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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 350.00 | ACUITE BBB+ | Stable | Downgraded | - |
| Bank Loan Ratings | 1050.00 | - | ACUITE A2+ | Downgraded |
| Total Outstanding | 1400.00 | - | - |
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Rating Rationale |
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Acuité has downgraded its long-term rating to ‘ACUITE BBB+‘ (read as ACUITE triple B plus) from ‘ACUITE A-’ (read as ACUITE A minus) and short-term rating to ‘ACUITE A2+‘ (read as ACUITE A two plus) from 'ACUITE A1' (read as ACUITE A one) on the Rs 1400.00 Cr. bank facilities of NKG Infrastructure Limited (NKG). The outlook is ‘Stable’. Rationale for rating downgrade The rating revision takes into consideration the ongoing Enforcement Directorate and CBI investigations against the company and its erstwhile directors on the charges of money laundering related to alleged irregularities in receipt of contracts of Delhi Jal Board. However, the matter is currently sub-judice. Further, the rating also takes into account slow receipt of new orders. The company has received only one new order in last two financial years. In terms of operating performance, the operating margin recorded a decline as it stood at 8.04 percent in FY2024 (Prov.) as against 11.04 percent in FY2023. The rating continues to derive strength from the healthy financial risk profile of the company marked by marked by low gearing and comfortable debt protection metrics. Going forward, the resolution of ongoing investigation and receipt of new orders and their timely executions shall be key rating monitorables. |
| About the Company |
| NKG was originally set up by Mr. Naresh Kumar Garg and his family members in 1976 as a partnership firm, NK Garg and Company. In 1989 the company was reconstituted as Private limited and in 2005 as Public Limited Company. During its initial years of operations, NKG was involved in construction of roads in and around Ghaziabad (Uttar Pradesh). With 30 years of experience in the construction industry, NKG has completed over 500 infrastructure projects in 15 different Indian states across various sectors like roads, bridges, buildings, water and sewage treatment plants, water pipelines, rainwater harvesting, electric transmission distribution stations/substations, and solar power plants. Major clients of the company are the public limited and Government owned like National Highway Authority of India (NHAI), Public Works Department in major states (PWD), Airport Authority of India (AAI), Employees’ State Insurance (ESI), HSCC, NBCC, CPWD, DG-MAP, AIMS, MES, B&R Company India Limited, UPRNN etc. |
| Unsupported Rating |
| Not applicable |
| Analytical Approach |
| Acuité has taken a standalone view of the business and financial risk profile of NKG Infrastructure Limited to arrive at the rating |
| Key Rating Drivers |
| Strengths |
| Established track record of operations NKG was originally set up by Mr. Naresh Kumar Garg and his family members in 1976 as a partnership firm, NK Garg and Company. The firm was reconstituted as a private limited company, NK Garg and Company Pvt Ltd, in 1989, changed the name as NKG Infrastructure Pvt Ltd in 2005 and as a public limited company with the current name in 2006. The company has a long track record of more than four decades in the execution and construction of infrastructure projects in different states. In terms of operating performance, the operating income of the company stood at Rs. 2177.87 Cr. in FY2024(Prov.) as against Rs.1527.51 Cr. in FY2023 and Rs. 1727.56 Cr. in FY2022. The operating margins also recorded a fluctuating trend as it stood at 8.04 percent in FY2024 (Prov.) as against 11.04 percent in FY2023 and 10.93 percent in FY2022. As on March, 2024 the outstanding unexecuted orderbook stood at Rs. 5270.18 Cr, however, addition of new orders to the orderbook has been low in recent past. Acuité believes NKG will continue to benefit from its established track of operations and extensive experience of the management. Healthy Financial Risk Profile The financial risk profile of the company is healthy marked by high net worth, low gearing, and comfortable debt protection metrics. The tangible net worth of the company stood high at Rs. 1041.41 crore in FY24(Prov) as compared to Rs. 949.41 crore in FY23. The total debt of the company stood at Rs. 288.41crore as on 31st March 2024(Prov) as against Rs. 315.69 Crore as on 31st March 2023. The debt outstanding of the company comprises of long-term debt of Rs. 65.18 crore, Unsecured loans worth Rs. 17.68 crore and Rs. 205.55 crore of short-term debt as on March 31, 2024 (Prov.). The gearing of the company remained low at 0.28 times as on 31 March 2024(Prov). The TOL/TNW stood at 0.58 times as on 31st March 2024(Prov) against 0.76 times as on 31st March 2023. The interest coverage and debt service coverage ratio stood comfortable at 3.02 times and 1.77 times respectively in FY2024(Prov.) as against 3.52 times and 2.40 times in FY2023. |
| Weaknesses |
| Working Capital Intensive Nature of Operations The working operations of the company are intensive in nature marked by GCA days of 187 days in FY2024(Prov) against 275 days for FY2023. The high GCA days is majorly on account from inventory days due to the nature of the construction industry which has a higher work in progress construction projects. Debtor days stood at 34 days in FY2024 (Prov)and 35 days in FY2023 against 87 days in FY2022. This improvement was majorly due to the timely realization of debtors from Government Authorities. The inventory levels of the company stood at 110 days in FY2024 (Prov) compared against 192 days for FY23. The creditor days of the company stood at 44 days for FY24(Prov) compared against 85 days in FY23. The average bank limit utilisation stood at ~93.10 percent for its fund based facilities and 92.44 percent for its non-fund based facilities for six months ended May, 2024. Acuité believes that the working capital management from the company will remain a key rating sensitivity going ahead. Exposure to Intense competition in a fragmented industry The infrastructure is a fairly fragmented industry with a presence of few large pan India players where subcontracting & project specific partnerships for technical/financial reasons are fairly common. The company faces stiff competition with its competitors in procuring orders through bidding, immense competition for procuring tenders leads to very competitive pricing which in turn lead to stress on the margins. Moreover, susceptibility of raw material pricing again keeps profit margin vulnerable and is a key sensitivity factor. However, presence of price escalation clause prevents the company from exposure to raw material price fluctuations to some extent. Also, the vast experience of the promoters give the company an edge in procuring big size ticket orders but the stability of the order size in diversified segment is a key sensitive factor. |
| ESG Factors Relevant for Rating |
| The infrastructure development industry has a significant social impact since it is a labour intensive business. Further, community support and development, employee safety and human rights are material factors from the social perspective. Governance issues that assume relevance include board and management compensation, shareholders rights and board diversity. The extent of direct or indirect emissions and the efficiency of deployment of vehicle fleets and heavy machinery has a considerable impact in the environmental performance of this industry. Since material costs are relatively high, strategies should be in place to reduce wastages and recycle raw materials to the extent possible to minimise the environmental impact. NKG adheres to execute the project with consistent cost control and quality assurance. The social initiatives of NKG includes activities like eye donation camps, blood donation camps, plantation activities and development of 200 houses for labor forces. The company conducts the social events for the upliftment of labour forces. On the corporate governance front, the company applies internal governance structures such as Code of Conduct, Business Excellence Model and Code of corporate disclosure policies. Also, the NKG has separate Audit Committee and Nomination and Remuneration Committee. |
| Rating Sensitivities |
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> Addition of new orders and their timely execution leading to improvement in scale of operations and profitability margin |
| Liquidity Position |
| Adequate |
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The liquidity position of the company remained adequate on account of moderate net cash accruals against maturing debt obligations. The net cash accruals of the company stood at Rs. 105.95 Cr. in FY24 (Prov) against matured debt obligations of Rs. 34.16 Cr. during the same period. The company is estimated to generate net cash accruals in the range of Rs. 119-Rs.140 Cr. in FY2024-26 against maturing debt obligations of Rs. 30-36 Cr. The operations remain working capital intensive marked by GCA days of 187 days as on March 31, 2024 (Prov.), leading to increased reliance on bank limits for working capital support. The average bank limit utilisation stood at ~93.10 percent for its fund based facilities and 92.44 percent for its non-fund based facilities for six months ended May, 2024.
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| Outlook: Stable |
| Acuité believes the outlook on NKG will remain ‘Stable’ over the medium term backed by its long track record of operations and healthy financial risk profile. The outlook may be revised to ‘Positive’ in case of favourable resolution of ongoing investigation and receipt of new orders and timely execution leading to improvement its scale of operation along with sustenance in the profitability margins. Conversely, the outlook may be revised to ‘Negative’ in case of deterioration in liquidity profile due to increase in working capital requirement. |
| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 1527.51 | 1727.56 |
| PAT | Rs. Cr. | 59.59 | 75.84 |
| PAT Margin | (%) | 3.90 | 4.39 |
| Total Debt/Tangible Net Worth | Times | 0.33 | 0.31 |
| PBDIT/Interest | Times | 3.52 | 4.29 |
| 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 • 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 |
| 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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