M.S. Khurana Engineering Ltd.

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 335.00 Crs. of M.S. Khurana Engineering Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (27 Oct 2020)	Present
Fund Based	60.00	60.00	Long Term	BWR BBB+ /Stable Reaffirmation	BWR BBB + /Stable Reaffirmation
Non Fund Based	275.00	275.00	Short Term	BWR A2 Reaffirmation	BWR A2 Reaffirmation
Non Fund Based	(10.00)	(10.00)	Short Term	BWR A2 Reaffirmation	BWR A2 Reaffirmation
Grand Total	335.00	335.00	(Rupees Three Hundred Thirty Five 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

Ratings: BWR BBB + /Stable / BWR A2 (Reaffirmation)

BWR has essentially relied upon audited financials upto FY21, provisional 6MFY22 numbers, projections of the Company, publicly available information and information/clarification provided by the Company.

The reaffirmation of ratings for M.S. Khurana Engineering Ltd. takes into account healthy order book position of Rs. 1075.12 crore as of 15.10.2021 and receipt of new orders of Rs. 628.88 crore in 6MFY22, which provides revenue visibility for the medium term. The ratings also factor in the ,
established track record of the company in the civil construction business. The ratings also consider the company’s AA class contractor status with the State Government of Gujarat (GoG) which aids in sourcing engineering, procurement and construction (EPC) contracts. .The ratings are however constrained by exposure to execution risks inherent to EPC projects and susceptibility to risks related to tender-based nature of operations and to intense competition. The ratings are, also constrained by it's moderate scale operations with revenues of Rs. 283 crore in FY21 and high geographical concentration of the order book in Gujarat state as the Company mainly works on projects with GoG.
The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. BWR expects that business risk profile of the entity will be maintained over the medium term.

KEY RATING DRIVERS

Credit Strengths:

Promoters experience and successful track record in execution of projects :
The promoters have more than 30 years’ experience in the civil construction industry. MSKEL is AA class contractor with the Government of Gujarat. Over three decades of experience has helped the Company establish strong relationships with its stakeholders, which include National Highways Authority of India NHAI), Ministry of Road Transport and Highways, State and Central Public Works Department. The Company has a strong presence in Gujarat and has executed various projects for the Government in the past.
Healthy order book position :
The Company has orders-on-hand of around Rs. 1075 Crs as on 15.10.2021 ((translates to order–to-revenue (FY21) ratio of 3.8times) which includes orders of Rs. 628.88 Crs obtained in current year. Presently, the company’s orders on hand contain around 75% orders from Government entities and around 15% orders are from private entities. This provides medium-term revenue visibility. However, given the ongoing challenges in the operating environment and threat of third wave of Covid, timely execution of orders will be critical over the medium term. Securing new projects will be key for maintaining the growth momentum.
Comfortable financial risk profile :
Financial risk profile of the company is comfortable along with adequate liquidity. The company reported marginal improvement in overall financial risk profile for FY21. Net-worth and gearing are comfortable at Rs 138.00 crore and 0.14 time, respectively, as on March 31, 2021. Also, debt protection metrics stands comfortable on account of low fund based debt, with interest coverage and debt coverage ratios of 6.73 times and 1.76 times, respectively, for FY21.

Credit Risks:

Exposure to execution risks inherent to EPC projects :
Revenue of the Company remains exposed to significant execution risk due to delays arising from slow regulatory approvals, bureaucratic interventions which might impact its revenue growth and liquidity position.
Exposure to risks related to the tender-driven nature of business and intense competition :
The civil construction industry is intensely competitive due to a low entry barrier. Furthermore, operations are concentrated in road and building construction. Also, there is high dependence on tenders floated by government and semi-government entities; these are awarded through competitive bidding. Since the entire business is tender-based, revenue depends on the ability to bid successfully. Any delay in floating of tenders, finalization of contractors, or unsuccessful bidding could constrain business risk profile. Overall slowdown of economy/ lower Government infrastructure spending led by Covid19 crisis may impact the ability of the Company to obtain new orders. Moreover, the Company is exposed to high geographical and customer concentration in revenue. The Company has been primarily working with Central and State Government Departments which reduces the counterparty risk. The highly fragmented nature of the civil construction industry, coupled with a tender-based contract-awarding system keeps its margins under check. However, the Company has demonstrated good execution capabilities over a period.

ANALYTICAL APPROACH - Standalone

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

RATING SENSITIVITIES

The Company’s ability to improve its scale of operations by sourcing additional projects, ensuring timely and cost-effective execution of ongoing projects, timely recovery of receivables and managing its working capital efficiently would be the key rating sensitivities.

Positive : BWR could revise the rating if it demonstrates substantial growth in revenue and profitability along with overall improvement in financial risk profile.

Negative : Negative pressure on the ratings could arise from weak operational and financial performance of the Company. Material impact on the financial risk profile due to non realization of receivables may also trigger a negative rating action

LIQUIDITY INDICATORS - Adequate

MSK has reported net cash accruals of Rs .27.99 crores for FY 21 as against yearly debt repayment of Rs.13.78 Crores for FY21. For FY22, the company is expected to generate net cash accruals of around Rs. 30 Crs against debt repayment obligation of Rs. 2.42 Crs. The current ratio stood at 1.02 times as on 31.03.2021. Further, Fund-based bank limit utilisation was low (<50%) for the period from 01.04.2021 t0 31.12.2021 reflecting an undrawn buffer available from the same.

ABOUT THE ENTITY

M. S. Khurana Engineering Limited (MSKEL) is one of the leading Civil Engineering Contractors and infrastructure developers in the western part of India especially in Gujarat. The Company is registered as an ‘AA’ class contractor for construction of bridges, roads and buildings g mainly for
projects handled by Govt. of Gujarat. Originally MS Khurana, a partnership firm, was incepted in 1968. The firm was converted into Private Limited Company in 1998 and Limited Company in 2002 and changed name to M.S. Khurana Engineering Ltd. It has successfully completed various
projects in the field of mass housing, irrigation, sewage treatment plant, bridges, road projects and multi storied buildings etc. The Company mainly works on projects with Government of Gujarat. It has executed various projects for Government entities such as National Highways Authority of India (NHAI), Central Public Works Department (CPWD), Public Works Department (PWD) in regions of Madhya Pradesh, Maharashtra, Gujarat etc.

KEY FINANCIAL INDICATORS

Standalone Financial Indicators (in ₹ crore)	Units	FY 20-21 (A)	FY 19-20 (A)
Operating Revenue	Rs.Crs.	282.99	426.90
EBITDA	Rs.Crs.	35.22	37.22
PAT	Rs.Crs.	17.37	14.17
Tangible Net Worth	Rs.Crs.	138.00	120.63
Total Debt/Tangible Net Worth	Times	0.14	0.41
Current Ratio	Times	1.02	0.94
* A:Audited UA:Unaudited P:Provisional PROJ:Projected
Note: These are latest available financial results. All ratios as per BWR's calculations; Amount in ₹ crore

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

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	60.00	BWR BBB+/Stable (Reaffirmation)	NA	NA	27Oct2020	BWR BBB+ Stable (Reaffirmation)	31Jul2019	BWR BBB+ Stable (Reaffirmation)
Non Fund Based	ST	275.00	BWR A2 (Reaffirmation)	NA	NA	27Oct2020	BWR A2 (Reaffirmation)	31Jul2019	BWR A2 (Reaffirmation)
NFB SubLimit	ST	(10.00)	BWR A2 (Reaffirmation)	NA	NA	NA	NA	NA	NA
Grand Total		335.00	(Rupees Three Hundred Thirty Five Crores Only)

Press Release, as on 30Nov2021
Advisory for delay in rating review was published on 30Nov2021

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
Priya Depala Senior Rating Analyst priya.d@brickworkratings.com	Vidya Shankar Principal Director - Ratings Board : +91 80 4040 9940 vidyashankar@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

M.S. Khurana Engineering 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	IDBI Bank	Cash Credit - Sanctioned	10.00	_	10.00
2	IDBI Bank	Bank Guarantee - Sanctioned	_	25.00	25.00
	Sub-Limit (Letter of Credit) - Sanctioned		(10.00)
3	Union Bank of India	Letter of Guarantee - Sanctioned	_	250.00	250.00
4	Union Bank of India	Cash Credit - Sanctioned	50.00	_	50.00
Total			60.00	275.00	335.00
TOTAL (Rupees Three Hundred Thirty Five Crores Only)

Print and Digital Media

The Rating Rationale is sent to you for the sole purpose of dissemination through your print, digital or electronic media. While it may be used by you acknowledging credit to BWR, please do not change the wordings in the rationale to avoid conveying a meaning different from what was intended by BWR. BWR alone has the sole right of sharing (both direct and indirect) its rationales for consideration or otherwise through any print or electronic or digital media.

About Brickwork Ratings

Brickwork Ratings (BWR), a Securities and Exchange Board of India [SEBI] registered Credit Rating Agency and accredited by Reserve Bank of India [RBI], offers credit ratings of Bank Loan, Non- convertible / convertible / partially convertible debentures and other capital market instruments and bonds, Commercial Paper, perpetual bonds, asset-backed and mortgage-backed securities, partial guarantees and other structured / credit enhanced debt instruments, Security Receipts, Securitization Products, Municipal Bonds, etc. BWR has rated over 11,400 medium and large corporates and financial institutions’ instruments. BWR has also rated NGOs, Educational Institutions, Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations. BWR has Canara Bank, a leading public sector bank, as one of the promoters 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.

Disclaimer

Brickwork Ratings India Pvt. Ltd. (BWR), a Securities and Exchange Board of India [SEBI] registered Credit Rating Agency and accredited by the Reserve Bank of India [RBI], offers credit ratings of Bank Loan facilities, Non- convertible / convertible / partially convertible debentures and other capital market instruments and bonds, Commercial Paper, perpetual bonds, asset-backed and mortgage-backed securities, partial guarantees and other structured / credit enhanced debt instruments, Security Receipts, Securitization Products, Municipal Bonds, etc. [ hereafter referred to as "Instruments"]. BWR also rates NGOs, Educational Institutions, Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations.

BWR wishes to inform all persons who may come across Rating Rationales and Rating Reports provided by BWR that the ratings assigned by BWR are based on information obtained from the issuer of the instrument and other reliable sources, which in BWR's best judgment are considered reliable. The Rating Rationale / Rating Report & other rating communications are intended for the jurisdiction of India only. The reports should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in Europe and also the USA).

BWR also wishes to inform that access or use of the said documents does not create a client relationship between the user and BWR.

The ratings assigned by BWR are only an expression of BWR's opinion on the entity / instrument and should not in any manner be construed as being a recommendation to either, purchase, hold or sell the instrument.

BWR also wishes to abundantly clarify that these ratings are not to be considered as an investment advice in any jurisdiction nor are they to be used as a basis for or as an alternative to independent financial advice and judgment obtained from the user's financial advisors. BWR shall not be liable to any losses incurred by the users of these Rating Rationales, Rating Reports or its contents. BWR reserves the right to vary, modify, suspend or withdraw the ratings at any time without assigning reasons for the same.

BWR's ratings reflect BWR's opinion on the day the ratings are published and are not reflective of factual circumstances that may have arisen on a later date. BWR is not obliged to update its opinion based on any public notification, in any form or format although BWR may disseminate its opinion and analysis when deemed fit.

Neither BWR nor its affiliates, third party providers, as well as the directors, officers, shareholders, employees or agents (collectively, "BWR Party") guarantee the accuracy, completeness or adequacy of the Ratings, and no BWR Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Rating Rationales or Rating Reports. Each BWR Party disclaims all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. In no event shall any BWR Party be liable to any one for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Rating Rationales and/or Rating Reports even if advised of the possibility of such damages. However, BWR or its associates may have other commercial transactions with the company/entity. BWR and its affiliates do not act as a fiduciary.

BWR keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of BWR may have information that is not available to other BWR business units. BWR has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

BWR clarifies that it may have been paid a fee by the issuers or underwriters of the instruments, facilities, securities etc., or from obligors. BWR's public ratings and analysis are made available on its web site, www.brickworkratings.com. More detailed information may be provided for a fee. BWR's rating criteria are also generally made available without charge on BWR's website.

This disclaimer forms an integral part of the Ratings Rationales / Rating Reports or other press releases, advisories, communications issued by BWR and circulation of the ratings without this disclaimer is prohibited.

BWR is bound by the Code of Conduct for Credit Rating Agencies issued by the Securities and Exchange Board of India and is governed by the applicable regulations issued by the Securities and Exchange Board of India as amended from time to time.