Ratings upgraded to ‘CRISIL BBB-/Stable/CRISIL A3’
Total Bank Loan Facilities Rated
Rs.485 Crore (Enhanced from Rs.185 Crore)
Long Term Rating
CRISIL BBB-/Stable (Upgraded from ‘CRISIL BB+/Stable’)
Short Term Rating
CRISIL A3 (Upgraded from ‘CRISIL A4+’)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
CRISIL has upgraded its ratings on the bank facilities of Raghava Constructions (RGC) to ‘CRISIL BBB-/Stable/CRISIL A3’ from ‘CRISIL BB+/Stable/CRISIL A4+’.
The rating upgrade reflects significant improvement in business risk profile, driven by substantial and sustained increase in scale of operations, and higher than estimated operating profitability. Revenue more than doubled y-o-y in fiscal 2017 to Rs.948 crores from Rs.450 crores in previous fiscal with operating margin of 11.7 per cent in fiscal 2017 against 8.3 per cent in the previous fiscal. The healthy order book of Rs.4330 crores to be executed over next 18-24 months supports revenue visibility over the medium term.
The upgrade also factors in its enhanced financial flexibility and better capital structure, backed by sizeable increase in net worth due to equity infusion of Rs.41 crores in fiscal 2017. As a result, the firm reported a net worth of Rs.183 crores as on March 31, 2017 against Rs.71 crores as on March 31, 2016. Healthy growth in net worth and absence of large debt funded capital expenditure (capex) resulted in substantial improvement in gearing which stood at 0.17 times as on March 31, 2017 via-a-vis 0.60 times a year before.
The ratings continue to reflect benefits derived from the extensive experience of promoters in the construction industry and a strong order-book providing revenue visibility over the medium term. The ratings also factor in the healthy financial risk profile because of healthy capital structure and debt protection metrics. These rating strengths are partially offset by geographical in the revenue profile, large working capital requirement, and exposure to intense competition in the construction industry resulting in modest profitability margins.
Key Rating Drivers & Detailed Description
Strengths * Extensive experience of promoters in the construction industry
Mr. P Prasad Reddy and Mr. P Harsha Reddy are RGC’s active promoters and have experience of more than a decade in the construction sector. The firm is a registered special class-1 contractor with Road and Building (R&B) department and Irrigation & CAD department in Telangana and Andhra Pradesh (AP).
* Strong order book providing revenue visibility over the medium term
The firm has a strong unexecuted order book of around Rs.4330 crore as on September, 2017 to be executed over the next 18-24 months providing strong revenue visibility over the medium term.
* Healthy financial risk profile
The financial risk profile is driven by healthy capital structure marked by low gearing, healthy net worth and debt protection metrics. The gearing remained low at 0.17 times with net worth at Rs 183 crore as on March 31, 2017. The net cash accruals to total debt (NCATD) and interest coverage stood at 2.5 times and 16.8 times in fiscal 2017.
Weaknesses * Geographical concentration in the revenue profile
RGC has been in the civil contract works business for almost a decade; however, almost 100 per cent of its revenue is from projects in Telangana. This makes RGC’s revenue growth dependent on regional impetus on infrastructure development. The firm books 100 per cent of its revenue from various government and quasi-government entities, leading to revenue concentration. Any dispute or irregularities in a particular project can hamper potential relationships, thereby significantly affecting the firm’s top line.
* Large working capital management
RKEC’s working capital-intensive operations are indicated by gross current assets (GCAs) of 157 days as on March 31, 2017 backed by high debtor of 75 days and low inventory days 8 days as on March, 2017.
* Exposure to intense competition
Construction and civil works sector is highly fragmented with the presence of large companies as well as smaller local players. While large players operate in several sectors including roads, hydel projects, thermal plants, and urban infrastructure; smaller players specialise in one or two business segments. RKEC specialises in civil works related to irrigation and road works.
CRISIL believes RGC will continue to benefit from the extensive promoters’ experience and its long standing relationship with customers and suppliers and healthy order book. The outlook may be revised to ‘Positive’ if the firm diversifies revenue geographically while sustaining profitability margins, maintains capital structure, and manages incremental working capital requirement prudently. The outlook may be revised to ‘Negative’ if there is significant pressure on revenue and profitability, considerable delays in realisation of receivables, or if the firm undertakes larger-than-expected, debt-funded capital expenditure, thereby weakening its financial risk profile, particularly liquidity.
About the Firm
RGC was set up in 2003 as a partnership firm by Mr. P Prasad Reddy and his family members. The firm is a civil contractor, and mainly undertakes irrigation and highway projects. It is based in Hyderabad (Telangana).
Key Financial Indicators
Profit After Tax (PAT)
Adjusted Debt/Adjusted Net worth
Any other information: Not applicable
Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure – Details of Instrument(s)
Name of Instrument
Date of Allotment
Coupon Rate (%)
Issue Size (Rs Cr)
Rating Assigned with Outlook
Secured Overdraft Facility
Proposed long term bank loan facility
Annexure – Rating History for last 3 Years
Start of 2014
Fund-based Bank Facilities
No Rating Change
No Rating Change
CRISIL BB+/Stable/ CRISIL A4+
CRISIL BB+/Negative/ CRISIL A4+
CRISIL BB+/Stable/ CRISIL A4+
Non Fund-based Bank Facilities
No Rating Change
No Rating Change
No Rating Change
No Rating Change
Table reflects instances where rating is changed or freshly assigned. ‘No Rating Change’ implies that there was no rating change under the release.
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