Rachana Infrastructure Limited

Brickwork Ratings reaffirms the ratings and simultaneously removal from Issuer Not Cooperating category for the Bank Loan Facilities of Rs. 20.48 Crs. of Rachana Infrastructure Limited

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (25 Mar 2022)	Present
Fund Based	11.00	1.98	Long Term	BWR BB /Stable Downgrade/ISSUER NOT COOPERATING*	BWR BB /Stable removal from ISSUER NOT COOPERATING* category/Reaffirmed
Non Fund Based	23.50	18.50	Short Term	BWR A4 Downgrade/ISSUER NOT COOPERATING*	BWR A4 removal from ISSUER NOT COOPERATING* category/Reaffirmed
Grand Total	34.50	20.48	(Rupees Twenty Crores and Forty Eight 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: *Issuer did not cooperate; based on best available information.

RATING ACTION / OUTLOOK

Ratings reaffirmation: BWR BB/Stable BWR A4 (Outlook:'Stable') removal from INC* category

BWR has essentially relied upon the firm's audited statements upto FY22, publicly available information and the information/clarifications provided by the company’s management. The revision/reaffirmation in the rating takes into consideration the robust order book position of Rs 105 crs (projected to be executed, completion of projects during FY22-23) and an adequate profitability margins in FY21-22. The rating reaffirmation and removal from INC* category factors the extensive experience of the promoters in the line of EPC and completion of successful projects in various departments of Government of India. The copmany satisfied clients are Public Works Department of Madhya Pradesh, Road and Building Department of Gujarat State, Madhya Pradesh Road Development Corporation, Power Grid Corporation of India, Gujarat Minerals Development Corporation, Road Construction Department of Jharkhand, ONGC Petro-Additions Limited, Ahmedabad Municipal Corporation, and Ahmedabad Urban Development Corporation etc. The rating reaffirmation and removal from INC* category continues to draw comfort from the long experience of the company’s top management and the established track record of the Company's operations as EPC contractor. The rating also positively factors the Schedule of implementation and Deployment of Net Proceeds wherein company proposes to deploy the Net Proceeds for the aforesaid purposes, 50% was fresh issue and 50% was Offer For Sale. Hence company has raised 38.14 cr and robust work in hand position provides revenue visibility in the near to medium term.

The ratings are, however, constrained by the intense competition in the tender based nature of the contract business which limits the scope for margin improvement. The ratings also factored in that the capital structure of the company has remained moderate over the past years. Going further, the Company's ability to manage the working capital backed by the consistent order flows and improving margins and using of IPO proceeds as stated in objects of prospectus will remain a key rating sensitivity.

KEY RATING DRIVERS

Credit Strengths:

Extensive experience of promoters and successful completion of projects: :
The company successfully completed many projects in various departments of Government of India. The copmany satisfied clients are Public Works Department of Madhya Pradesh, Road and Building Department of Gujarat State, Madhya Pradesh Road Development Corporation, Power Grid Corporation of India, Gujarat Minerals Development Corporation, Road Construction Department of Jharkhand, ONGC Petro-Additions Limited, Ahmedabad Municipal Corporation, and Ahmedabad Urban Development Corporation etc. The company has 2 decades of expereince in the EPC segment.
Moderate capital structure and robust expected execution work order position for FY22-23 :
The company has a moderate capital structure with moderate Tangible Net worth level of Rs39.9 crs and comfortable Gearing level of 0.47 x as at FY22. Total debt stands at Rs 18.25 crs during FY22 and based on object prospects of IPO the company will repay its debt obligations from IPO proceeds. Company has unexecuted order position to be executed in FY22-23 for Rs 105 crs.

Credit Risks:

Competitive industry and tender driven nature of business :
High level of safety, security and regulatory requirements are the key for entire EPC business and requires specialized skills to be developed along with a demonstrated track record. Contracts are awarded on tender basis which requires company to meet the bidding criteria qualification which also acts as a very strong entry barrier. However, due to presence of few large players and large number of small players, there is stiff competition at the time of bidding of contracts which pressurises the margins. The industry is fragmented and is characterized by many small players leading to high level of competition within the industry.
Modest Scale Of Operations, dependence on investment in infrastructure segment and :
The company has modest scale of operations indicated by Total Operating Income (TOI) of Rs 63 crs as at FY22. The scale of the operations remains modest on account of the intense competition faced in the bidding process in the tender based model which carries inherent risk as the revenues of the entity are dependent on the tenders won by the company and due to which company was not able to bid for tenders during FY22. RIL's fortune is linked with the overall economic development and spending on the infrastructure segment by both public as well as private sector.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Positive factors:

Infusion of funds, effective working capital management- Strengthening of financial risk profile.
Substantial improvement in the revenue and cash accruals along with maintaining the credit metrics on a sustained basis will be a positive trigger for the ratings.

Negative factors:

Non achievement of projected turnover or deterioration of net cash accruals resulting in deterioration in financial risk profile or liquidity profile may also lead to downgrade of ratings.
Lack of availability of new orders and if any major debt-funded capital expenditure, weakens liquidity.
Proceeds from IPO fund not utilised for said object purpose as stated in prospectus will be key rating sensitivity

LIQUIDITY INDICATORS - Adequate

Bank limit utilisation remains at 75% for the last 5 months upto August FY22. Net cash accrual is expected to be Rs 4.35 crore against debt obligation of Rs 3.27 crs over the medium term. Current ratio is moderate at 1.76 times as on March 31, 2022. Healthy gearing and moderate networth support financial flexibility and provide cushion against any adverse condition or downturn in the business. Cash and bank balance stood at Rs 0.97 crs during FY22. As stated in the object prospectus the proceeds from IPO will be used towards repayment of Secured Loans, working capital requirement, general Corporate Purpose and meeting Public Issue Expenses. Net cash accrual to total debt stands at 0.24 times in FY21-22.

Note: Below mentioned TNW in financial indicators table excludes the closing balance of revaluation reserve of Rs 10.8 crs

ABOUT THE ENTITY

The Company is an NSE SME Listed mid-size private sector company, registered as AA” CLASS & Special Cat. I (Roads) with the Govt. Of. Gujarat, engaged in the business of Construction of Road projects on a Bill of Quantities (BOQ) and EPC basis having more than two decades of experience in infrastructure and civil construction work. Mr. Girishbhai Raval, the main promoter of the company started with small-scale contracts from the Government (Zilla Panchayat) and could grab sub-contracts from the reputed infrastructure Companies from Gujarat, Maharashtra, Jharkhand, and many other states. The company was listed on NSE on 10 June 22. The Company has an established track record of executing projects with over 02 decades of experience in construction activities and some of the satisfied clients are the Public Works Department of Madhya Pradesh, Road and Building Department of Gujarat State, Madhya Pradesh Road Development Corporation, Power Grid Corporation of India, Gujarat Minerals Development Corporation, Road Construction Department of Jharkhand, ONGC Petro-Additions Limited, Ahmedabad Municipal Corporation, and Ahmedabad Urban Development Corporation, etc. Rachana Infrastructure Limited(RIL) was previously operating as a Rachana Construction Company and Registered in the year 1994, offering services in civil engineering & construction contract-based business. Further, the company got registered with the name Rachana Infrastructure Limited to participate in larger tenders. RIL is engaged in the services of Road work, Area Grading Work and Canal Work, etc. RIL has been certified under ISO 9001:2008.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 21-22 (Audited)	FY 20-21 (Audited)
Operating Revenue	Rs.Crs.	63.20	103.79
EBITDA	Rs.Crs.	6.12	9.12
PAT	Rs.Crs.	2.21	4.70
Tangible Net Worth	Rs.Crs.	39.09	39.29
Total Debt/TNW	Times	0.47	0.52
Current Ratio	Times	1.76	2.20

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

NIL

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

Facilities	Current Rating (2022)			2022 (History)		2021		2020		2019
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	1.98	BWR BB/Stable (removal from ISSUER NOT COOPERATING* category/Reaffirmed)	25Mar2022	BWR BB Stable (Downgrade/ISSUER NOT COOPERATING*)	NA	NA	30Dec2020	BWR BB+ Stable (Downgrade/ISSUER NOT COOPERATING*)	13Dec2019	BWR BBB- Stable (Reaffirmation)
Non Fund Based	ST	18.50	BWR A4 (removal from ISSUER NOT COOPERATING* category/Reaffirmed)	25Mar2022	BWR A4 (Downgrade/ISSUER NOT COOPERATING*)	NA	NA	30Dec2020	BWR A4+ (Downgrade/ISSUER NOT COOPERATING*)	13Dec2019	BWR A3 (Reaffirmation)
Grand Total		20.48	(Rupees Twenty Crores and Forty Eight 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
Tripti Sharma Ratings Analyst tripti.s@brickworkratings.com	Dileep Narayan Singh Director dileep.s@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Rachana Infrastructure Limited

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	1.48	_	1.48
2	Axis Bank Ltd.	Bank Guarantee - Sanctioned	_	5.00	5.00
3	Axis Bank Ltd.	ILC/IBG - Sanctioned	_	_	0.00
4	Bank of Baroda	Cash Credit - Sanctioned	0.50	_	0.50
5	Bank of Baroda	ILC/IBG - Sanctioned	_	_	0.00
6	Bank of Baroda	Bank Guarantee - Sanctioned	_	13.50	13.50
Total			1.98	18.50	20.48
TOTAL (Rupees Twenty Crores and Forty Eight lakhs Only)

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