M Rajkumar

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 49.50 Crs. of M Rajkumar

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (10 Dec 2020)	Present
Fund Based	9.25	13.50	Long Term	BWR BB+/Stable Reaffirmation	BWR BB + /Stable Reaffirmation
Non Fund Based	29.00	36.00	Short Term	BWR A4+ Reaffirmation	BWR A4 + Reaffirmation
Non Fund Based	(0.00)	(7.00)	Short Term	BWR A4+ Reaffirmation	BWR A4 + Reaffirmation
Grand Total	38.25	49.50	(Rupees Forty Nine Crores and Fifty 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
Note: Advisory issued on 03 Jan 2022; The firm is also availing term facilities from various lenders which have not been rated at the request of the firm.

RATING ACTION / OUTLOOK

The reaffirmation of the bank loan facilities of M Rajkumar (“MR” or “the firm ”) continues to factor the extensive experience of the promoter in the civil construction business, clientele comprising government bodies which reduces counterparty risks to an extent, healthy unexecuted order book position of ~Rs 595 crs as on 31 Dec 2021 providing revenue visibility for 2-3 years and above-average financial risk profile. However, the ratings continue to be constrained by modest scale of operations despite the increase in topline in the last few years. The ratings are also constrained by the inherent risks in tender-based nature of the business, competitive landscape, the vulnerability of profitability to margin to fluctuation in raw material prices, geographical and customer concentration risks. Being a sole proprietorship firm, the firm remains exposed to the risk of capital withdrawals along with limitations to tap external channels of financing.

The impact of the second wave of COVID had minimal impact on the firm's operations. BWR notes the firm had availed relief under the Covid-19 moratorium package during Mar'20 - Aug'20 for term loans' interest payment and principal repayment and has availed COVID loans from various banks and NBFC's to mitigate the working capital shortfall. Further, the firm has not availed the one-time restructuring (OTR) of loans under RBI Resolution Framework for Covid-19 related Stress.

BWR believes the business risk profile will be maintained over the medium term. The outlook may be revised to Positive if a sustained significant increase in the scale of operations, along with stable margins, a further improvement in the capital structure, increased fresh order accretion, an improved segment/geography-wise diversification and the timely realisation of receivables results in an improved financial risk profile. The outlook may be revised to Negative in case of a significant and sustained decline in the order book position, decline in fresh order accretion on a sustained basis, decline in margins, larger than anticipated capex without a supportive cash flow generation, stretch in debtors position which may weaken the company’s liquidity and financial risk profile.

KEY RATING DRIVERS

Credit Strengths:

Experienced Management and established track record :
The proprietor has extensive experience of 2 decades in the construction of bridges and road works for Tamilnadu State Highways, Southern Railways, RITES etc. The concern has an established track record with repeat work orders received from Tamilnadu State Government and Southern Railways. The firm has completed more than 200 government projects with an aggregate value more than ~ Rs 600 Crs. The firm has demonstrated its project execution capability in the sector and has been able to win repeat orders from various government agencies based on its track record.
Healthy order book :
The firm undertakes projects for government organisations in TamilNadu and some of its key clients are Tamilnadu State Highways and Southern Railways. Some of the key customers are RITES Ltd, National Bank for Agriculture and Rural Development [NABARD], Indian Port Rail Corporation Ltd [IPRCL] and District Rural Development Agencies [DRDA]. The firm has an unexecuted order book comprising orders worth ~Rs. 595.28 Crs as on 31 Dec 2021 providing revenue visibility for 2-3 years. The firm also has orders worth ~Rs.630 crs as on Jan 2022 under negotiation. Timely execution of orders will be critical to drive the firm’s revenues.
Above Average financial risk profile :
The total operating income of the firm stood at Rs.125.89 Crs in FY21 as against Rs.101.03 Crs in FY20, registering a ~25% increase on a y-o-y basis. EBITDA has improved from Rs. 7.80 Crs in FY20 to Rs. 10.74 Crs in FY21 and PAT has improved from Rs. 2.63 Crs in FY20 to Rs. 3.29 Crs in FY21. The proprietor's capital is modest at Rs.31.15 Crs as on 31 Mar 2021 and gearing stood at 1.46 times as on 31 March 2021 (PY 1.08 times). The debt protection metrics continue to be adequate with ISCR and DSCR at 2.62 times and 1.73 times as on 31 Mar 2021. On a provisional basis, the firm has earned a revenue of Rs. 94.09 Crs, with EBITDA of Rs. 8.62 Crs and PAT of Rs. 3.19 Crs as on 31 Dec 2021.

Credit Risks:

Modest scale of operations and concentration risks :
The firm’s scale of operations is modest with revenues of ~Rs.126 crore in FY21 and it mainly executes projects by Tamilnadu State Highways Department and Southern Railways and other government entities resulting in customer and geographic concentration. Therefore, any political instability or other adverse state scenario could detrimentally affect the construction industry in the state directly. However, long-term association and repeat orders from customers mitigate the risk to an extent.
Inherent industry risks :
The firm is exposed to competition and is susceptible to risks inherent in tender-based business. Since all of the operations are tender-based, the business depends on the ability to bid for tenders successfully. Also, all orders are from Government agencies, resulting in high dependence on timely clearances for tenders and payments. Revenue and profitability are expected to remain susceptible to risks inherent in tender-based operations, the competitive landscape and variations in raw material prices.
Risks associated with sole proprietorship nature of business :
The firm is exposed to the inherent risk of the capital being withdrawn at the time of personal contingency and the firm being dissolved upon the incapacitation of the proprietor. Further, a proprietorship firm has limited access to external borrowings. The management's decision to change the constitution shall be key monitorable.

ANALYTICAL APPROACH - Standalone

The firm does not have any subsidiary. BWR has taken the standalone approach towards the rating of the bank loan facilities of the firm

RATING SENSITIVITIES

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

Positive:

Substantial improvement in scale of operations, along with improvement in net profitability, cash flows, improvement in capital structure and liquidity
Geographical diversification of business and Prudent working capital management

Negative:

A substantial decline in scale of operations and profitability marked by a decline in the Orderbook position/ new order accretion
Any significant deterioration in the capital structure.
A stretch in working capital cycle on a sustained basis or significant debt funded capex resulting in deterioration of liqudity.

LIQUIDITY INDICATORS - Stretched

The long-term loans of the firm consist of machine loans, business loans and COVID loans with aggregate o/s of Rs. 23.89 Crs as on 31 March 2021. The net cash accruals of Rs. 6.75 Crs as on 31 March 2021 is sufficient to service the debt obligation of Rs. 4.53 Crs. However, with the increased order book, there has been an increase in debt and subsequently the debt obligations. The firm's ability to achieve the projected net cash accruals in FY22 and FY23 along with the planned infusion of capital shall be a key monitorable. Further, keeping in view with increased order book position and its timely execution, BWR believes that the need for working capital shall be high and would be contingent on the firm's ability to secure additional/ enhanced working capital facilities from lenders. EBITDA at Rs.10.74 Crs for FY 21 was sufficient to cover the interest and finance charges of Rs.4.10 Crs for FY21. The average utilization of working capital limit stood at 70% for the last six months. The cash and cash equivalents stood at Rs. 2.22 Crs and current ratio is moderate at 1.24 times as on 31 March 2021. BWR also notes the liquidity supported provided by the interest free unsecured loans from the promoters and covid loans availed from various lenders by the firm.

ABOUT THE ENTITY

M/S M Rajkumar, the proprietorship concern was established by Mr. M Rajkumar in 2003, starting out as a contractor in BSNL for laying cable work from 1998 to 2003 and later on started undertaking Railway contract works and works from highway department for construction of over bridges.
The concern’s Registered Office is at Pallipalayam , Tamilnadu. M Rajkumar is a Civil contractor engaged in civil works of railway contracts and construction of over bridges. MRK secures these civil contracts from Railways and Highway Department by bidding for their tenders.The proprietor, Mr. M Rajkumar, is securing consistent work orders from Railways and Highway Departments and has constructed around 60 over bridges.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	125.89	101.03
EBITDA	Rs.Crs.	10.74	7.80
PAT	Rs.Crs.	3.29	2.63
Tangible Net Worth	Rs.Crs.	21.37	16.20
Total Debt/Tangible Net Worth	Times	1.46	1.08
Current Ratio	Times	1.24	0.57

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	13.50	BWR BB+/Stable (Reaffirmation)	NA	NA	10Dec2020	BWR BB+Stable (Reaffirmation)	27Jun2019	BWR BB+Stable (Assignment)
Non Fund Based	ST	36.00	BWR A4+ (Reaffirmation)	NA	NA	10Dec2020	BWR A4+ (Reaffirmation)	27Jun2019	BWR A4+ (Assignment)
NFB SubLimit	ST	(7.00)	BWR A4+ (Reaffirmation)	NA	NA	NA	NA	NA	NA
Grand Total		49.50	(Rupees Forty Nine Crores and Fifty lakhs Only)

Rating Advisory, as on 03Jan2022
Press Release, as on 03Jan2022
COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

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Hyperlink/Reference to applicable Criteria

Analytical Contacts
Kaushik Srikanth V Rating Analyst kaushik.s@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

M Rajkumar

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	Tamilnad Mercantile Bank Limited	Term Loan	_	_	0.00
2	Tamilnad Mercantile Bank Limited	Cash Credit - Sanctioned	13.50	_	13.50
	Sub-Limit (Bank Guarantee )		(7.00)
3	Tamilnad Mercantile Bank Limited	Bank Guarantee - Sanctioned	_	36.00	36.00
4	Tamilnad Mercantile Bank Limited	Covid Term Loan	_	_	0.00
Total			13.50	36.00	49.50
TOTAL (Rupees Forty Nine Crores and Fifty lakhs Only)

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