R S Development and Constructions India Pvt Ltd

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs.106.37 Crs. of R S Development and Constructions India Pvt Ltd

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (24 Jun 2021)	Present
Fund Based	30.00	36.37	Long Term	BWR BBB-/Stable Reaffirmation	BWR BBB - /Stable Reaffirmation
Non Fund Based	40.00	70.00	Short Term	BWR A3 Reaffirmation	BWR A3 Reaffirmation
Grand Total	70.00	106.37	(Rupees One Hundred Six Crores and Thirty Seven 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: Note: Rating Advisory issued on 27June2022

RATING ACTION / OUTLOOK

The rating reaffirmation of the bank loan facilities of RS Development & Constructions India Pvt Ltd ('RSDCIPL' or 'the company') continues to factor in the promoters’ experience in the civil construction business, established operational track record, steady operational and financial performance, moderate order book position, established clientele comprising government bodies and average financial risk profile. The rating action also considers the recovery of the business operations in FY22 (P), improvement in the order book position and revenue visibility for FY23 and FY24. However, the ratings are constrained by the exposure to risks arising from the tender-based nature of business, low new order accretion in terms of the number of orders, project execution risks, working capital intensive nature of operations, geographical concentration of projects in Tamil Nadu & Kerala and the fragmented and highly competitive nature of the industry.

The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. BWR expects that RS Development & Constructions India Pvt Ltd’s business risk profile will be maintained over the medium term. The outlook may be revised to Positive if the company reports better-than-estimated growth in its operations and profitability and sustained improvement in order accretion while maintaining its credit risk profile. The outlook may be revised to Negative if any significant delays in execution of key orders or slowdown in new order inflows or otherwise an adverse significant impact on the company’s revenues and profitability or if there is a deterioration in its working capital cycle, leverage or liquidity position.

KEY RATING DRIVERS

Credit Strengths:

Experienced management and established track record :
The company has an established track record of over two decades in executing civil contract work such as construction of roads, bridges, canals and other contract work for various local government departments of Tamil Nadu and Kerala, central government departments and few corporate clients. The promoters have more than two decades of experience in this industry. The company benefits from the management’s understanding of the dynamics of the industry and established relationships with customers.
Average financial risk profile :
Total operating income of the company was Rs.120.02 Crs. in FY21 as against Rs.147.37 Crs. in FY20. EBITDA and PAT were at Rs.9.23 Crs. and Rs.1.71 Crs., respectively, in FY21 compared to Rs.9.67 Crs. and Rs. 2.17 Crs., respectively, in FY20. The tangible net worth of the company stood at Rs.38.47 Crs. as on 31Mar2021. Gearing was at 1.26 times as on 31Mar2021 as against 1.19 times as on 31Mar2020. The ISCR and DSCR stood at 1.82 times and 1.34 times respectively as against 1.95 times and 1.37 times as on 31Mar2020.

The company reported an operating income of Rs.145.00 Crs., EBITDA of Rs.10.63 Crs. and PAT of Rs.1.96 Crs. in FY22 on a provisional basis. For the 5MFY23 the company reported a revenue of ~Rs.66 Crs.
Improved revenue visibility and reputed clientele :
The company's outstanding unexecuted order book position as on 31May2022 is ~Rs.467 Crs. (PY ~ Rs.250 Crs) to be completed in the next 1-2 years which provides revenue visibility for the medium term. The improvement in the unexecuted order book is primarily on account of a large contract. The company has minimal counterparty risk of default in payments as its clientele primarily includes Southern Railway (Central Govt), Kerala Road Fund Board (Kerala), Technopark (Kerala), Container Corporation India Ltd (Central Govt), Kerala Infrastructure Investment Fund Board (Kerala), Kerala State Electricity Board (KSEB), etc.

Credit Risks:

Geographical concentration risk :
The company’s outstanding order book of civil infrastructure vertical is exposed to client concentration risks as the order book is derived only from the Governments of Tamil Nadu and Kerala, exposing it to region-specific economic and political risks. ~75% of the outstanding order book is from the Chennai, TN region. Any decline in the economic scenario or changes in 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.
Susceptibility to risks inherent in tender based business and working capital intensity :
The company's business growth depends on its ability to bid for contracts successfully. Revenue and profitability are expected to remain susceptible to risks inherent in contract-based operations. Tender-based operations limit pricing flexibility in an intensely competitive industry. Also, the operations of the company remain working capital intensive as indicated by the higher levels of receivables (~150 days in FY22 P) and moderate levels of inventory (~30 days in FY22 P). However, the company is able to maintain the cash conversion cycle at lower levels (~74 days in FY22) due to higher credit periods and lower inventory levels.
Industry specific risks :
RSDCIPL, like any other construction company, is exposed to the risks inherent in the construction sector including slowdown in new order inflows, risks of delays in execution, vulnerability of margins to adverse variation in the raw material, labour 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

For arriving at its ratings, BWR has adopted a stand-alone approach as the Company does not have any subsidiaries.

RATING SENSITIVITIES

Ability of the company to increase its scale of operations with healthy growth in order book position, improve profitability and execute the orders in hand without delay would be the key rating sensitivities.

Upward:

Significant increase in scale of operations with healthy growth in order book position and profitability on a sustained basis
Prudent working capital management and timely recovery of receivables

Downward:

Deterioration in scale of operations, decline in order accretion in terms of number and value, 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 (1) ISCR, DSCR below unity and (2) Gearing above 2.0 times on a sustained basis.
Further elongation in the working capital cycle due to stretch in the receivables leading to liquidity constraints on a sustained basis.

LIQUIDITY INDICATORS - Adequate

Liquidity is adequate as reflected by the adequate net cash accruals of Rs.4.75 Crs in FY22 to cover the maturing debt repayment obligations of ~Rs.2-3 Crs in FY22 and the trend is expected to continue in FY23 and FY24. The liquidity profile is further supported by moderate debt coverage metrics and current ratio. The working capital utilization was ~95% in the past six months. Cash & cash equivalents were moderate at ~Rs.13 Crs. as on 31Mar2022 on a provisional basis with an unencumbered portion at ~Rs.5 Crs. Operations are expected to remain working capital intensive on account of high receivable levels. Timely recovery of receivables and efficient utilization of working capital facilities continues to be key rating monitorable.

ABOUT THE ENTITY

R S Development and Constructions India Private Limited (RSDCPL) was established on 27Jun2008 at Erode, Tamil Nadu through the acquisition of two firms: M/s. R S Constructions (construction firm) and M/s. R S Transports (logistics services provider). Its registered office is in Chennai and corporate office in Erode, Tamil Nadu. It is registered as as Class I contractor with PWD and Highways departments of Kerala and Tamil Nadu state governments. The company has diversified interests across four verticals: civil infrastructure work, sale of ready mix concrete, sale of blue metal and cement and transport. The primary revenue driver continues to be civil infrastructure work (~57% in FY22 (P)). RSDCPL's civil infrastructure portfolio extends across construction of roads, urban infrastructure works, irrigation works, mass earth evacuation, earth filling, canal and quarry. The company has ready-mix concrete plants across Chennai, Tirunelveli, Tenkasi, Nagercoil, Coimbatore and Tuticorin with a capacity of 30 cubic metres per hour at each location. RSDCPL has executed several projects largely for government organizations in various South Indian states (i.e., Tamil Nadu, Kerala and Karnataka). As on date, the company has completed over 40 projects in and around Tamil Nadu & Kerala.

Mr. R. Subramaniam is the Managing Director. Mr. S. Sankar and Mr. S. Sathish are the other directors.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	120.02	147.37
EBITDA	Rs.Crs.	9.23	9.67
PAT	Rs.Crs.	1.71	2.17
Tangible Net Worth	Rs.Crs.	38.47	36.76
Total Debt/TNW	Times	1.26	1.19
Current Ratio	Times	1.60	1.52

KEY COVENANTS OF THE FACILITY RATED

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

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

India Ratings vide its press release dated 30Mar2022 has continued the company's ratings in the ‘ISSUER NOT COOPERATING’ category as the company has not provided the requisite information to monitor the ratings.

*Issuer did not cooperate; based on best available information

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	36.37	BWR BBB-/Stable (Reaffirmation)	24Jun2021	BWR BBB-Stable (Reaffirmation)	18Jan2020	BWR BB+Stable (Downgrade/ISSUER NOT COOPERATING*)	NA	NA
		0.00	NA	NA	NA	26Mar2020	BWR BBB- Stable (Upgrade and Removed from the INC category)	NA	NA
Non Fund Based	ST	70.00	BWR A3 (Reaffirmation)	24Jun2021	BWR A3 (Reaffirmation)	18Jan2020	BWR A4+ (Downgrade/ISSUER NOT COOPERATING*)	NA	NA
		0.00	NA	NA	NA	26Mar2020	BWR A3 (Upgrade and Removed from the INC category)	NA	NA
Grand Total		106.37	(Rupees One Hundred Six Crores and Thirty Seven lakhs Only)

Rating Advisory, as on 27Jun2022
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
Priyanka RS Rating Analyst Board : +91 044 24663326 priyanka.rs@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

R S Development and Constructions India 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	Dhanalakshmi Bank	Cash Credit - Sanctioned	30.00	_	30.00
2	Dhanalakshmi Bank	Bank Guarantee - Sanctioned	_	70.00	70.00
3	Dhanalakshmi Bank	GECL - Sanctioned	6.37	_	6.37
Total			36.37	70.00	106.37
TOTAL (Rupees One Hundred Six Crores and Thirty Seven lakhs 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.