Merlon Infra Projects Pvt Ltd

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 10.00 Crs. of Merlon Infra Projects Pvt Ltd

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (26 May 2021)	Present
Fund Based	6.30	5.00	Long Term	BWR B+ /Stable Reaffirmation	BWR B + /Stable Reaffirmation
Non Fund Based	5.00	5.00	Short Term	BWR A4 Reaffirmation	BWR A4 Reaffirmation
Grand Total	11.30	10.00	(Rupees Ten Crores 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

BWR has essentially relied upon the audited financials up to FY21, provisional financials of FY22, projected financials up to FY25, publicly available information, and information/clarifications provided by the company's management.

The rating reaffirms draw factors of experienced promoters, moderate financial risk profile, adequate liquidity position, and improved revenue in the FY22 prov. However, the ratings are constrained by the small scale of operations, contract execution risk and stiff competition in the industry, geographical concentration risk, industry-specific risks, and the working capital-intensive nature of operations.

The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. BWR expects that Merlon Infra Projects Pvt Ltd’s business risk profile will be maintained over the medium term. The outlook may be revised to Positive in case of better than expected operating income and improvement in financial risk profile debt-protection indicators. The outlook may be revised to Negative if the operating metrics weaken or if larger than anticipated Capex leads to deterioration in credit metrics and liquidity

KEY RATING DRIVERS

Credit Strengths:

Experienced promoters :
The promoters have more than two decades of experience in the industry, which has enabled the company to build healthy relationships with customers and suppliers.
Moderate financial risk profile :
The company has a moderate financial risk profile marked by a moderate capital structure and debt service coverage metrics. The tangible net worth, gearing ratio, interest service coverage ratio, and debt service coverage ratio were around Rs.10.60 Crs, 0.75 times, 2.13 times, and 1.29 times respectively, as on 31 March 2021 On a provisional basis, the tangible net worth has further increased to Rs.11.82 Crs, as 31 Mar 2022.

Credit Risks:

Declined revenue and remains a small scale of operations but revenue improved in the FY22 :
The company has reported a revenue of around Rs.6.61 Crs against Rs.14.88 Crs. On a provisional basis, it reported a revenue of Rs.23.48 Crs in FY22.
Moderate work orders in hand :
The company's outstanding order book position as on 31 July 2022 is ~Rs.44.01 Crs and L1 stage orders worth of Rs.14.77 Crs to be completed in FY23 and FY24. It is projected to achieve revenue of around Rs.25.83 Crs and Rs.28.41 Crs for FY23 and FY24, respectively, which is supported by its moderate work order position.
Contract execution risk and stiff competition in the industry :
The company is exposed to the risk of delay in contract execution, and consequent delay in realization of proceeds. The company also faces high competition in the industry, with a number of small and medium-sized players operating in the same space. Further, the sub-contract nature of the business places pressure on the profitability of the company.
Geographical concentration risk :
The company concentration risks as the order book are majorly in the state of Telangana and political risks is from the state. Any decline in the economic scenario or changes in the political scenario in these states is likely to constrain operating performance. Acquiring and establishing relationships with clients across various states would mitigate this risk to a certain extent.
Industry-specific risks :
It, like any other construction entity, is exposed to the risks inherent in the construction sector including a slowdown in new order inflows, risks of delays in execution, the vulnerability of margins to adverse variation in the raw material, labor, and other input costs. The profitability is exposed to volatility in raw material prices. However, the price escalation clauses in certain contracts provide comfort to some extent. The company is also exposed to project execution risk of the pending order book, owing to the uncertainties in the construction industry.

ANALYTICAL APPROACH - Standalone

BWR has applied its rating methodology as detailed at the end of the document. BWR has adopted a standalone approach for arriving at its ratings.

RATING SENSITIVITIES

Positive:
Increase in scale of operations and profitability on a sustained basis
Timely execution of an order book position
Prudent working capital management and timely recovery of receivables
Specific credit metrics that could lead to an upgrade of the company’s rating include (1) Total Debt/Tangible net worth’s capital below 1 time on a sustained basis, (2) ISCR and DSCR greater than 3.00 times on a sustained basis.

Negative:
Deterioration in the scale of operations and decline in order accretion
Deterioration in financial risk profile.
A stretch in the receivables cycle of the company

LIQUIDITY INDICATORS - Adequate

The liquidity is adequate as reflected in adequate net cash accruals, current ratio, and low and moderate cash conversion cycle. The liquidity profile is further supported by moderate debt coverage metrics and profit margins. The current ratio as on March 31, 2021, and Mar 31 2022 prov. is moderate at 2.22 times and 2.23 times respectively. Net cash accruals sufficiently covered debt repayments in FY21 and FY22 provisional and the trend is expected to continue in FY23, FY24, and FY25 projections also. Though the working capital utilization was ~90% in the past 12 months, as 31 July ended, 2022 and the cash bank balances were around Rs.0.50 Crs, as on March 31, 2022. . The cash conversion cycle was at 178 days as on 31Mar2022, an account of higher inventory days.

ABOUT THE ENTITY

Merlon Infra Projects Pvt Ltd (MIPPL) was incorporated in August 2012, in Hyderabad, Telangana. The company undertakes the construction of roads and bridges. The company is registered with the Government of Telangana to undertake civil contracts under special class contractors.

Mr. Jagga Reddy Banda and Mr. Bhaskar Reddy Tera are the Managing directors and Executive Directors of the company.

Mrs. Alivelu Tera and Mr. Kranthi Kumar Banda are the Directors of the Company.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	6.61	14.88
EBITDA	Rs.Crs.	2.08	2.40
PAT	Rs.Crs.	0.36	0.82
Tangible Net Worth	Rs.Crs.	10.60	10.24
Total Debt/TNW	Times	0.75	0.83
Current Ratio	Times	2.22	2.04

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

CRISIL Ratings reaffirmed the rating of CRISIL B+/Stable/A4 and continue to the Issuer Not Cooperating Category on 25th April 2022 for the bank loan facilities of Rs.10.00 Crs of Merlon Infra Projects Private Limited.

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	5.00	BWR B+/Stable (Reaffirmation)	26May2021	BWR B+ Stable (Reaffirmation)	30Mar2020	BWR B+ Stable (Downgrade)	28Nov2019	BWR BB- Stable (Assignment)
Non Fund Based	ST	5.00	BWR A4 (Reaffirmation)	26May2021	BWR A4 (Reaffirmation)	30Mar2020	BWR A4 (Downgrade)	28Nov2019	BWR A4+ (Assignment)
Grand Total		10.00	(Rupees Ten Crores Only)

Rating Advisory, as on 03Jun2022
Press Release, as on 03Jun2022
Issuance of Advisory

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
Prashanth Boorala Ratings Analyst Board : +91 40 2331 0161 / 2331 0071 prashanth.b@brickworkratings.com	Nagaraj K Associate Director - Ratings Board : +91 80 4040 9940 nagaraj.ks@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Merlon Infra 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	Bank of Baroda	Bank Guarantee - Sanctioned	_	5.00	5.00
2	Bank of Baroda	Overdraft - Sanctioned	5.00	_	5.00
3	Bank of Baroda	CECL - Out-standing	_	_	0.00
4	Bank of Baroda	GECL - Out-standing	_	_	0.00
Total			5.00	5.00	10.00
TOTAL (Rupees Ten Crores Only)

Print and Digital Media

The Rating Rationale is sent to you for the sole purpose of dissemination through your print, digital or electronic media. While it may be used by you acknowledging credit to BWR, please do not change the wordings in the rationale to avoid conveying a meaning different from what was intended by BWR. BWR alone has the sole right of sharing (both direct and indirect) its rationales for consideration or otherwise through any print or electronic or digital media.

About Brickwork Ratings

Brickwork Ratings (BWR), a Securities and Exchange Board of India [SEBI] registered Credit Rating Agency and accredited by Reserve Bank of India [RBI], offers credit ratings of Bank Loan, Non- convertible / convertible / partially convertible debentures and other capital market instruments and bonds, Commercial Paper, perpetual bonds, asset-backed and mortgage-backed securities, partial guarantees and other structured / credit enhanced debt instruments, Security Receipts, Securitization Products, Municipal Bonds, etc. BWR has rated over 12,000 medium and large corporates and financial institutions’ instruments. BWR has also rated NGOs, Educational Institutions, Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations. BWR has Canara Bank, a leading public sector bank, as one of the promoters and strategic partner. BWR has its corporate office in Bengaluru and a country-wide presence with its offices in Ahmedabad, Chandigarh, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi along with representatives in 150+ locations.

Disclaimer

Brickwork Ratings India Pvt. Ltd. (BWR), a Securities and Exchange Board of India [SEBI] registered Credit Rating Agency and accredited by the Reserve Bank of India [RBI], offers credit ratings of Bank Loan facilities, Non- convertible / convertible / partially convertible debentures and other capital market instruments and bonds, Commercial Paper, perpetual bonds, asset-backed and mortgage-backed securities, partial guarantees and other structured / credit enhanced debt instruments, Security Receipts, Securitization Products, Municipal Bonds, etc. [ hereafter referred to as "Instruments"]. BWR also rates NGOs, Educational Institutions, Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations.

BWR wishes to inform all persons who may come across Rating Rationales and Rating Reports provided by BWR that the ratings assigned by BWR are based on information obtained from the issuer of the instrument and other reliable sources, which in BWR's best judgment are considered reliable. The Rating Rationale / Rating Report & other rating communications are intended for the jurisdiction of India only. The reports should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in Europe and also the USA).

BWR also wishes to inform that access or use of the said documents does not create a client relationship between the user and BWR.

The ratings assigned by BWR are only an expression of BWR's opinion on the entity / instrument and should not in any manner be construed as being a recommendation to either, purchase, hold or sell the instrument.

BWR also wishes to abundantly clarify that these ratings are not to be considered as an investment advice in any jurisdiction nor are they to be used as a basis for or as an alternative to independent financial advice and judgment obtained from the user's financial advisors. BWR shall not be liable to any losses incurred by the users of these Rating Rationales, Rating Reports or its contents. BWR reserves the right to vary, modify, suspend or withdraw the ratings at any time without assigning reasons for the same.

BWR's ratings reflect BWR's opinion on the day the ratings are published and are not reflective of factual circumstances that may have arisen on a later date. BWR is not obliged to update its opinion based on any public notification, in any form or format although BWR may disseminate its opinion and analysis when deemed fit.

Neither BWR nor its affiliates, third party providers, as well as the directors, officers, shareholders, employees or agents (collectively, "BWR Party") guarantee the accuracy, completeness or adequacy of the Ratings, and no BWR Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Rating Rationales or Rating Reports. Each BWR Party disclaims all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. In no event shall any BWR Party be liable to any one for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Rating Rationales and/or Rating Reports even if advised of the possibility of such damages. However, BWR or its associates may have other commercial transactions with the company/entity. BWR and its affiliates do not act as a fiduciary.

BWR keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of BWR may have information that is not available to other BWR business units. BWR has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

BWR clarifies that it may have been paid a fee by the issuers or underwriters of the instruments, facilities, securities etc., or from obligors. BWR's public ratings and analysis are made available on its web site, www.brickworkratings.com. More detailed information may be provided for a fee. BWR's rating criteria are also generally made available without charge on BWR's website.

This disclaimer forms an integral part of the Ratings Rationales / Rating Reports or other press releases, advisories, communications issued by BWR and circulation of the ratings without this disclaimer is prohibited.

BWR is bound by the Code of Conduct for Credit Rating Agencies issued by the Securities and Exchange Board of India and is governed by the applicable regulations issued by the Securities and Exchange Board of India as amended from time to time.