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KBECPL, a special-class civil contractor, has been in existence for more than two decades with its forte in laying pipeline for water supply and sewerage under the central government led scheme ‘Jal Jivan Mission’ (erstwhile known as National Rural Drinking Water Program), in the state of Karnataka, Odhisa, Andhra Pradesh, and Telangana. Mr. K Bhupal, the managing director of KBECPL, has over twenty-five years of experience in the line of civil construction. With the promoter's extensive industry experience and track record of timely execution of projects in the past, KBECPL has been able to establish a long-standing relationship with its suppliers and various government bodies. Acuité believes that the promoter's extensive industry experience and established relations with its principal contractors and suppliers will aid KBRECPL's business risk profile over the medium term.
- Significant growth in operating revenue and and moderate order book
The company witnessed a significant improvement in its operating revenue marked by y-o-y growth of 186.72 percent in FY 2024, which stood at Rs. 384.91 Cr. in FY 2024 as against Rs. 134.25 Cr. in FY 2023. The significant improvement in revenues is on account of the higher order flow and timely execution of ongoing orders during the year. Further, the company has achieved revenues of Rs. 310.34 Cr. in 9MFY2025. The company has an unexecuted order book position of Rs.644.74 Cr. as on Jan 15, 2025. The outstanding order book is 1.65x of the FY2024 revenue. The company has L1 orders of around Rs. 270-273 Cr. from Odisha government. Acuite believes that the operating performance is expected to improve on the back of moderate outstanding order book position and L1 orders in pipeline over the near to medium term.
- Healthy financial risk profile metrics
The company’s financial risk profile is healthy, marked by healthy net worth, low gearing, and healthy debt protection metrics. The net worth of the company stood at Rs.68.50 Cr. and Rs.42.87 Cr. as on March 31, 2024, and 2023 respectively. The improvement in net worth is due to the accretion of reserves. Gearing of the company stood low at 0.09 times on March 31, 2024, against 0.24 times as on March 31, 2023. Debt protection metrics—interest coverage ratio and debt service coverage ratio—stood healthy at 13.30 times and 6.38 times as on March 31, 2024, respectively, as against 9.34 times and 3.90 times as on March 31, 2023, respectively. The improvement in debt protection metrics is on account of improved absolute EBITDA in FY2024. TOL/TNW (Total outside liabilities/Total net worth) stood at 1.08 times and 1.69 times as on March 31, 2024, and 2023, respectively. The debt to EBITDA of the company stood at 0.14 times as on March 31, 2024, as against 0.80 times as on March 31, 2023. Acuité believes that the financial risk profile will continue to remain healthy in absence of any major debt-funded capital expenditure plan in the near term, and healthy accruals.
- Efficient working capital operations
KBECPL’s working capital operations are efficient marked by efficient gross current Asset (GCA) of 70 days in FY2024, as against 246 days in FY2023. The improvement in GCA days is on account of improved inventory days in FY2024. The GCA days also include high cash and bank balances of Rs. 49.51 Cr. Inventory days stood at 5 days in FY2024 as against 43 days in FY2023. Debtor days stood at 1 days in FY2024 as against 6 days in FY2023. Inventory days improved on account of the timely completion of work orders. Subsequently, the payable period stood at 44 days in FY2024 as against 36 days in FY2023 respectively. Further, the average bank limit utilization in the last nine months ended November 2024 remained at 63 percent for fund-based limits and 70 percent for non-fund-based limits. Acuité believes that the working capital operations of the company are likely to remain efficient over the medium term, backed by the efficient inventory and debtor’s management policy of the promoters.
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- Geographical concentration in revenue profile
KBECPL executes orders across Karnataka, Telangana, Andhra Pradesh. However, over the past few financial years, KBECPL has been deriving ~95-100 percent of its revenue from the execution of orders in the state of Karnataka., thereby, leading to significant geographical concentration risk. Acuité believes that the ability of KBECPL to diversify its revenue profile will remain key monitorable over the medium term.
- Risks associated with civil construction sector
The civil construction segment is characterized by stiff competition on account of the low complexity of work involved and minimal entry barriers in terms of qualifications required for the tenders floated. This results in the presence of a large number of contractors in this segment, leading to intensely competitive bids, putting pressure on margins. Further, the margin is exposed to volatility in raw material prices. However, the built-in price variation clause in the contracts mitigates the risk to an extent and the long presence in the industry and established relationship with the clients provides comfort.
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