Inderjit Mehta Constructions Pvt. Ltd

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 240.00 Crs. of Inderjit Mehta Constructions Pvt. Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (12 Jan 2021)	Present
Fund Based	40.00	40.00	Long Term	BWR BBB+ /Stable Reaffirmation	BWR BBB + /Stable Reaffirmation
Non Fund Based	200.00	200.00	Short Term	BWR A2 Reaffirmation	BWR A2 Reaffirmation
Grand Total	240.00	240.00	(Rupees Two Hundred Forty 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 reaffirmed the long term rating of BWR BBB+ with Stable outlook and the short term ratings of BWR A2 for the bank loan facilities of Inderjit Mehta Constructions Pvt. Ltd. (IMPCL). The reaffirmation of ratings takes into account the improved financial performance in 9M FY22 as compared to FY21 whereby the company has achieved an operating income of Rs. 210.49 Cr. in 9M FY22 which is expected to improve to Rs. 280.65 Cr. by 31st March 2022. The rating factors in the extensive experience of the promoter in the business along with the company's established track record of operations, reputed client base, geographically diversified projects and healthy financial risk profile during FY21. However, the ratings are constrained due to decline in total operating income during FY21.

In FY21 the turnover of the company declined from Rs 317.64 Crs in FY20 to Rs. 237.36 Crs. in FY21, with an Y-o-Y decline of around 25.27%, owing to the operations and billing being significantly impacted due to nationwide lockdown which continued until Q2. Post Q2, the company has expedited the pace of completion of construction projects. Alongside, majority of new projects were received in the year FY20-21 during the Covid-19 pandemic and being in the initial stage of execution, not much revenue could be generated from these projects in FY20-21. However, in spite of a decline in total operating income in FY21, the financial parameters of the company remained healthy with operating and net profit margins standing at 9.27% and 4.66% respectively. The company had a strong tangible net worth of Rs. 123.11 Cr. and overall gearing of 0.43x in FY21. Debt protection metrics in FY21 remained healthy with ISCR (interest service coverage ratio) of 3.99x, DSCR (debt service coverage ratio) of 2.39x and current ratio of 1.76x. Each of these parameters have remained healthy in FY21 and is estimated to be in the healthy range in FY22 as well as per the analyst estimates. The Outlook is Stable on account of revenue visibility for next 2-3 years led by orderbook to revenue ratio of 5.95x as on 31 Dec 2021 and comfortable credit profile.

For assigning the rating, BWR has relied upon the last 3 years of audited financials till FY21, 9M performance of FY22 and projections of FY22 and FY23, publicly available information and clarifications provided by management.

KEY RATING DRIVERS

Credit Strengths:

Extensive Experience of the promoter :
Promoter, Mr. Amarjit Mehta has more than 3 decades of experience in construction activities. Promoters are assisted by a team of experienced professionals in managing the company’s daily business operations.The company has a 650+ strong team comprising engineers, technicians, management staff deployed across different project locations and a workforce of around 5000+ labourers.
Strong order book with healthy revenue visibility :
The execution of progressively sizable orders over time has made IMCPL eligible to bid for higher-value orders by meeting the stipulated technical and financial eligibility criteria. The ratio of the outstanding order book to total operating income (TOI) as on 31st Dec'21 was healthy at 5.95 times indicating revenue visibility for the next two-three years. The company regularly bids for new projects to boost its order book position. The total turnover of the company as on 31st Dec'21 stood at Rs. 210.49 Cr. and the company is expected to achieve a total turnover of Rs. 280.65 Cr. in FY22 with adequate work orders worth Rs. 1252.18 Crs. in hand as on 31st Dec'21.
Healthy financial risk profile with strong coverage indicators :
The turnover of the company declined from Rs 317.64 Crs in FY20 to Rs. 237.36 Crs. in FY21, with an Y-o-Y decline of around 25.27%, owing to the Covid-19 lockdown which hampered project execution. Alongside, majority of new projects were received in the year FY20-21 and being in the initial stage of execution, not much revenue could be generated from these projects in FY20-21. However, the financial risk profile of the company remained healthy in FY21 where operating and net profit margins stood at 9.27% and 4.66% respectively. In FY21, the company had a strong tangible net worth of Rs. 123.11 Cr. on account of accumulated profits. In FY21, the company had a gearing of 0.43x, ISCR (interest service coverage ratio) of 3.99x, DSCR (debt service coverage ratio) of 2.39x and current ratio of 1.76x, each of these parameters have remained healthy in FY21 and is estimated to be in the healthy range in FY22 as well as per the analyst estimates.
Reputed and diversified customer profile :
IMCPL’s client base consists of government and semi-government authorities, such as Directorate General of Married Accommodation Project (DG MAP) , The Defence Research and Development Organisation (DRDO), Military Engineer Services (MES), The Central Public Works Department of India (CPWD) , Greater Hyderabad Municipal Corporation (GHMC) the National Highway Authority of India (NHAI), in various states, including Delhi, Punjab, Telangana , West Bengal , Madhya Pradesh , Andhra Pradesh, etc. This leads to favorable working capital norms and low counterparty risk.
Exceptional profits in FY20 :
In FY20, there was an increase in operating and net profit margins from 7.60% and 3.65% in FY19 to 17.70% and 13.09% respectively, as the company had planned to execute the road works awarded to the JV formed by the company with Ceigall India Ltd. However, later on, the execution of the entire work was handed over to Ceigall India and the company received its share in profits which led to the surge in profits.

Credit Risks:

Tender-based nature of business, project execution risk, susceptibility of profitability to volatile raw material prices :
The company procures orders through tenders, wherein revenue and profitability are expected to remain susceptible to volatility in raw material prices to some extent. The company is also exposed to project execution risk in terms of time and cost overrun as the projects of government entities frequently get stalled/delayed because of issues such as difficulties in land acquisitions, environmental clearances and political interference. However, IMCPL tries to factor in the likely price variation in its cost at the time of bidding itself, taking into consideration the nature of the contract and project execution period.
Intense competition in industry :
The EPC industry is highly fragmented, with the presence of both organised and unorganised players providing similar services. Hence, the company faces competition from regional players, leading to intense competition and pricing pressures, which in turn affects the company’s profitability margins.

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

Upward : BWR may revise the ratings upward in the case of a substantial improvement in the total operating income, EBITDA margins, net profits and an improved liquidity.

Downward : BWR may revise the rating downward in the case of decline in total operating income, deterioration in debt protection metrics and order book to revenue ratio, thereby impacting the company’s credit profile.

LIQUIDITY INDICATORS - Adequate

Liquidity position of the company is adequate, marked by healthy net cash accruals of Rs. 18.76 Cr. against a fixed repayment obligation of Rs. 4.83 Cr. in FY21. The company is expected to generate a net cash accruals of Rs. 31.52 Cr. in FY22 against a fixed repayment obligation of Rs. 17.68 Cr. as per the analyst estimates. In FY21 the company is generating an EBITDA of Rs. 22.01 Cr. against an interest cost of Rs. 5.51 Cr. In FY22, the company is expected to generate an EBITDA of Rs. 41.02 Cr. against an interest cost of Rs. 11.50 Cr. as per the analyst estimates. In FY23 the company is expected to generate a net cash accruals of Rs. 37 Cr. against a fixed obligation of Rs. 16.50 Cr. The company is estimated to generate an EBITDA of Rs. 47 Cr. against an interest cost of Rs. 12.50 Cr. in FY23 as per the analyst estimates. In FY22 the liquidity also gets cushion from the unutilized credit lines, as the average cash credit limit utilization in the last six months was approx 75%. The current ratio in FY21 stood at Rs. 1.76x which is above the ideal benchmark. For procuring new work orders, the company has proposed enhancement of limits of Rs. 50 Cr. with State Bank of India, which would further ease the liquidity.

ABOUT THE ENTITY

The company got established as a proprietorship concern 3 decades ago and soon got enlisted in the MES for carrying out high value jobs. Later on the constitution was changed in the year 1993 to Pvt. Ltd. Company i.e M/s Inderjit Mehta Constructions Pvt Ltd (IJMCPL). The business is currently done by participating in the tenders of MES (Military Engineering Services) and other Departments and getting the contracts. The main business continues to be execution of the civil work of MES, DGMAP & DMRC contracts. Recently, the company has started participating in tenders for roads and highway constructions as well to diversify the business. IJMCPL has its registered office at Bathinda and controlling office at Delhi.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	237.36	317.64
EBITDA	Rs.Crs.	22.01	56.23
PAT	Rs.Crs.	11.05	41.58
Tangible Net Worth	Rs.Crs.	123.11	112.91
Total Debt/Tangible Net Worth	Times	0.43	0.11
Current Ratio	Times	1.76	3.65

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

N/A

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	40.00	BWR BBB+/Stable (Reaffirmation)	12Jan2021	BWR BBB+ Stable (Reaffirmation)	NA	NA	13Nov2019	BWR BBB+ Stable (Reaffirmation)
Non Fund Based	ST	200.00	BWR A2 (Reaffirmation)	12Jan2021	BWR A2 (Reaffirmation)	NA	NA	13Nov2019	BWR A2 (Reaffirmation)
Grand Total		240.00	(Rupees Two Hundred Forty Crores Only)

Rating Advisory, as on 17Jan2022
Press Release, as on 17Jan2022
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
Arjun Gupta Ratings Analyst arjun.g@brickworkratings.com	Tanu Sharma Director - Ratings tanusharma@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Inderjit Mehta Constructions 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	HDFC Bank	Cash Credit - Sanctioned	7.00	_	7.00
2	HDFC Bank	Bank Guarantee - Sanctioned	_	33.00	33.00
3	State Bank Of India (SBI)	Bank Guarantee - Sanctioned	_	125.00	125.00
4	State Bank Of India (SBI)	Bank Guarantee - Proposed	_	42.00	42.00
5	State Bank Of India (SBI)	Cash Credit - Sanctioned	25.00	_	25.00
6	State Bank Of India (SBI)	Cash Credit - Proposed	8.00	_	8.00
Total			40.00	200.00	240.00
TOTAL (Rupees Two Hundred Forty Crores Only)

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