RATING RATIONALE
16 Mar 2020
Suwarna Buildcon Pvt. Ltd.
Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs.25.00 Crs. of Suwarna Buildcon Pvt. Ltd.
Particulars| Facility** | Amount (Rs.Crs) | Tenure | Rating* |
|---|---|---|---|
| Fund Based | |||
| Cash Credit Proposed | 25.00 | Long Term | BWR BBB (Stable) |
| Sub Total | 25.00 | ||
| Grand Total | 25.00 | (Rupees Twenty Five Crores Only) | |
**Details of Bank facilities are provided in Annexure-I RATING ACTION / OUTLOOK : Stable
BWR has assigned a rating and Stable Outlook to the bank facilities of Suwarna Buildcon Pvt Ltd (SBPL) based on the vast business experience of the promoters and the established track record, Y-o-Y growth in the scale of operations, the moderate financial risk profile of the company, and comfortable debt service indicators and profit margins. However, the rating is constrained on account of the customer concentration risk, inherent risk associated with the tender based nature of the operations and risk from other established players in the market. BWR has essentially relied upon the audited financial statements of SBPL up to FY19 and projected financial statements of FY20 and FY21, publicly available information and information/clarifications provided by the entity’s management.
BWR believes that SBPL's 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 margins show sustained improvement. The rating outlook may be revised to 'Negative' if the revenues go down and profit margins show lower than expected figures.
KEY RATING DRIVERS
The key rating drivers have been explained below:
Credit Strengths:
-
Qualified and Experienced promoters :
The promoters are qualified and experienced and have demonstrated execution capabilities over the years in this sector. Mr. Manoj Abrol has an experience of about 30 years in civil construction.
-
Y-O-Y growth in the scale of operations and moderate profit margins :
The scale of the operations in the company has significantly improved to Rs 173.47crs in FY19 from Rs 68.99 in FY17. With the existing work-in-progress and the unexecuted orders in hand, the company is likely to achieve its projected revenue for the FY20. The profit margins of the company stood moderate in FY19. The OPM and NPM stood at 11.68% and 7.97% in FY19. Though there has been a slight dip in the margins in FY19, as the company had majorly executed labor driven contracts in FY18, the margins stood comparatively higher.
-
Moderate Financial Risk Profile :
The financial risk profile of the company is moderate driven by a net worth of Rs 43.21 crs in FY19. The gearing ratio also stood low at 0.30x on the back of moderate net worth and lower reliance on external borrowings. The gearing is estimated to stay below 1x in FY20 as new equipment loans have been taken by the company. The TOL/TNW stood at 1.83x.
-
Comfortable Debt Service Indicators :
The DSCR and ISCR stood moderate at 10.13x and 14.30x respectively in FY19 indicating the adequacy of the company to service its debt obligations.
-
Order book :
The company has an unexecuted order book of more than Rs 200 crs as of Dec 2019 which is projected to be executed over the next two years. The comfortable order book position reflects in medium to long term revenue visibility. In addition to this, the company is constantly bidding for new projects which will be further added to the existing order book of the company.
Credit Risks:
-
Customer Concentration Risk :
Around 50% revenue of the company is derived from a single customer, Sadbhav Engineering Ltd (Rated CARE A/A1), leading to customer concentration risk in the company. Although the same is mitigated to an extent as the receivables are regular and timely.
-
Industry Related Risks :
The construction industry remains exposed to the inherent risks like a slowdown in order inflows and timely execution, Further, the company faces competition from other established as well as small and unorganized players in the market.
-
Tender Based Operations :
The operations are tender based which exhibit an inherent risk of uncertainty of revenue due to the nonavailability of information from competitors.& also carries potential risk in the timely implementation of various contracts. However, the risk is mitigated to an extent as the management has been in the business for over a decade and has a moderate order book position. Also, the business remains exposed to fluctuations in profit due to the volatile nature of the cost of inputs like cement, iron. Any adverse fluctuation may impact the profitability of the business. However, to mitigate the same, the company has a price escalation clause in place.
-
Liquidity :
The current ratio of the company stood modest over the past years and stood at 1.07x in FY19.
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
The ability of the company to scale up its operations while maintaining a comfortable risk profile, successful bidding of the tenders and receiving the new contracts along with their timely execution, achieving its projections and maintaining adequate liquidity and profitability would be its key rating sensitivities.
Positive: The rating may be upgraded in case the revenue, profitability, capital structure of the company show significant improvement.
Negative: The rating may be downgraded in case there is significant deterioration in the business revenue, profitability or financial risk profile of the company.
LIQUIDITY POSITION
Adequate:
The liquidity profile of the company is adequately driven by a moderate current ratio of 1.07x in FY19. The cash and cash equivalents of the company stood at Rs. 2.26cr in FY19 and the company has no liquid investments. The bank limits are utilized to the extent of 85-90% on average. The net cash accruals in the company stood at Rs 15.49crs as against the current debt obligations of Rs 4.76cr and interest obligation of Rs 1.42cr.
PROFILESuwarna Buildcon Pvt Ltd (hereafter referred as SBPL) was incorporated in the year 2011 in Pune, Maharashtra. Presently the company is spearheaded by Mr. Manoj kumar Abrol & his wife Mrs. Rashmi Abrol having an experience of nearly 30 years in this industry. The company is registered as Class I contractor with Government of Maharashtra & undertakes project as principal contractor and also as a subcontractor catering to the irrigation segment. SBPL undertakes construction of weirs & barrages, road work, minor bridges & buildings in Maharashtra.
KEY FINANCIAL INDICATORS| Key Parameters | Units |
FY 18-19 (Audited) |
FY 17-18 (Audited) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | 173.47 | 89.30 |
| EBITDA | Rs.Crs. | 20.26 | 13.76 |
| PAT | Rs.Crs. | 13.82 | 11.73 |
| Tangible Net Worth | Rs.Crs. | 43.21 | 29.39 |
| Total Debt/Tangible Net Worth | Times | 0.30 | 0.06 |
| Current Ratio | Times | 1.07 | 1.37 |
NON-COOPERATION WITH PREVIOUS RATING AGENCY ,IF ANY
| CRA Name | Date | Amount | Rating |
|---|---|---|---|
| ACUITE | 26 Sep 2019 | 20.00 | ACUITE BB+/A4+ |
| S.No | Current Rating (2020) | Rating History | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Facilities | Tenure | Amount (Rs.Crs) | Rating | 2019 | 2018 | 2017 | ||||
| Fund Based | ||||||||||
| 1 | Cash Credit - Proposed | Long Term | 25.00 | BWR BBB(Stable) | NA | NA | NA | |||
| Total | 25.00 | (Rupees Twenty Five Crores Only) | ||||||||
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 : For More Information Contact:| Analytical Contacts | Investor Contacts |
|---|---|
|
Srishti Kaushik Lead Analyst srishti.k@brickworkratings.com |
Liena Thakur Assistant Vice President - Corporate Communications M : +91 84339 94686 liena.t@brickworkratings.com |
|
Sushil Kumar Chitkara Associate Director - Ratings B : +91 22 2831 1426, +91 22 2831 1439 sushilkumar.c@brickworkratings.com |
|
| 1-860-425-2742 | |
| SL.No. | Type Of Facilities | Long Term(Rs.Crs.) | Short Term(Rs.Crs.) | Total(Rs.Crs.) |
|---|---|---|---|---|
| 1 | Cash CreditProposed | 25.00 | _ | 25.00 |
| Total | 25.00 | |||
| TOTAL (Rupees Twenty Five Crores Only) | ||||
| Instrument | Issue Date | Amount (Rs.Crs) | Coupon Rate | Maturity Date | ISIN Particulars |
|---|---|---|---|---|---|
| NA | NA | NA | NA | NA | NA |
| Name of Entity | % Ownership | Extent of consolidation | Rationale for consolidation |
|---|---|---|---|
| NA | NA | NA | NA |
Ratings are not a recommendation or suggestion ,directly or indirectly, to you or any other person, to buy sell, make or hold on any investement,loan or security or to undertake any investement strategy with respect to any investment,loan or security or any issuer.
Brickwork Ratings (BWR), a SEBI registered Credit Rating Agency, accredited by RBI and empaneled by NSIC, offers Bank Loan, NCD, Commercial Paper, MSME ratings and grading services. NABARD has empaneled Brickwork for MFI and NGO grading. BWR is accredited by IREDA & the Ministry of New and Renewable Energy (MNRE), Government of India. Brickwork Ratings has Canara Bank, a leading public sector bank, as its promoter 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.
Brickwork Ratings (BWR) has assigned the rating based on the information obtained from the issuer and other reliable sources, which are deemed to be accurate. BWR has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented "as is" without any express or implied warranty of any kind. BWR does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by BWR should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses incurred by users from any use of this report or its contents. BWR has the right to change, suspend or withdraw the ratings at any time for any reasons.