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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 30.00 | ACUITE BBB | Stable | Upgraded | - |
| Bank Loan Ratings | 30.00 | Not Applicable | Withdrawn | - |
| Bank Loan Ratings | 120.00 | - | ACUITE A3+ | Upgraded |
| Bank Loan Ratings | 40.00 | - | Not Applicable | Withdrawn |
| Total Outstanding Quantum (Rs. Cr) | 150.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 70.00 | - | - |
| Rating Rationale |
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Acuité has upgraded its long-term rating to ‘ACUITE BBB’ (read as ACUITE triple B ) from ‘ACUITE BBB-’ (read as ACUITE triple B minus) and short-term rating to 'ACUITE A3+' (read as ACUITE A three Plus) from 'ACUITE A3' (read as ACUITE A three) on the Rs.150.00 Cr bank facilities of K BHUPAL ENGINEERS AND CONTRACTORS PRIVATE LIMITED (KBECPL). The outlook is 'Stable'.
Acuite has also withdrawn the long term and the short term rating on the Rs 70.00 Cr proposed bank facilities of K BHUPAL ENGINEERS AND CONTRACTORS PRIVATE LIMITED.
The rating upgradation considers KBECPL improvement in operations during FY2023 and same being sustained during the first 6 months of FY2024. The company has reported revenue of Rs.134.25 Cr as on March 31, 2023 as against Rs.85.84 implying a growth rate of ~56.39 percent against the previous year. The ratings are supported by KBECPL’s comfortable order book position of Rs. 703.80 as on October 31, 2023, which is ~5.25 times of the FY2023 revenue which provides medium-term revenue visibility. The financial risk profile of KBECPL continues to be healthy with comfortable debt protection metrics and low gearing. The overall gearing of the Company stood at 0.24 times as on March 31, 2023 as against 0.35 times as on March 31, 2022. The interest coverage ratio stood at 9.34 times in FY2023 as against 7.43 times in FY2022. The rating is however constrained by working capital operations, significant Geographical concentration in revenue profile, risks associated with civil construction sector |
| About the Company |
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K Bhupal Engineers and Contractors was established as a proprietorship firm by Mr. BHUPAL KAMEPALLI in 1993 and was reconstituted as a private limited company in September 2013. Mr. Bhupal Kamepalli Managing Director and his wife Mrs. Rajya Lakshmi Kamepalli is the other director of the Company. KBECPL is a Hyderabad-based company which undertakes contracts for laying pipelines for drinking water and sewerage, works in the states of Karnataka, Andhra Pradesh, Telangana and Maharashtra.
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| Analytical Approach |
| Acuité has considered the standalone business and financial risk profile of KBECPL to arrive at the rating |
Key Rating Drivers
| Strengths |
KBECPL, a special-class civil contractor, has been into existence for more than two decades with its forte in laying pipeline for water supply and sewerage under the central governmentled scheme ‘Jal Jivan Mission’ (erstwhile known as National Rural Drinking Water Programme), in the state of Andhra Pradesh, Telangana, Maharashtra and Karnataka. Mr. K Bhupal, the managing director of KBECPL, has twenty-five years of experience in the line of civil construction. With promoter's extensive industry experience and timely execution of past projects, KBECPL has been able to establish a long-standing relationship with its suppliers and various government bodies. Acuité believes that the promoter's extensive industry experience and established relation with its principal contractors and suppliers will aid KBRECPL's business risk profile over the medium term.
The operating income of KBECPL has been improving last two years ending FY2023. The revenues stood at Rs.134.25 Cr in FY2023 woith YOY growth of of 56.39 percent as compared to Rs.85.84 Cr in FY2022 . In line with increase in operating revenue, however operating margins stood at similar levels i.e, 8.71 percent in FY2023 as against 8.97 in FY2022 percent. The company has an unexecuted order book position of Rs.703.80 Cr as on October 31, 2023. The company is planning to execute around Rs.300-350 Cr in FY2025. The outstanding order book is 5.25x of the FY2023 revenue. Acuite believes that financial performance of the company is expected to improve going ahead, led by moderate order book.
The company’s financial risk profile is healthy, marked by a moderate net worth, low gearing, and healthy debt protection metrics. The net worth of the company stood at Rs.42.87 Cr and Rs.35.48 Cr as on March 31, 2023 and 2022 respectively. The improvement in net worth is due to accretion of reserves. Gearing of the company stood at 0.24 times as on March 31, 2023 against 0.35 times as on March 31, 2022. Debt protection metrics – Interest coverage ratio and debt service coverage ratio stood at 9.34 times and 3.90 times as on March 31, 2023 respectively as against 7.43 times and 3.61 times as on March 31, 2022 respectively. TOL/TNW (Total outside liabilities/Total net worth) stood at 1.69 times and 1.22 times as on March 31, 2023 and 2022 respectively. The debt to EBITDA of the company stood at 0.80 times as on March 31, 2023 as against 1.50 times as on March 31, 2022. Acuité believes that in the absence of any major debt-funded capital expenditure plan in the near term; moderate cash accruals supported by lower reliance on the debt will lead to healthy financial risk profile over the medium term too.
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| Weaknesses |
KBRECPL executes orders across Karnataka, Telangana, Andhra Pradesh and Maharashtra. However, KBECPL’s has almost executed 95-100 percent orders in the state of Karnataka over the past financial years. It can be observed that the contribution from a single state (i.e. Karnataka) is around 100 per cent in FY2023, thereby, leading to significant geographical concentration risk. Acuité believes that KBRECPL will remain geographically concentrated over the medium term. Any geographical diversification in revenue profile will lead to lower concentration risk over the medium term.
KBECPL’s working capital operations is intensive marked by high gross current Asset (GCA) at 246 days as on March 31, 2023, as against 165 days as on March 31, 2022. The GCA days include the cash and bank balance which manifests GCA days at slightly elevated levels. Inventory days stood at 43 days as on March 31, 2023 as against 38 days as on March 31, 2022. Debtor day stood at 6 days as on March 31, 2023 as against 24 days as on March 31, 2022. Subsequently, the payable period stood at 36 days on March 31, 2023 as against 58 days on March 31, 2022 respectively.
The civil construction segment is characterised by stiff competition on account of the low complexity of work involved and minimal entry barriers in terms of qualifications required for the tenders floated. This results in the presence of a large number of contractors in this segment, leading to intensely competitive bids, putting pressure on margins. Further, the margin is exposed to volatility in raw material prices. However, the built-in price variation clause in the contracts mitigates the risk to an extent and long presence and established relationship with the clients provides comfort.
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| Rating Sensitivities |
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| All Covenants |
| None |
| Liquidity: Adequate |
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KBECPL liquidity is adequate, marked by adequate net cash accruals to its maturing debt obligation. The company generated cash accruals in the range of Rs.8.42 Cr in FY2023, while its maturing debt obligations were Rs. 1.13 Cr during the same period. Going forward the company is expected to generate net cash accruals of Rs. 11- 13 Cr in FY 2024-25 against Rs.1.67-1.71 Cr debt obligations. The current ratio stood at 1.90 times as on March 31, 2023, and the limits remains utilized at 66 percent for fund based and 91 percent for non-fund based over the 12 months ended October 31, 2023 for fund based. The company maintains unencumbered cash and bank balances of Rs.56.54 Cr as on March 31, 2023. Acuité believes that the liquidity of the company is likely to improve over the medium term.
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| Outlook: Stable |
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Acuité believes that KBECPL will continue to benefit over the medium term due to extensive experience of its promoters, healthy order book and healthy financial risk profile. The outlook may be revised to 'Positive', if the company demonstrates substantial and sustained growth in its revenues from the current levels while improving its profitability and working capital intensity. Conversely, the outlook may be revised to 'Negative' in case of any sharp decline in its revenues or significant volatility in its profitability or delay in order execution leading to significant time and cost overruns or any significant stretch in its working capital management or any large debt-funded capex.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 134.25 | 85.84 |
| PAT | Rs. Cr. | 7.54 | 4.70 |
| PAT Margin | (%) | 5.61 | 5.48 |
| Total Debt/Tangible Net Worth | Times | 0.24 | 0.35 |
| PBDIT/Interest | Times | 9.34 | 7.43 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Service Sector: https://www.acuite.in/view-rating-criteria-50.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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