Om Sakthi Constructions

Brickwork Ratings upgrades the ratings for the Bank Loan Facilities of Rs. 102.98 Crs. of Om Sakthi Constructions

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#@
Facilities**	Previous	Present	Tenure	Previous (22 Jul 2022)	Present
Fund Based	15.50	17.48	Long Term	BWR BB- /Stable ISSUER NOT COOPERATING* /Downgrade	BWR BBB - /Stable removal from ISSUER NOT COOPERATING* category/Upgraded
Non Fund Based	97.02	85.50	Short Term	BWR A4 ISSUER NOT COOPERATING* /Downgrade	BWR A3 removal from ISSUER NOT COOPERATING* category/Upgraded
Grand Total	112.52	102.98	(Rupees One Hundred Two Crores and Ninety 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
@This rating pertains to an existing assignment received prior to 6 October 2022

RATING ACTION / OUTLOOK

The rating action by Brickwork Ratings (BWR) for Om Sakthi Constructions ("The Firm" or "OSC") reflects the significant improvement in the firm’s financial performance in FY22, backed by new order accretion and efficient execution of the unexecuted order book. The firm's operating income grew by ~161% in FY22 on a YOY basis along with an improvement in its profitability metrics resulting in an improvement in the financial risk profile. BWR believes that the business and financial profile shall continue to be maintained over the medium term supported by the adequate order book position and YTD achievement of a topline of ~Rs.212 Crs till 30 Sep 2022.

The ratings continue to be supported by the promoter's extensive experience in the civil construction industry, the firm’s established operational track record, and established clientele comprising government bodies with low counterparty risks. The ratings, however, remain constrained by exposure to risks arising from the tender-based nature of the business, the geographical concentration of operations, constitutional risks associated with partnership firms and the fragmented and highly competitive nature of the industry. BWR also takes note of the need for regular enhancement of the working capital limits to augment the envisaged growth in FY23 and FY24.

The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. BWR expects that the business risk profile will be maintained over the medium term. The outlook may be revised to Positive if the fim reports significantly better-than-estimated growth in its operations, 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 the execution of key orders or slowdown in new order inflows adversely impact the firm’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 promoters have more than three decades of experience in executing civil contract work such as the construction of roads, bridges, canals, and other contract work for various local government departments of Tamil Nadu and central government departments. The firm benefits from the management’s understanding of the dynamics of the industry and established relationships with customers.
Adequate order book, revenue visibility and reputed clientele :
The firm has an unexecuted order book comprising orders worth ~Rs. 831 Crs as on 31 Oct 2021 to be completed over the next two years providing short-term revenue visibility. The clientele primarily includes various departments of the Tamil Nadu Government and Central Government offering low counterparty risks. Some of its key clients include NHAI (National Highway Authority of India), PWD, Chennai Kanyakumari Industrial Corridor Project (CKICP), etc.
Above average financial risk profile :
The total operating income of the firm increased from Rs.125.50 crores during FY 21 to Rs.327.62 crores during FY 22 on the back of efficient execution of order at hand. The Operating profit has increased from Rs.5.62 crores in FY 21 to Rs.25.39 crores in FY 22 and the net profit has increased from Rs.4.55 crores in FY 21 to Rs.13.26 crores in FY 22. Partners' capital has increased from Rs.50.35 crores as on 31 March 2021 to Rs.5.51 crores as on 31 March 2022. The total debt/ Partner's capital has marginally deteriorated from 0.23 times as on 31 March 2021 to 0.27 times as on 31 March 2022. DSCR and ISCR have improved from 3.22 and 2.60 times, respectively as on 31 March 2021 to 4.77 and 9.23 times, respectively as on 31 March 2022. On a provisional basis for H1FY 23, the firm has booked revenue of Rs.212.16 crores, Operating profit of Rs.9.80 crores, and PAT of Rs.8.25 crores till Sep 2022.

Credit Risks:

Susceptibility to risks inherent in tender based business :
The firm'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.
Industry specific risks :
The firm, like any other construction entity, is exposed to the risks inherent in the construction sector including a slowdown in new order inflows, risks of delays in execution, and vulnerability of margins to adverse variation in the raw material, labor, 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 firm is also exposed to project execution risk of the pending order book, owing to the uncertainties from delay in land acquisition amongst other things.
Constitution of the entity as Partnership firm :
Being a partnership firm, it is exposed to inherent risks of capital being withdrawn at a time of personal contingency, risks of dissolution, and limited avenues to raise capital. BWR notes the net withdrawal of capital to the tune ~Rs.12.11 Crs as on 31 Mar 2022 which was offset by the net profit accretion.

ANALYTICAL APPROACH - Standalone

BWR has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale). BWR has adopted a stand-alone approach as the firm does not have any subsidiaries.

RATING SENSITIVITIES

The firm’s ability to increase its scale of operations significantly, improve profitability, improve its capital base, efficiently manage its working capital requirements and strengthen its liquidity and overall credit profile would be the key rating sensitivities.

Upward:

Sustained significant improvement in scale of operations, profitability, capital base and liquidity
Geographical diversification of business.

Downward:

Deterioration in the scale of operations, a decline in order accretion and delay in realization of debtors, and a 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 ISCR declining to below 1.50 times and DSCR below unity and gearing above 1.50 times on a sustained basis.
Incremental investments in related parties for purposes other than business/ project works impacting the liquidity.

LIQUIDITY INDICATORS - Adequate

The firm’s liquidity position is considered adequate taking into account adequate net cash accruals and EBITDA. EBITDA at Rs.25.39 Crs for FY22 was sufficient to cover the interest and finance charges of Rs.2.75 Crs for FY22. The liquidity is further supported by the undrawn credit lines with the Average working capital utilization being at ~50%-60% for the last six months. The firm did not have any meaningful debt obligations in FY22. BWR notes that the firm has availed a GECL loan of Rs.1.48 Crs from Indian Bank during the current fiscal. The net cash accruals in the range of Rs.25-29 Crs in FY23 and FY24 are adequate to cover the debt obligation in the range of Rs.0.00-0.40 Crs in FY23 and FY24. The current ratio remains adequate at 1.71 times on 31 Mar 2022. Cash and cash equivalents were adequate at Rs.18.61 Crs (Unencumbered) as on 31 Mar 2022.

ABOUT THE ENTITY

Om Sakthi Constructions (OSC) was set up in 2011 as a partnership firm at Puducherry. OSC undertakes civil construction in the roads segment in Tamil Nadu and Puducherry. The firm is promoted by Mr. V Kannan along with his family members. The firm is engaged in the construction and improvement of roads, bridges, state highways, and maintenance of dams, tunnels, etc.

The firm is a class one contractor approved by the Tamil Nadu Government and Public Works Department. The firm has been executing the tender allotted by agencies of the Tamil Nadu Government and Central Government.

Mr. V Kannan, Mr. S. Jeevarathinam, Mr. S. Sathish Kumar, and Mr. K. Velmurugan are the partners of this firm

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 21-22 (Audited)	FY 20-21 (Audited)
Operating Revenue	Rs.Crs.	327.62	125.50
EBITDA	Rs.Crs.	25.39	5.62
PAT	Rs.Crs.	13.26	4.55
Tangible Net Worth	Rs.Crs.	51.51	50.35
Total Debt/TNW	Times	0.27	0.23
Current Ratio	Times	1.71	1.67

KEY COVENANTS OF THE FACILITY RATED

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

NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY

CRISIL has migrated its ratings of the bank loan facilities of the firm in the ISSUER NOT COOPERATING* category w.e.f. 29 Sep 2018 as the firm has not provided the requisite information needed to conduct the rating exercise

* Issuer did not cooperate; Based on best available information

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	17.48	BWR BBB-/Stable (removal from ISSUER NOT COOPERATING* category/Upgraded)	22Jul2022	BWR BB- Stable (ISSUER NOT COOPERATING* /Downgrade)	04Aug2021	BWR BB Stable (Upgrade)	27May2020	BWR BB- Stable (Reaffirmation)	25Feb2019	BWR BB- Stable (Assignment)
Non Fund Based	ST	85.50	BWR A3 (removal from ISSUER NOT COOPERATING* category/Upgraded)	22Jul2022	BWR A4 (ISSUER NOT COOPERATING* /Downgrade)	04Aug2021	BWR A4+ (Upgrade)	27May2020	BWR A4 (Reaffirmation)	25Feb2019	BWR A4 (Assignment)
Grand Total		102.98	(Rupees One Hundred Two Crores and Ninety 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
Jithin K. Ratings Analyst jithin.k@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Om Sakthi Constructions

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	Federal Bank	Cash Credit - Sanctioned	5.00	_	5.00
2	Federal Bank	Bank Guarantee - Sanctioned	_	40.00	40.00
3	HDFC Bank	Bank Guarantee - Sanctioned	_	10.50	10.50
4	HDFC Bank	Cash Credit - Sanctioned	1.50	_	1.50
5	Indian Bank	Over Draft - Sanctioned	9.50	_	9.50
6	Indian Bank	Bank Guarantee - Sanctioned	_	35.00	35.00
7	Indian Bank	GECL - Sanctioned	1.48	_	1.48
Total			17.48	85.50	102.98
TOTAL (Rupees One Hundred Two Crores and Ninety Eight lakhs Only)

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