Madhuram Construction Co.

Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs.17.00 Crs. of Madhuram Construction Co.

Particulars

Facilities**	Amount(Rs.Crs)	Tenure	Rating*
Fund Based	5.50	Long Term	BWR BBB - (Pronounced as BWR Triple B minus) (Outlook: Stable)
Non-Fund Based	11.50	Short Term	BWR A3 (Pronounced as BWR A Three )
Total	17.00	(Rupees Seventeen Crores Only)

*Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank facilities are provided in Annexure-I RATING ACTION / OUTLOOK : Stable

BWR believes the Madhuram Construction Co. business risk profile will 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'in case the revenues and profit show sustained improvement. The rating outlook may be revisd to 'Negative' if the revenues go down and profit margins show lower than expected figures

KEY RATING DRIVERS

BWR has essentially relied upon the audited financial statements of Madhuram Construction Co. up to FY16,FY17,FY18, provisional financials of FY19 and projected financial statements for FY20, publicly available information and information / clarifications provided by the entity’s management. The rating draws strength from  the extensive experience of promoters in the construction business, established track of operations, strong financial risk profile and healthy book orders. However, the rating is constrained by the exposure to risks related to tender-based business, volatility in raw material prices, capital withdrawal risk(being a partnership firm) and high competition from other established players in the market.

Going forward, the ability of the entity to achieve projected revenue & profitability margins, timely repayment of the debt obligations and manage liquidity would be key rating sensitivities

Credit Strength:

• Extensive experience of promoters in the construction business:The promoters have an extensive experience in the road construction business since the last two decades. The firm has long track record, adequate infrastructure / equipment and skilled manpower along with “AA” class certification & “Special Category 1” status from the State Government of Gujarat. These certifications help them to bid for projects on regular basis.
• Significant Growth in Operating income & Healthy book order position:The firm has reported a total operating income of Rs. 80.46 Crs in FY18 as compared to a TOI of Rs. 68.46 Crs in FY17. Further, on account of timely execution of projects and timely receipt of collections from government departments, the firm’s operating income increased by 63% as per provisional financials (as on 31st March, 2019) to Rs. 131.84 Crs . The firm has been awarded work orders worth Rs. 93.39 Crs as on 31st May, 2019 ; out of which 43% of the work has already been completed and rest of work will be completed by end of FY20.
• Strong financial risk profile :The financial risk profile remained comfortable reflected in low gearing of 0.33x in FY18 & 0.28x in FY17 due to absence of any major long term liabilities & comfortable tangible net worth of Rs. 28.24 Crs. Debt coverage indicators are healthy marked by ISCR at 2.75x and DSCR at 2.69x in FY18.

Credit Risk:

• Exposure to risks related to tender-based business and intense competition: Execution risks for newly awarded projects in a timely manner will be key to achieving growth in revenues and profits. Business certainty is dependent on the firm's ability to successfully bid for the tenders as entire business is tender based.Profitability also comes under pressure because of competitive pricing in the industry.
• High geographical concentration &inherent risk related to partnership constitution–The firm’s area of operations is restricted to Saurashtra region, Gujarat, indicating a high geographical concentration risk. Any delays in in executing major projects & cost overrun would impact its revenues.The firm is exposed to the risk inherent to the partnership nature of business like withdrawal of capital by the partners.
• Exposure to margin risks because of volatility in raw material prices–MCC’s margins are exposed to fluctuations in the prices of its key raw materials such as bitumen, tar, cement, and sand in the absence of price escalation clauses in certain contracts.

ANALYTICAL APPROACH AND APPLICABLE RATING CRITERIA

For ariving 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).

LIQUIDITY POSITION

The firm’s liquidity is adequate on the back of low receivable days of  16 & 28 during FY17 & FY18 respectively. The average cash credit utilization  has remained low at 55% in last 6 months. The firm’s cash accruals are sufficient at Rs. 4.69 Crs  & Net Cash accrual/Total debt is adequate at 0.50 times during FY18.  

PROFILE

Madhuram Construcion Company was established in 1996 as a partnership firm. The firm undertakes tender based construction works for roads and building department, irrigation department and public health engineering department of Gujarat state. The firm has a class ‘AA’ contractor certificate and ‘Special Category 1’ certificate from the Road & Building department (R&B), Government of Gujarat (GoG).

KEY FINANCIAL INDICATORS

Key Parameters	Units	FY 17-18	FY 16-17
Operating Revenue	Rs.Crs	80.83	68.46
EBITDA	Rs.Crs	6.10	5.81
PAT	Rs.Crs	3.09	3.44
Tangible Net Worth	Rs.Crs	28.24	28.20
Total Debt/Tangible Net Worth	Times	0.33	0.28
Current Ratio	Times	2.24	2.32

RATING HISTORY (INCLUDING WITHDRAWAL AND SUSPENSION)

S.No	Current Rating (2019)				Rating History
	Facilities	Tenure	Amount (Rs.Crs)	Rating	2018	2017	2016
1	Fund Based	Long Term	5.50	BWR BBB- (Pronounced as BWR Triple B minus) (Outlook: Stable)	NA	NA	NA
2	Non-Fund Based	Short Term	11.50	BWR A3 (Pronounced as BWR A Three )	NA	NA	NA
Total			17.00	(Rupees Seventeen Crores Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS

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 :

• General Criteria
• Infrastructure Sector
• Short Term Debt

For More Information Contact:

Analytical Contacts	Investor Contacts
Kunjal kunjal.r@brickworkratings.com	Liena Thakur Assistant Vice President - Corporate Communications M : +91 84339 94686 liena.t@brickworkratings.com
Jayraj Bhatt Director - Ratings jayraj.b@brickworkratings.com
1-860-425-2742

SL.No.	Name of the Bank	Long Term(Rs.Crs)		Short Term(Rs.Crs)	Total(Rs.Crs)
		CC	TL
1	Oriental Bank of Commerce	5.5		11.5	17.0
	TOTAL (Rupees Seventeen Crores Only)	5.5	0	11.5	17