­Established position in EPC, BOT and HAM Road Segments
ABL is engaged in two businesses - EPC business for roads, power distribution, railways and building projects and development of roads and highways on Build, Operate and Transfer (BOT) and Hybrid Annuity Model (HAM) project and through its subsidiary Ashoka Concessions Limited. ABL has an established track record of almost three decades in executing EPC contracts. The company has constructed more than 14,000 lane kilometres of road since its inception. ABL handles EPC contracts for all projects and are responsible for the Operations and Maintenance (O&M) of road projects in ABL and ACL. The company is engaged in modernizing and setting up of power distribution lines for Maharashtra State Electricity Distribution Company, North Bihar Power Distribution Company Limited, Tamil Nadu Electricity Board and CPDCL. The company is also engaged in electrification of railway project with contract from Rail Vikas Nigam Limited, Northeast Frontier Railway, IRCON and Gujrat Rail Infrastructure Development Corp Limited.
Acuité believes that ABL’s established position in the EPC segment of roads, railways, power transmission and distribution along with BOT and HAM project execution capabilities will support its business risk profile over near to medium term.

Diversified order book position
Ashoka Buildcon Limited currently has 9 HAM projects of Rs.2020 Cr., 25 EPC contracts worth Rs.9663 Cr., 11 Power T&D EPC Contracts worth Rs.3796 Cr., 7 railway EPC projects worth Rs.417 Cr., EPC Buildings projects worth Rs. 563 Cr. thus the unexecuted order book stands at Rs. 16,457 Cr. as on 31st December 2024. ABL also plans for a green hydrogen project which are in the early stages, powered by solar energy. The company is actively bidding across various segments which will provide higher margins for them, including roads, railways, and power. ABL’s orderbook is geographically diversified with presence across 20 states and overseas markets. Orderbook is well diversified across segments, with roads forming 70%, followed by power T&D at 23%, railways at 2.5%, and building EPC at 3.4%. Acuite believes that the large unexecuted order book provides revenue visibility over the medium term. 

Increasing revenue from operations with declining margins
During FY2024, the company registered revenue from operations of Rs.7,734.94 Crore as against Rs.6399.68 Crore in FY 2023, an increase of ~21% due to an increase in revenue from contracts with customers on account of improvement in overall business environment and execution of order book. However, major costs like construction cost ( increased by 45% in FY2024),other expenses like rent,insurance etc ( increased by 72% in FY2024) resulted in lower EBITDA margins of 7.78% in FY2024(PY 8.77%). 9MFY2025 has improved to 9.5%  from 8.9% in 9MFY24.Similarly higher depreciation , along with rise in finance cost due to increase in interest rates, increase in Interest on working capital loans and interest-bearing mobilization advances received from client for execution of projects, has resulted in lower PAT margins at 5.72% in FY2024(PY 10.49%). Although EBITDA has increased over 9MFY2025, PAT levels (absolute by -21% and margins by -0.6%) have reduced over the same period of time. Further, the rating is tempered by ABL’s working capital intensive operations, its exposure to Build Operate Transfer (BOT) projects and risks related to intense competition in the industry.

Moderate Financial Risk Profile
ABL's financial risk profile is characterized by a robust net worth of Rs. 3,812.12 crore as of March 31, 2024, an increase from Rs. 3,365.8 crore as of March 31, 2023, primarily due to the accumulation of reserves. The company's gearing ratio remained modest at 0.38 times as of March 31, 2024. The Total Outside Liabilities to Tangible Net Worth (TOL/TNW) ratio increased to 1.27 times as of March 31, 2024, compared to 1.12 times a year earlier, reflecting the rise in debt. However, the company's debt protection metrics remain strong, with an Interest Coverage Ratio (ICR) of 3.98 times and a Debt Service Coverage Ratio (DSCR) of 1.9 times for FY2024. The rise in working capital borrowings and interest-bearing mobilization advances has contributed to an increase in interest costs, leading to a slight moderation in both ICR and DSCR. These metrics are expected to improve after FY25, driven by a planned reduction in external debt from stake sale proceeds and an expected enhancement in profitability.

­Working capital management: Intensive
Operations of ABL are working capital intensive on account of the inherent nature of the EPC business and long project execution cycle of 2-3 years. There is high dependence on state and central government authorities for receipt of payments. The working capital management of the company is moderate intensive by Gross Current Assets (GCA) of 259 days for FY2024 as compared to 237 days for FY2023. The company’s GCA days have remained on a higher side with ~250-300 days for the last three years ended March 31, 2024, which is largely driven by unbilled revenue and receivables. For transmission and distribution(T&D) projects, 20% payment is received post operationalizing of projects and 10% is withheld as retention money until the expiry of defect liability period (usually 12 months), leading to long cycle for projects. The inventory days of the company stood at 109days in FY2024 as compared to 103 days in FY2023. The increase in inventory days is majorly due to increase in unbilled revenue to Rs 2,120.20 Cr. in FY 2024 from Rs 1407.14 Cr. in FY 2023. The debtor days stood at 69 days in FY2024 against 67 days in FY2023. This is generally due to receipt of receivables from government entities which delay in making payments due to which has on year end the debtor days are shown increased. Days payable outstanding stood at 160 days against 153 days in FY2023. The company has established favorable payment terms with suppliers, allowing for longer payment periods without penalties.

Exposure of ABL to t imely execution of EPC contracts and to risks associated with BOT projects
ABL is exposed to risks such as delays in receipt of approvals in the infrastructure segment, which may impact operational cash flows. The timely flow of orders and their execution are critical to the maintenance of a steady revenue growth. ABL is also required to support the projects till the projects reach optimal utilization. The cash flows of a toll-based project are dependent on traffic volumes, which in turn are largely influenced by the level of economic activity in and around the area of operation. In the event of a project’s cash flows being insufficient to meet its debt servicing commitments/maintenance commitments, the support would be required to be extended from either ABL or ACL. ABL's 70% of the order book as on 31st December 2024 comprises of roads projects across various modes (BOT/EPC/HAM) which keeps it susceptible to changes in government regulations, economic conditions, intense competition and cyclicality inherent in the construction industry.