Shree Ram Construction Company

Brickwork Ratings upgrades the ratings along with revision in outlook for the Bank Loan Facilities of Rs. 63.50 Crs. of Shree Ram Construction Company

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#@
Facilities**	Previous	Present	Tenure	Previous (18 Apr 2022)	Present
Fund Based	6.50	6.50	Long Term	BWR BB+ /Negative ISSUER NOT COOPERATING*/Downgraded	BWR BBB - /Negative to Stable removal from ISSUER NOT COOPERATING* category/Upgraded
Non Fund Based	66.50	57.00	Short Term	BWR A4 ISSUER NOT COOPERATING*/Downgraded^	BWR A3 removal from ISSUER NOT COOPERATING* category/Upgraded
Non Fund Based	(12.00)	(12.00)	Short Term	BWR A4 ISSUER NOT COOPERATING*/Downgraded^
Grand Total	73.00	63.50	(Rupees Sixty Three 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: *Issuer did not cooperate; based on best available information
@This rating pertains to an existing assignment received prior to 6 October 2022

RATING ACTION / OUTLOOK

Brickwork Ratings (BWR) has upgraded the ratings for the bank loan facilities of Shree Ram Construction Company ("SRCC" or "the firm") taking into account the firm's improved business and financial profile in FY22 post the Covid-19 related disruptions in FY21. BWR notes the improvement in the business profile during FY22 which grew at ~81% YOY and reached the pre-covid levels. The performance has been sustained in 7MFY23.

The rating action also factors in the partner’s experience in the civil construction business, established operational track record, established clientele comprising government entities offering low counter-party risks, above-average financial risk profile and stable order book position. However, the ratings are constrained by the exposure to risks arising from the tender-based nature of business, project execution risks, the inherent risk in a partnership firm, geographical concentration of projects in the State of Chhattisgarh & Madhya Pradesh and modest scale of operation in a fragmented and competitive industry.

The revision of the outlook from negative to stable considers the revival of business and a stable unexecuted order book of ~Rs.223 Crs providing short-term revenue visibility. The Union Government and State Government’s thrust toward infrastructure development activities including roads and bridges is expected to further aid the growth in the Business profile of the firm. The The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. BWR believes SRCC’s business risk profile will be maintained over the medium term. The outlook may be revised to Positive if a sustained increase in the scale of operations, an adequate order book with new order accretion and a higher-than-envisaged bottom line results in an improved financial risk profile and better gearing and debt protection metrics. The outlook may be revised to Negative if any significant delays in the execution of key orders or slowdown in new order inflows or otherwise a significant adverse impact on the firm’s revenues and profitability or if there is a deterioration in its working capital cycle, leverage or liquidity position. Any sharp reversal in industry conditions may exert downward pressure on the ratings.

KEY RATING DRIVERS

Credit Strengths:

Experienced management and established track record: :
The firm has an established track record of more than four decades in executing civil contract work such as construction and renewal of rural roads, Railway over bridges, construction of water pipelines for central government & various government departments of Chhattisgarh & Madhya Pradesh. The partners have more than three decades of experience in this industry. The firm benefits from the management’s understanding of the dynamics of the industry and established relationships with customers.
Above Average financial risk profile :
The operating revenue of the firm increased to Rs.108.74 Crs in FY 22 as against Rs 60.03 Crs in FY21. Operating profit improved at Rs 8.53 Crs in FY22 as against Rs 6.13 Crs FY21. PAT improved at Rs 6.74 Crs in FY22 (PY: Rs 3.03 Crs). The tangible net worth of the firm stood adequate at Rs.26.65 Crs as on 31 Mar 2022 as against Rs 22.53 Crs as on 31Mar2021. Gearing stood adequate at 1.13 times as on 31Mar2022 as against 1.63 times as on 31Mar2021. The debt protection metrics stood adequate reflected by ISCR and DSCR at 3.02 times & 1.76 times respectively as on 31Mar2022 as against 2.10 times and 1.42 times respectively as on 31Mar2021.

For the 7MFY23 the firm has reported a revenue of Rs 49.18 Crs with an operating profit of ~Rs.2.63 crs on a provisional basis.
Stable order book position and revenue visibility with reputed clientele base :
SRCC's major clientele base includes various government entities such as Central Government, Highways department of Chhattisgarh & Madhya Pradesh, Southern Railways etc which offer lower counter party risk. Some of the key projects of SRCC include construction of water pipeline contract under Jal Jeevan Mission scheme (Department of Water and Sanitation), for renewal and maintenance of rural roads (Pradhan Mantri Gram Sadak Yojana). The firm has an unexecuted order book position of Rs.223.38 Crs as on 31Oct2022 to be executed over the next 1-2 years providing short term revenue visibility.

Credit Risks:

Susceptibility to risks inherent in tender based business in a competitive landscape :
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 along with modest scale of operations limit pricing flexibility in an intensely competitive industry.
Geographical concentration of customers :
The firm's outstanding order book position of civil infrastructure is exposed to client concentration risks as the order book is derived only from the projects in the State of Chhattisgarh (70%), State of Madhya Pradesh (30%), thus exposing it to region-specific economic and political risks. Any decline in the economic scenario or changes in political scenario in the state is likely to constrain operating performance.
Industry specific risks :
SRCC, like any other construction firm, is exposed to the risks inherent in the construction sector including slowdown in new order inflows, risks of delays in execution, vulnerability of margins to adverse variation in the raw material, labour and other input costs. The profitability is exposed to volatility in raw material prices. The firm is also exposed to project execution risk of the pending order book, owing to the uncertainties in the construction industry.
Inherent risk in Partnership :
Being a partnership firm, it is exposed to inherent risks of capital being withdrawn at a time of personal contingency, risk of dissolution and limited avenues to raise capital which could prove to be a hindrance to the growth of the firm.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria for standalone financials.

RATING SENSITIVITIES

Ability of the firm to increase its scale of operations with adequate growth in order book position, improve profitability, prudently manage its working capital needs and execution of orders in hand without delay would be the key rating sensitivities.

Upward:

Significant increase in scale of business, with adequate growth in order book position and profitability on a sustained basis.

Downward:

Deterioration in scale of operations along with profitability and decline in the order book position due to industry or firm-specific factors on a sustained basis.
Any sustained delays in payment receipts leading to liquidity constraints

LIQUIDITY INDICATORS - Adequate

The firm’s liquidity position is considered adequate considering adequate EBITDA and current ratio. The EBITDA stood at Rs 8.53 Crs which was sufficient to cover the interest and finance charges of Rs 2.82 Crs for FY22. The average working capital utilisation has been around 80-90% for the last 12 months ending 31Oct2022 and the current ratio has been adequate at 2.49 times as on 31Mar2022. The firm has sufficient net cash accruals of Rs 8.02 Crs in FY22 to cover the debt obligation in the range of ~Rs.1-2 crs in FY22. A similar trend is expected to be continued in FY23 and FY24. The cash and cash equivalents remained moderate at Rs 21.93 Crs as on 31Mar2022 with an unencumbered portion of Rs 12.40 Crs as on 31Mar2022.

ABOUT THE ENTITY

Shree Ram Construction Company (SRCC) was registered as a partnership firm in 1978 by Mr Radheshyam Khedia & Mrs Sushila Devi Khedia at Bijuri, MP. Mr Anand Khedia, Mr Muralidhar Khedia, Mr Balmukund Khedia & Mr Venkateshwar Khedi were inducted as new partners of SRCC in the year 1991.

SRCC is registered with various departments as a Class-A contractor to undertake the civil construction works for government entities located in and around the State of Chhattisgarh and State of Madhya Pradesh (MP). Some of the Key projects undertaken by SRCC includes Renewal and maintenance of rural roads under Pradhan Mantri Gram Sadak Yojana (~50% of order book value as on 31Oct2022), Construction of water pipelines under Jal Jeevan Mission (~25% of order book value as on 31Oct2022) Other contracts include construction of Railway over bridges & Roads and Village Road construction in and around state of MP & Chhattisgarh, hence SRCC key clients consists mainly of government entities in the past and present.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 21-22 (Audited)	FY 20-21 (Audited)
Operating Revenue	Rs.Crs.	108.74	60.03
EBITDA	Rs.Crs.	8.53	6.13
PAT	Rs.Crs.	6.74	3.03
Tangible Net Worth	Rs.Crs.	26.65	22.53
Total Debt/TNW	Times	1.13	1.63
Current Ratio	Times	2.49	1.93

KEY COVENANTS OF THE FACILITY RATED

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

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

The rating of SRCC with CRISIL Ratings has been continued under ISSUER NOT COOPERATING* category vide press release dated 28Dec2021

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	6.50	BWR BBB-/Negative to Stable (removal from ISSUER NOT COOPERATING* category/Upgraded)	18Apr2022	BWR BB+ Negative (ISSUER NOT COOPERATING*/Downgraded)	18Mar2021	BWR BBB-Stable to Negative (Reaffirmation and change in Outlook)	04Feb2020	BWR BBB- Stable (Assignment)	09Oct2019	BWR BB Stable (Reaffirmation/Withdrawal)
Non Fund Based	ST	57.00	BWR A3 (removal from ISSUER NOT COOPERATING* category/Upgraded)	18Apr2022	BWR A4 (ISSUER NOT COOPERATING*/Downgraded^)	18Mar2021	BWR A3 (Reaffirmation and change in Outlook)	04Feb2020	BWR A3 (Assignment)	09Oct2019	BWR A4+ (Reaffirmation/Withdrawal)
NFB SubLimit	ST	(12.00)	BWR A3 (removal from ISSUER NOT COOPERATING* category/Upgraded)	18Apr2022	BWR A4 (ISSUER NOT COOPERATING*/Downgraded)	18Mar2021	BWR A3 (Reaffirmation and change in Outlook)	NA	NA	NA	NA
Grand Total		63.50	(Rupees Sixty Three Crores and Fifty 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
Revathy Thamizharasu Rating Analyst revathy.t@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Shree Ram Construction Company

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	Central Bank of India	Overdraft against Book Debts (ODBD) - Sanctioned	6.00	_	6.00
2	Central Bank of India	Bank Guarantee - Sanctioned	_	47.00	47.00
	Sub-Limit (TDR as sub limit within BG) - Sanctioned		(12.00)
3	HDFC Bank	Bank Guarantee - Sanctioned	_	10.00	10.00
4	HDFC Bank	Over Draft - Sanctioned	0.50	_	0.50
5	Un tied portion	Bank Guarantee - Proposed	_	_	0.00
Total			6.50	57.00	63.50
TOTAL (Rupees Sixty Three Crores and Fifty lakhs Only)

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