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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 18.00 | ACUITE BBB | Stable | Upgraded | - |
| Bank Loan Ratings | 82.00 | - | ACUITE A3+ | Upgraded |
| Total Outstanding Quantum (Rs. Cr) | 100.00 | - | - |
| Rating Rationale |
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Acuité has upgraded its long-term rating to Acuité BBB’ (read as ACUITE triple B) from Acuité BB+’ (read as ACUITE double B plus) and its short-term rating to Acuité A3+’ (read as ACUITE A three plus) from Acuité A4+’ (read as ACUITE A four plus) on the Rs. 100.00 Cr bank facilities of Daroga Pradhan (DP). The outlook remains 'stable'.
Rationale for the rating upgrade The rating upgrade takes into consideration the healthy scale of operations of the firm, with consistent improvement over the years aided by a healthy order book position and timely execution of projects. The rating also factors in the strong association of the firm with reputed government clients. The rating also draws comfort from the firm’s established track record of operations, experienced management, and healthy financial risk profile, as reflected by the comfortable leverage ratios owing to the firm's low indebtedness. The rating further considers the adequate liquidity position of the firm, supported by sufficient accruals. However, these strengths are offset by the working capital-intensive nature of operations and the competitive nature of the industry. |
| About the Firm |
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Established in 1970, Daroga Pradhan (DP) was a proprietorship concern that changed its constitution to a partnership firm in 2000. The firm is managed by Mr. Dinesh Pradhan and Mr. Mahesh Pradhan. DP is engaged in civil construction works and undertakes contracts in the states of Jharkhand and Odisha.
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| Analytical Approach |
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Acuité has considered the standalone business and financial risk profile of DP while arriving at the rating.
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Key Rating Drivers
| Strengths |
| Long track record of operations, along with experienced management
The firm has established a long presence of over five decades in the infrastructure industry and is managed by Mr. Dinesh Pradhan and Mr. Mahesh Pradhan, who have more than two decades of industry expertise. Aided by experienced management, the firm has developed healthy relationships with reputed government clients, which in turn contributes to the smooth flow of orders. Acuité derives comfort from the long-standing operations of the firm along with the extensive experience of the partners and believes that this will continue to benefit the firm going forward. Improvement in the scale of operations with stable profitability margins The operating income of the firm increased to Rs. 163.87 crore in FY2023 (provisional) from Rs. 114.45 crore in FY2022 and Rs. 108.32 crore in FY2021, thereby registering a CAGR of 23.23 percent over the two years. The uptrend in revenues is supported by the increase in the order book size and the timely execution of such orders. Further, the firm has an unexecuted order book position to the tune of Rs. 723.12 crore to be completed in the next 18–36 months. Going forward, the unexecuted order pipeline imparts healthy revenue visibility over the medium term. The operating margin of the firm stood at 10.59 percent in FY2023 (provisional) as against 10.85 percent in FY2022. The marginal decline is on account of an increase in the input costs of the projects. Further, in October 2022, the firm was impacted by the rise in the GST to 18 percent from 16 percent on all the existing orders. However, going forward, the firm expects to recover the reimbursement for the rise in prices, backed by an in-built price escalation clause, on the completion of the respective orders. The PAT margin of the firm rose to 7.96 percent in FY2023 (provisional) as compared to 7.36 percent in the previous year owing to a reduction in the cost of borrowing. Acuite believes that, going forward, improvement in profitability margins will be key to monitoring. Healthy financial risk profile The healthy financial risk profile of the firm is marked by moderate net worth and healthy debt protection metrics. The net worth of the firm stood at Rs. 45.33 crore in FY2023 (provisional) as compared to Rs. 37.24 crore in FY2022 due to the retention of profits. The gearing of the firm stood moderate yet remained below unity at 0.81 times as of March 31, 2023 (provisional), compared to 0.58 times as of March 31, 2022. Going forward, the gearing is expected to remain comfortable over the medium term on account of the low debt burden. The total outside liabilities/tangible net worth (TOL/TNW) stood moderately at 1.91 times as of March 31, 2023 (provisional) as against 1.72 times as of March 31, 2022. The healthy debt coverage metrics are marked by the interest coverage ratio (ICR) at 7.55 times in FY2023 (provisional) as against 5.77 times in FY2022. The debt service coverage ratio (DSCR) of the firm stood at 5.33 times in FY2023 (provisional) as compared to 4.01 times in the previous year. The net cash accruals to total debt (NCA/TD) stood at 0.42 times in FY2023 (provisional) as compared to 0.49 times in the previous year. Acuite believes the financial risk profile of the firm will remain healthy on account of improving net cash accruals and no major debt-funded capex plan. |
| Weaknesses |
| The working capital-intensive nature of operations
The working capital cycle of the firm is intensive in nature, marked by gross current asset days of 213 in FY2023 (provisional) and in FY2022 as well. The high GCA days are primarily on account of debtor days, which improved but stood high at 91 in FY2023 (provisional) as compared to 138 days in FY2022. The high debtor days are primarily on account of the contracts executed for government clients, where the contract proceeds are generally delayed. However, the inventory days of the firm stood comfortably at 67 days in FY2023 (provisional) and 41 days in FY2022. Going forward, Acuite believes that the working capital cycle will remain intensive, mainly due to the elongated debtor cycle. Highly competitive industry The civil construction sector is marked by the presence of several mid- to large-sized players. The firm faces intense competition from other players in the sector. However, this risk is mitigated to an extent on account of the experience of the management and its well-established presence in its terrain. |
| 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 firm has adequate liquidity, marked by comfortable net cash accruals of Rs. 15.44 crore as against long-term debt obligations of only Rs. 0.98 crore over the same period. The current ratio of the firm stood comfortably at 1.73 times in FY2023 (provisional). The fund-based bank limit of the firm is utilised moderately at 75 percent over the six months ended March 2023. The cash and bank balances stood at Rs. 18.31 crore (provisional). However, the working capital intensive nature of the firm is marked by high Gross Current Asset (GCA) days of 213 in FY2023 (provisional). Acuité believes that the liquidity position of the firm is likely to remain adequate over the medium term on account of improving cash accruals as opposed to a low debt repayment burden over the medium term.
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| Outlook: Stable |
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Acuité believes that the outlook of the company will remain 'stable' over the medium term on account of the long track record of operations, experienced management, sound business position, and above-average financial risk profile. The outlook may be revised to 'positive' in the case of significant growth in revenue while achieving sustained improvement in operating margins, capital structure, and working capital management. Conversely, the outlook may be revised to 'negative' in the event of a decline in the company’s revenues or profit margins, a deterioration in the company’s financial risk profile, a delay in the completion of its projects, or a 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. | 163.87 | 114.45 |
| PAT | Rs. Cr. | 13.05 | 8.43 |
| PAT Margin | (%) | 7.96 | 7.36 |
| Total Debt/Tangible Net Worth | Times | 0.81 | 0.58 |
| PBDIT/Interest | Times | 7.55 | 5.77 |
| Status of non-cooperation with previous CRA (if applicable) |
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Not Applicable
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| 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 |
| 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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