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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 40.00 | ACUITE BBB- | Stable | Assigned | - |
| Bank Loan Ratings | 60.00 | - | ACUITE A3 | Assigned |
| Total Outstanding Quantum (Rs. Cr) | 100.00 | - | - |
| Rating Rationale |
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Acuite has assigned its long-term rating of ‘ACUITE BBB-’ (read as ACUITE Triple B minus) and short term rating of "ACUITE A3"(read as ACUITE A three) on the Rs.100.00 crore bank facilities of M R G R Constructions (MRGR). The outlook is ‘Stable’.
Rationale for rating The rating assigned reflects the extensive experience of the management along with established track record of operations for nearly 12 years in this line of business. Further, the rating takes into consideration satisfactory operating performance on the back of healthy order book position along with better margins. The order book position of the firm stood at Rs 621.54 Cr as on November 2022 which provides revenue visibility over the medium term. Further, the rating factors in the moderate financial risk profile of the business. However, the above mentioned strengths are partly offset by working capital intensive nature of operations and highly competitive industrywith tender based nature of operations. |
| About the Company |
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MRGR Constructions (MRGR) is a registered partnership firm Incorporation in 2011, having its registered office at Kadapa, Andhra Pradesh, and administrative office at Kukatpally, Hyderabad. The firm is engaged in the EPC and involved in the Irrigation, Canal, Civil, Electrical projects in the state Telangana and Andhra Pradesh. Mr. Mutyala Rama Govinda Reddy is the founder of MRGR. The other partners of the company are Mr. Muthyala Sreenivasula Reddy (Managing partner), Mr. Muthyala Chandra Mohan Reddy, Mrs. Muthyala Sowjanya, and Mrs. Muthyala Jyoshna Reddy.
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| Analytical Approach |
| Acuite has considered standalone business and financial risk profile of M R G R Constructions. |
Key Rating Drivers
| Strengths |
| Experienced Management and established track record of operations
M R G R Constructions, has been into existence for more than a decade with its speciality in the business of undertaking civil, Irrigation and Canal works as government contractor. Sri M Sreenivasula Reddy is a managing partner in the firm and has more than 10 years of experience in the work of civil contracts and Mr.Chandra Mohan Reddy is co-promoter and partner in MRGR Constructions, responsible for logistics support and material management. Along with this, the founder of the firm is Mr. Rama Govinda Reddy acts as a partner and has more than three decades of experience. Firm 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 may aid firm's business risk profile over the medium term. Satisfactory Operating performance on the back of healthy order book position The company has achieved a revenue of Rs.202.89 Crore in FY22 against Rs.140.53 Crore in FY21 and Rs 153.24 Crore in FY 20. There was a dip in revenue in FY21 on an account of pandemic and irregularity in rain. However, company is backed by healthy order book of Rs.621.54 Crore as on 30-11-2022 consisting minor and medium irrigation projects including those extending from ongoing projects are expected to be executed by 2024-25, thus provides a revenue visibility over the medium term. In addition, the firm is approached by various major infra contractors along with R&B officials to enter into road work projects proposed for next two years by central government. The proposed order size of each tender is expected to be minimum of Rs.400 Crore. The majority portion of revenue are booked on sub-contracting basis. Further, there is minuscule decline in EBITDA Margins at 14.37% in FY22 against 14.51% in FY21. The company has recorded profits in an increasing trend. As company has recorded PAT Margins which stood at 6.19% in FY22 against 5.87% in FY21. However, the firm has recorded a revenue of Rs.91.3 Crore till November 2022. Further, the company is expecting to achieve top line of Rs.210 Crore in FY23 as major portion of revenue booked in second half of the year. Acuite’ believes that revenue of the firm may continue to increase going forward backed by healthy order book position. Moderate Financial Risk Profile The financial Risk Profile of the company is moderate marked by net worth of Rs.52.68 Crore in FY22 against Rs.32.55 Crore in FY21. The total debt of the company consists long term debt and short term debt of Rs.49.16 Crore in FY22. There is an increase in short term debt to repay the creditors of the company. Additionally, the interest coverage ratio of the company has improved at 5.54 times in FY22 against 4.92 times in FY21. Further, the Debt service coverage ratio of the company stood at 4.28 times in FY22 against 3.79 times in FY21.TOL/TNW of the firm has decreased to 2.63 times as on March 31,2022 as compared to 3.26 times as on March 31, 2021. Acuite believes that financial risk profile of the company may improve in the medium term with no major debt-funded capex plan. |
| Weaknesses |
| Intensive Working Capital Cycle
The firm’s working capital cycle is intensive which is evident from the Gross Current Asset (GCA) days of 255 days in FY 22 against 248 days in FY 21. High GCA days is on account of increased debtor days to 146 days as on March 31, 2022 from 99 days in the previous year. As the firm follows monthly billing pattern and stipulated time frame of payments usually within 60- 90 Days. However, it takes more than 120 days due to administrative reasons (the site inspection and certification are taking even longer period due to COVID 19 protocols still prevail in government offices). Current ratio of the firm is healthy at 1.10 times in FY22 against 1.13 times in FY21.Further, the average bank limit utilisation of fund based facilities stood at 79.74% and non-fund based facilities stood at74.65% in last one year ending November 2022. Acuite believes that working capital cycle of the firm may continue to remain intensive considering the nature of business. Tender based nature of operations and Competitive and fragmented industry Revenue and profitability in this line of business depend entirely on the ability to win tenders. Entities in this segment face intense competition, thus requiring them to bid aggressively to procure contracts; this restricts the operating margin to a moderate level. Also, given the cyclicality inherent in the construction industry, the ability to maintain profitability margin through operating efficiency becomes critical. Acuité believes that the firm’s business profile and financial profile can be adversely impacted on account of presence of stiff competition, and has inherent risk of susceptibility to tender based operations. Geographical concentration on the revenue profile Out of the pending order book value of Rs.621.54 Cr are to be executed in Telangana region of various irrigations projects and infrastructure projects. The major thrust is on irrigation works by the Government of Telangana. The firm will execute orders of Rs.210.69 Cr by the end of FY23, 99 percent of these orders are of Telangana region. This draws high geographical concentration risk on the revenue profile of the company. |
| Rating Sensitivities |
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| Material covenants |
| None |
| Liquidity Position |
| Adequate |
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The liquidity profile of the company is adequate. The company is having net cash accruals of Rs.17.86 Crore in FY 22 against the debt repayment obligations of Rs.5.04 Crore in the same period. Going forward, company is expecting to generate a net cash accruals of Rs.20 Crore to Rs.22 Crore in the succeeding years against the debt repayment obligations of Rs. 12.66 Crore and Rs.7.21 Crore respectively in the same periods. Further, the average bank limit utilisation of fund based facilities stood at 79.74% and non-fund based facilities stood at 74.65% in last one year ending November 2022. The current ratio of the company stood at 1.10 times in FY22
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| Outlook: Stable |
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Acuité believes that M R G R Constructions will maintain a ‘Stable’ outlook and will continue to derive benefit over the medium term due to its extensive experience, adequate 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 maintaining its capital structure. Conversely, the outlook may be revised to ‘Negative’ if the company generates lower-than-anticipated cash accruals, most likely due to significant debt-funded capex or any significant withdrawal of capital, thereby impacting its financial risk profile, particularly its liquidity.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 202.89 | 140.53 |
| PAT | Rs. Cr. | 12.57 | 8.25 |
| PAT Margin | (%) | 6.19 | 5.87 |
| Total Debt/Tangible Net Worth | Times | 0.93 | 0.82 |
| PBDIT/Interest | Times | 5.54 | 4.92 |
| Status of non-cooperation with previous CRA (if applicable) |
| Crisil vide its press release dated 25.04.2022, had reaffirmed the company to CRISIL B/A4 Stable; INC |
| Any other information |
| None |
| 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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| Rating history |
| Not applicable |
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