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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 4.00 | ACUITE BBB+ | Stable | Assigned | - |
| Bank Loan Ratings | 5.00 | ACUITE BBB+ | Stable | Upgraded | - |
| Bank Loan Ratings | 33.00 | - | ACUITE A2 | Assigned |
| Bank Loan Ratings | 20.00 | - | ACUITE A2 | Upgraded |
| Total Outstanding Quantum (Rs. Cr) | 62.00 | - | - |
| Rating Rationale |
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ACUITE has upgraded the long-term rating to ‘ACUITE BBB+’ (read as ACUITE triple B plus) from ‘ACUITE BBB' (read as ACUITE triple B) and the short-term rating to 'ACUITE A2' (read as ACUITE A two) from 'ACUITE A3+' (read as ACUITE A three plus) on the Rs.25.00 Cr bank facilities, and has assigned the long-term rating of ‘ACUITE BBB+’ (read as ACUITE triple B plus) and the short-term rating of 'ACUITE A2' (read as ACUITE A two) on the Rs.37.00 Cr bank facilities of BN Infraprojects LLP (BNILLP). The outlook remains ‘Stable’.
Rating Rationale The rating upgrade on BNILLP takes into cognizance the overall business risk profile of the firm marked by significant growth in the expected revenues, profitability levels and further improvement in the order book position coupled with diversification in the clientele base. The rating is also supported by the management’s track record in the civil construction sector. Further, the rating draws comfort from the comfortable gearing and strong debt coverage indicators. These strengths are, however, offset by the working capital intensive nature of operations of the group and the risk of capital withdrawal. |
| About the Firm |
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Established in 2017, BN Infraprojects LLP undertakes civil construction works. The firm is managed by Mr. Babul Nath and his wife Mrs. Sharmistha Nath. BNILLP initially used to execute orders received as sub contract from M/s Babul Nath to build credentials to bid for new orders. Currently, the firm has started receiving orders through tenders and is involved in subcontracting too. The firm also added and executes tenders from Northeast Frontier Railways (NFR) and Southern Railways.
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| About the Group |
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Established in 1996, Babul Nath (BN) is a proprietorship firm and is a registered Class IA contractor. BN undertakes contracts for constructing roads and bridges for the Public Works Department (PWD), PWD (Buildings), Water Resources Department and Irrigation Department of the Government of Assam. The firm generally procures raw materials locally from the location of the project to be executed.
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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 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.
Extent of consolidation: Full. |
Key Rating Drivers
| Strengths |
| 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. Consistent revenue growth The operating income of the group increased to Rs.472.76 Cr in FY2022 as compared to Rs.316.68 Cr in FY2021, thereby, registering a y-o-y growth of around 49 per cent in FY2022. Further, the group has achieved revenues of around Rs.293.35 Cr till December, 2022 (Provisional). The improvement in revenues are owing to increase in the group’s order execution along with scaling up of operations of BNILLP. Moreover, the group has an unexecuted order book position to the tune of Rs.592.52 Cr as on December, 2022, which will be executed in the next 24 to 30 months. Acuité derives comfort from the comfortable revenue visibility over the medium term. Above average financial risk profile The group’s above average financial risk profile is marked by moderate but improving net worth, comfortable gearing and strong debt protection metrics. The net worth of the group stood at Rs.66.39 Cr as on 31 March, 2022 as against Rs.57.69 Cr as on 31st March, 2021 due to accretion of reserves. The gearing further improved and stood at 0.23 times in FY2022 as against 0.46 times in FY2021. Moreover, the interest coverage ratio (ICR) stood strong at 13.90 times and DSCR at 4.32 times in FY2022. The NCA/TD stood high at 2.31 times in FY2022. Acuité believes that the financial risk profile of the group will remain above average over the medium term driven by stable accruals and conservative capital structure. |
| Weaknesses |
| Working capital intensive nature of operations
The working capital operation of the group is intensive marked by high GCA (Gross Current Assets) Days of 207 days in FY2022 as compared to 180 days in the previous period. The high GCA days are on account of the high amount of other current assets due to retention money, earnest money and balance with Government authorities owing to the inherent nature of the industry. The other current assets include high retention deposits and advances to the tune of Rs.90.81 Cr in FY2022. The inventory days stood low at 11 days in FY 2022 as compared to 17 days in FY2021. Further, the debtor days stood comfortable at 71 days in FY2022 as compared to 63 days in FY2021. The working capital operations are expected to remain at similar levels over the medium term due to 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 FY2022. Any withdrawal over and above the undertaken amount could have a negative bias to the rating |
| 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 has an adequate liquidity position marked by high net cash accruals of Rs.35.17 Cr as against long term debt obligations of Rs.5.82 Cr during the same period. The group has unencumbered cash and bank balances of around Rs.55.50 Cr as on March 31, 2022. The working capital limits remained utilized at 80 per cent for nine months ended December, 2022. The current ratio stood moderate at 1.17 times as on March 31, 2022 as compared to 1.29 times in FY2021. However, the working capital intensive nature of operations of the group is marked by GCA (Gross Current Assets) Days of 207 days in FY 2022 as compared to 180 days in the previous year in FY2021. Acuité believes that the liquidity of the group will improve further over the medium term due to the improving net cash accruals.
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| Outlook: Stable |
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Acuité believes that the outlook will remain 'stable' over the medium term due to the experienced management along with an established record of operations, the comfortable order book position and the above average financial risk profile. The outlook may be revised to 'Positive' in case the group registers higher than expected growth in revenues while improving its profitability margins, capital structure and working capital management. Conversely, the outlook may be revised to 'Negative' in case of a decline in the revenues or profit margins, or in case of significant amount of capital withdrawal or further elongation in its working capital cycle.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 472.76 | 316.68 |
| PAT | Rs. Cr. | 31.02 | 26.03 |
| PAT Margin | (%) | 6.56 | 8.22 |
| Total Debt/Tangible Net Worth | Times | 0.23 | 0.46 |
| PBDIT/Interest | Times | 13.90 | 11.93 |
| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any other information |
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None
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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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