­For arriving at this rating, Acuité has consolidated the business and financial risk profiles of Babul Nath (BN) and B N Infraprojects LLP (BNILLP) together referred to as ‘Babul Nath Group’ (BNG). The consolidation is in the view of common management, operational linkages between the entities and a similar line of business.

­Experienced management and strong clientele base
Babul Nath group is managed by the proprietor Mr. Babul Nath, who possesses an experience of around three decades in the construction industry. The proprietor’s extensive experience has aided the group in securing and efficiently executing the work contracts. Moreover, the group has maintained continuous order flow from the reputed clientele base which includes, Public Works Department (PWD), Water Resources Department, Irrigation Department of the Government of Assam, North East Frontier Railways and Southern Railways. Acuité derives comfort from the experience of the proprietor and the group’s association with the Government clientele.


Stable operating performance and healthy order book position:
The group has registered a marginal moderation revenue to  Rs.459.55 Cr. in FY2023 as compared to Rs.472.76 Cr. in FY2022. Further, the group is estimated to register revenue in the range of Rs.455-460 Cr. in FY2024 due to its moderate order book position  during the year. BN Infra projects LLP’s revenue has grown by 82 percent in FY23 however, it was constrained by decline in revenue of Babul Nath which subsequently led to moderation in consolidated revenue for FY23. Going forward, the revenue is expected to improve on the back of improved unexecuted order book position, which stood  at Rs.1051.42 Cr. as on April, 2024.
The operating profit margin of the group marginally improved to 8.49 percent in FY2023 against 7.94 percent in FY2022. The improvement in profitability is due to timely reimbursement for the rise in prices of the raw materials from the government. However, PAT margin has declined marginally to 6.42 percent in FY2023 from 6.56 percent in FY2022 due to higher interest expense during the year. The operating profit margin is estimated to remain stable for FY2024 in the range of 8.5-8.7 percent.

Healthy financial risk profile
The group’s financial risk profile is healthy marked by healthy net worth, low gearing level and comfortable debt protection metrics. The net worth of the group has improved to Rs.93.11 Cr. as of March 31, 2023, from Rs.66.39 Cr. as of March 31, 2022, due to the accretion of profits to reserves for FY2023. The gearing remained healthy at 0.40 times as of March 31, 2023 against 0.23 times as of March 31, 2022. Marginal deterioration in gearing is due to increase in total debt to Rs.36.86 Cr. in FY2023 from Rs.15.23 Cr., which consists of long-term debt of Rs.15.45 Cr. and short-term debt of Rs.21.41 Cr. Total outside Liabilities/Tangible Net Worth (TOL/TNW) remained at 2.77 times as of March 31, 2023 against 3.75 times as of March 31, 2022. Interest coverage ratio (ICR) and debt service coverage ratio (DSCR) stood comfortable at 10.61 times and 4.40 times respectively, as of March 31, 2023 against 13.90 times and 4.32 times respectively, as of March 31, 2022. Debt to EBITDA stood comfortable at 0.81 times as of March 31, 2023 although it marginally deteriorated from 0.36 times as of March 31, 2022 due to increase in total debt. Acuite believes that the financial risk profile of the group will remain healthy for FY2024 as well on account of improvement in net worth and low debt levels.

Working capital intensive nature of operations
The working capital operation of the group is intensive marked by GCA (Gross Current Assets) Days of 235 days in FY2023 as compared to 207 days in the previous period. The high GCA days are on account of the high amount of other current assets due to the inherent nature of the industry. The other current assets include high retention deposits and advances to the tune of Rs.106.21 Cr. in FY2023 against Rs.85.27 Cr. in FY2022. The inventory days stood low at 34 days in FY2023 as compared to 11 days in FY2022. The debtor days remained comfortable at 71 days in FY2023 as well. The group’s reliance on fund based working capital limits remained high at 88 percent in past 12 months ending March 2024. Acuite believes that, the working capital operations will remain at similar levels over the medium term due to presence of the high retention money.

Risk of capital withdrawal
Acuité notes that the group has been withdrawing capital from their business regularly in the past three years till FY2023. Any significant withdrawal  of capital leading to moderation in the financial risk profile can lead to a negative bias to the rating.