ with RSV Constructions Pvt Ltd for the construction of tunnels and bridges. The company also has an associate company named ‘Dev Bhumi Hydro Power Pvt Ltd’. The consolidated financials include the financials of SSNR Projects Pvt Ltd, the associate company and the 2 joint ventures. No operations are being carried out by the associate company. The orders under the JVs are mainly being executed by SPPL. On a consolidated level, there is no impact of the operations of the JVs and Associate company and hence, for arriving at its ratings, BWR has adopted a standalone approach and applied its rating methodology as detailed in the Rating Criteria (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Ability of the company to increase its scale of operations as per the envisaged projections with healthy growth in order book position, sustenance of profitability, managing its working capital needs, and executing the orders in hand without delay would be the key rating sensitivities. The company has contingent liabilities amounting to Rs.51.97 Crs as on 31 March 2020 consisting of bank guarantees of Rs.48.56 Crs and various claims amounting to Rs.7.43 Crs. Any crystallization of the above contingent liabilities or prolonged recovery of receivables and the impact of the same on the financial risk profile of the company would be a key rating sensitivity.

Positives:

Significant improvement in scale of operations, profitability on a sustained basis.
Geographical diversification of business.
Prudent working capital management and improvement in the liquidity profile.

Negatives:

Deterioration in the scale of operations, the decline in order accretion, decline in EBITDA margins due to industry or company-specific factors, leading to a significant deterioration in the credit metrics and liquidity, all on a sustained basis
Specific credit metrics which may result in a rating downgrade include Total Debt/ TNW > 2 times and DSCR below 1.5 times on a sustained basis.
A significant stretch in the receivables cycle of the company and reduction in the order book position resulting in deterioration of financial and business profile on a sustained basis.

LIQUIDITY INDICATORS - Stretched

The company's liquidity is considered stretched considering the near full utilization of its working capital limits. The current ratio was 1.09 times as on 31 Mar 2020. The unencumbered cash and cash equivalent as on 31 Mar 2020 and 31 March 2021(P) were Rs.3.63 crs and Rs.3.78 crs respectively. The cash conversion cycle increased to ~ 100 days as on 31 March 2020 (PY:79 days). The EBITDA of Rs.48.25 crores was sufficient to cover the interest and finance cost of Rs.9.11 crores during FY 20. The net cash accruals for FY20 (Rs.34.04 Crs) and FY21(P) (Rs.29.54 Crs) was sufficient to cover the debt obligations of Rs.16.16 Crs and Rs.20.93 Crs and a similar trend is expected in FY22 and FY23. Operations are expected to remain working capital intensive and timely recovery of receivables and efficient utilization of working capital facilities will be a key rating monitorable.

ABOUT THE ENTITY

SSNR Projects Private Limited ('SSNR' or 'the company'), a family owned business, was incorporated in March 2012 at Visakhapatnam, Andhra Pradesh. The company is an EPC contractor and executes various Hydro power projects, dams & Barrages, Irrigation projects, Railway projects, Canals, Tunnels and Roads & Bridges across India. The company is specialized in the implementation of Hydro power projects, Irrigation projects and Railway Tunnel construction projects. The company presently has two Joint Ventures agreements under the name ‘SEW SSNR Joint Venture’ (formed in 2015-16) with SEW Infrastructure Ltd and ‘RSVCPL SSNR Joint Venture’ (formed in 2018-19) with RSV Constructions Pvt Ltd for the construction of tunnels and bridges. SPPL is responsible for the execution and completion of the projects undertaken by the Joint Ventures. Mr S Satyanarayana Raju is the Managing Director of SPPL. Other directors are Mr S Seetaramaraju, Mr S Ramaraju, Ms K Anusha Rani and Ms P Sirisha.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	212.70	186.63
EBITDA	Rs.Crs.	48.25	43.23
PAT	Rs.Crs.	15.73	8.44
Tangible Net Worth	Rs.Crs.	101.95	84.22
Total Debt/Tangible Net Worth	Times	0.59	0.75
Current Ratio	Times	1.09	1.09

KEY COVENANTS OF THE FACILITY RATED

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

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2022)			2021		2020		2019
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	14.25	BWR BBB-/Stable (Upgrade)	25Oct2021	BWR BB+ Stable (Downgrade/ISSUER NOT COOPERATING*)	23Oct2020	BWR BBB- Stable (Reaffirmation)	29Aug2019	BWR BBB- Stable (Downgrade)
Non Fund Based	ST	66.89	BWR A3 (Upgrade)	25Oct2021	BWR A4+ (Downgrade/ISSUER NOT COOPERATING*)	23Oct2020	BWR A3 (Reaffirmation)	29Aug2019	BWR A3 (Downgrade)
Grand Total		81.14	(Rupees Eighty One Crores and Fourteen 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
Vineetha Ann Varughese Senior Ratings Analyst vineetha.v@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

SSNR 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	Axis Bank Ltd.	Cash Credit - Sanctioned	9.25	_	9.25
2	Axis Bank Ltd.	Bank Guarantee - Sanctioned	_	3.49	3.49
3	Canara Bank	Cash Credit - Sanctioned	3.00	_	3.00
4	Canara Bank	Bank Guarantee - Sanctioned	_	40.00	40.00
5	Karur Vysya Bank	Cash Credit - Sanctioned	2.00	_	2.00
6	Karur Vysya Bank	Bank Guarantee - Sanctioned	_	23.40	23.40
7	Others	Bank Guarantee - Proposed	_	_	0.00
8	Others	Cash Credit - Proposed	_	_	0.00
Total			14.25	66.89	81.14
TOTAL (Rupees Eighty One Crores and Fourteen lakhs Only)

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