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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 20.00 | ACUITE BBB | Stable | Upgraded | - |
| Bank Loan Ratings | 2.50 | - | ACUITE A3+ | Assigned |
| Bank Loan Ratings | 72.50 | - | ACUITE A3+ | Upgraded |
| Total Outstanding Quantum (Rs. Cr) | 95.00 | - | - |
| Rating Rationale |
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Acuité has upgraded the long-term rating to ‘ACUITE BBB’ (read as ACUITE triple B) from ‘ACUITE BBB-’ (read as ACUITE triple B minus) and the short-term rating to ‘ACUITE A3+’ (read as ACUITE A three plus) from ‘ACUITE A3’ (read as ACUITE A three) on the Rs.92.50 Cr bank facilities of A K Construction Company (AKCC). The outlook remains ‘Stable'.
Acuité has assigned the short-term rating of ‘ACUITE A3+’ (read as ACUITE A three plus) on the Rs.2.50 Cr bank facilities of A K Construction Company (AKCC). The outlook remains ‘Stable'. Rationale for rating upgrade The rating upgrade takes into account the augmentation in the business risk profile of the group, marked by an improvement in scale of operations by 75 percent yo-y growth to Rs. 572.56 crore in FY2023 (Provisional) as against Rs. 326.72 crore in FY2022. The growth is primarily supported by the healthy execution of projects and the segmentally diversified order book position of the group. The group’s total unexecuted order book position stood at Rs. 1221.55 crore as of March 31, 2023, providing adequate revenue visibility over the medium term. The rating also takes into account the strong clientele base, primarily from State Government entities, and the long-standing operations of the group in the civil construction industry, aided by the experienced management. The rating also draws comfort from the group’s above-average financial risk profile and the adequate liquidity position backed by improving accruals and low debt repayment obligations. However, these strengths are offset by the high receivables days of the group and the highly competitive industry they operate in. |
| About the Firm |
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Established in 1998, A K Construction Company (AKCC) is a partnership firm managed by Mr. Awadesh Kumar Pathak, Mr. Suresh Kumar Pathak and Mr. Ramesh Kumar Pathak. The firm is based in Uttar Pradesh and is engaged in civil construction works and undertakes contracts for constructing roads, bridges, government buildings for the government departments namely, Public Works Department (PWD), PMGSY and some PSU’s. AKCC is registered as a Class A contractor with PWD, UP Irrigation Department, UP Power Corporation, to name a few.
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| About the Group |
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The group consists of two companies namely, A K Infra Projects Private Limited (AKIPPL) a private limited company which was incorporated in 2008 and a sister concern A K Construction Company (AKCC). AKIPPL is promoted by Mr. Awadesh Kumar Pathak, Mr. Suresh Kumar Pathak and Mr. Ramesh Kumar Pathak along with a set of skilled professionals. The company undertakes building and electrification works for the government entities in Uttar Pradesh. Established in 1998, A K Construction Company (AKCC) is a partnership firm managed by Mr. Awadesh Kumar Pathak, Mr. Suresh Kumar Pathak and Mr. Ramesh Kumar Pathak. The firm is based in Uttar Pradesh and is engaged in civil construction works and undertakes contracts for constructing roads, bridges, government buildings.
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| Analytical Approach |
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For arriving at this rating, Acuité has consolidated the business and financial risk profiles of A K Construction Company (AKCC) and A K Infraprojects Private Limited (AKIPL) together referred to as the ‘A K Group’ (AKG). The consolidation is in the view of common management, strong operational linkages between the entities and a similar line of business. Extent of consolidation: Full.
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Key Rating Drivers
| Strengths |
| Long-standing operations and experienced management
AK Group has established a long presence of around three decades in the civil construction industry and has developed a strong clientele base comprising government departments, National Highways & Infrastructure Development Corporation Ltd., Indian Oil Corporation Limited (IOCL), and Bharat Heavy Electrical Limited, to name a few. The group is managed by Mr. Awadesh Kumar Pathak, who has more than two decades of experience, and is supported by the decade-long expertise of Mr. Suresh Kumar Pathak and Mr. Ramesh Kumar Pathak. Acuité believes that going forward, the growth of the group will be aided by the long track record of operations and the management’s strong understanding of market dynamics. Improvement in scale of operations The group has witnessed improvement in operating income and achieved revenues of Rs. 572.56 crore in FY2023 (Provisional) as compared to Rs. 326.72 crore in FY2022, thereby registering a y-o-y growth of 75 percent. The increase in operating income is supported by the increase in the order book size and its timely execution. Further, the group has an unexecuted order book position to the tune of Rs. 1221.55 crore to be executed in the next 12 to 24 months. The operating margin of the group increased to 5.21 percent in FY2023 (Provisional) as compared to 4.42 percent in FY2022. The PAT margin also rose to 3.40 percent in FY2023 (provisional) as against 2.87 percent in FY2022. The rise in profitability margins is on account of a reduction in the costs incurred. Acuite believes that the scale of operations will remain healthy, backed by comfortable revenue visibility over the medium term. above-average financial risk profile The above-average financial risk profile of the group is marked by moderately improving net worth, comfortable gearing, and healthy debt protection metrics. The tangible net worth of the group rose to Rs. 97.04 crore as of March 31, 2023 (Provisional) from Rs. 64.85 crore as of March 31, 2022, due to accretion to reserves and retention of profits. The gearing of the group remained below unity at 0.57 times as of March 31, 2023 (Provisional) as against 0.73 times as of March 31, 2022. The Total Outside Liabilities/Tangible Net Worth (TOL/TNW) improved and stood at a moderate level of 1.29 times as of March 31, 2023 (Provisional) as against 2.30 times as of March 31, 2022. The healthy debt protection metrics are marked by an interest coverage ratio of 4.28 times and a debt service coverage ratio of 3.51 times as of March 31, 2023 (Provisional). Net Cash Accruals/Total Debt (NCA/TD) stood low at 0.36 times as of March 31, 2023 (Provisional). Acuité believes that going forward, the financial risk profile will remain above average over the medium term in the absence of any major debt-funded capex plans. |
| Weaknesses |
| Elongated receivable period
The debtor period of the group reduced but remained at a moderately high level of 78 days on March 31, 2023 (Provisional) as compared to 130 days on March 31, 2022. The high debtor days are primarily on account of the contracts executed for government clients, where the contract proceeds are generally delayed. Acuité believes that the debtor cycle will remain at similar levels over the medium term. Competitive industry The civil construction sector is marked by the presence of several mid- to large-sized players. The company faces intense competition from other players in the sector. The group specialises in civil works related to the construction of roads and buildings, mainly for the government of Odisha and various municipal corporations in the state of Odisha. The company faces competition from large players as well as many local and small, unorganised players. However, this risk is mitigated to an extent on account of the experience of the management and the group’s well-established presence in its territory. |
| Rating Sensitivities |
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| Material covenants |
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None
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| Liquidity Position: Adequate |
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The group’s liquidity is adequate marked by steady net cash accruals of Rs.20.06 Cr as on March 31, 2023 (Provisional) as against long term debt repayment of only Rs.1.00 Cr over the same period. The cash and bank balances of the group stood at Rs.9.42 Cr as on March 31, 2023 (Provisional). The current ratio stood comfortable at 2.01 times as on March 31, 2023 (Provisional) as compared to 1.67 times as on March 31, 2022. The working capital management of the group remained moderate marked by Gross Current Assets (GCA) of 96 days in 31st March 2023 (Provisional) as compared to 150 days in 31st March 2022. However, the fund-based limit of the group is moderately utilized at 81 per cent over the seven months ended April, 2023. Acuité believes that going forward the group will maintain adequate liquidity position owing to the improving accruals.
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| Outlook: Stable |
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Acuité believes that the outlook on A K Construction Company (AKCC) will remain 'Stable' over the medium term on account of the experienced management, steady business risk profile and healthy financial risk profile. The outlook may be revised to 'Positive' in case of significant growth in revenue or operating margins from the current levels. Conversely, the outlook may be revised to 'Negative' in case of a decline in revenue or operating margins, deterioration in financial risk profile or further elongation in its working capital cycle.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Provisional) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 572.56 | 326.72 |
| PAT | Rs. Cr. | 19.45 | 9.38 |
| PAT Margin | (%) | 3.40 | 2.87 |
| Total Debt/Tangible Net Worth | Times | 0.57 | 0.73 |
| PBDIT/Interest | Times | 4.28 | 3.51 |
| Status of non-cooperation with previous CRA (if applicable) |
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CARE, vide its press release dated January 01, 2023 had denoted the rating of A K Construction Company (AKCC) as 'CARE BB/Stable/A4; ISSUER NOT COOPERATING’.
BRICKWORK, vide its press release dated February 17, 2023 had denoted the rating of A K Construction Company (AKCC) as 'BWR B-/Stable/A4; ISSUER NOT COOPERATING’. |
| Any other information |
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Not Applicable
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| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Infrastructure Sector: https://www.acuite.in/view-rating-criteria-51.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Consolidation Of Companies: https://www.acuite.in/view-rating-criteria-60.htm |
| Note on complexity levels of the rated instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in
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