Product Quantum (Rs. Cr) Long Term Rating Short Term Rating
Bank Loan Ratings 12.00 ACUITE BBB- | Stable | Assigned -
Bank Loan Ratings 14.22 ACUITE BBB- | Stable | Reaffirmed -
Bank Loan Ratings 15.00 - ACUITE A3 | Assigned
Bank Loan Ratings 35.00 - ACUITE A3 | Reaffirmed
Total Outstanding Quantum (Rs. Cr) 76.22 - -
 
Rating Rationale

­Acuite has reaffirmed its long term rating of ‘ACUITE BBB-’ (read as ACUITE triple B minus) and its short term rating of ‘ACUITE A3’ (read as ACUITE A three ) on the Rs. 49.22 crore bank facilities of NNT Developers Private Limited (NNTDPL). The outlook remains 'Stable'.

Acuite has also assigned its long term rating of ACUITE BBB- (read as ACUITE triple B minus) and its short term rating of ‘ACUITE A3’ (read as ACUITE A three ) on the Rs. 27.00 crore bank facilities of NNT Developers Private Limited (NNTDPL). The outlook is ‘Stable’.

Rating Rationale
The rating reaffirmation on NNTDPL takes cognizance of the company’s steady business risk profile, marked by a significant improvement in the operating margins in FY 2023 (Prov) to 11.01 % as against 8.83% in FY 2022. The rating is further supported by the above average financial risk profile of the company, characterised by moderate net worth and comfortable debt coverage indicators. However, the debt coverage metrics moderated in FY2023, but still stood at comfortable levels. Nevertheless, with the improved scale of operations and stable profitability, the debt coverage indicators are expected to remain comfortable, with interest cover estimated to be well above 3.5 times over the near to medium term. The gearing level also stood comfortably below unity at 0.71 times as of FY 2023 (Prov) due to lower reliance on external debt. The rating further derives strength from the extensive experience of the promoters in the civil construction industry and their adequate liquidity position, as reflected in the low utilisations of fund and non-fund-based limits at 79.91% and 54.23%, respectively, for the 6 months ended April 2023. The rating, however, remains constrained by stiff competition in the construction sector, the susceptibility of margins to the volatile nature of raw material prices, and the working capital intensive nature of the operations of the company, marked by the high amount of security deposits to be kept with the tendering authority. Acuite notes a marginal dip in operating income in FY2023 (Prov), solely on account of site mobilisation. With a healthy order book position of Rs 415.90 crore as of April 2023, it is expected that the company will be able to sustain its scale of operations in the medium term.

About the Company
 
Analytical Approach
­Acuité has taken a standalone view of the business and financial risk profile of NNTDPL to arrive at the rating.
 

Key Rating Drivers

Strengths

Experienced management and an established relationship with customers
The promoters have around two decades of experience in the construction business. The long-standing experience of the promoters has helped them establish comfortable relationships with key suppliers and reputed customers. The day-to-day operations are carried out by its directors, Mr. Rajendra Singh, Mr.  Sharwan Singh, Mr. Jitendra Singh, and Mr. Suyash Kumar, who have experience spanning over two decades in the civil construction industry. The extensive experience of the management has helped the company get tenders on a regular basis.
Acuité derives comfort from the long experience of the management and believes this will benefit the company going forward, resulting in steady growth in the scale of operations.

Steady business risk profile, albeit a slight moderation in operating income in FY2023.
The company witnessed a significant improvement in its scale of operations, marked by operating income of Rs. 145.25 crore in FY2022 as against Rs. 96.39 crore in FY2021, registering a y-o-y growth of 50 percent. However, in FY2023 (Prov), the revenue moderated to Rs. 121.43 crore on account of site mobilisation. The steadyness in the operating income is backed by a healthy order book position with unexecuted orders in hand to the tune of Rs. 415.90 crore as of April 30, 2023, which shall be executed in the next 1-2 years, thereby providing steady revenue visibility in the medium term.

The operating margin of the company remained almost flat at 8.83 percent in FY2022 as against 8.26 percent in FY2021. Further, the operating margin grew significantly to 11.01 percent in FY2023 (Prov) as the company started to bid for higher margin orders and also installed its own equipment in FY23 in order to get away with the hire charges of equipment. The PAT margin improved to 5.34 percent in FY2022 as against 4.98 percent in FY2021 and improved further to 5.57 percent in FY2023 (Prov). Though the company’s profitability is exposed to volatility in raw material prices, NNTDPL has an in-built price escalation clause for major raw materials (such as steel, cement, fuel, and bitumen) in most of its contracts.
Acuité believes that the company may continue to sustain its order book position and maintain its business risk profile over the medium term.

Above average financial risk profile
The company’s financial risk profile is above average, marked by moderate, albeit improving, net worth, low gearing, and comfortable debt protection metrics. The tangible net worth of the company improved to Rs. 26.96 crore as of March 31, 2022, from Rs. 19.21 crore as of March 31, 2021, due to accretion to reserves. Further, the tangible net worth of the company increased to Rs. 33.72 crore as of March 31, 2023 (Prov). The company follows a conservative financial policy, reflected in its peak gearing of 0.71 times as of FY 2023. The gearing of the company stood below unity at 0.48 times as of March 31, 2022, as against 0.54 times as of March 31, 2021, due to its low dependence on external debt. Even though the debt level increased in FY23, the gearing remained comfortable at 0.71 times (Prov). The Total Outside Liabilities/Tangible Net Worth (TOL/TNW) stood at 1.18 times as on March 31, 2022, as against 1.41 times as on March 31, 2021, and remained almost at the same level at 1.17 times as on March 31, 2023 (Prov). The strong debt protection metrics of the company are marked by an interest coverage ratio of 5.89 times as of March 31, 2022, and a debt service coverage ratio of 4.54 times as of March 31, 2022. However, the Interest Coverage Ratio moderated to 3.67 times and the debt service coverage ratio to 2.96 times as of March 31, 2023 (Prov), still standing at comfortable levels. The Net Cash Accruals/Total Debt (NCA/TD) stood at 0.61 times as of March 31, 2022.
Acuité believes that going forward, the financial risk profile of the company will be sustained by steady accruals and no major debt-funded capex plans.

Weaknesses
The working capital intensive nature  of operations
The working capital intensive nature of operations of the company is marked by GCA days of 129 days in FY2022 as compared to 137 days in FY2021. The high GCA days are mainly on account of significant security deposits, margin money, and retentions kept with the tendering authorities. However, both the debtor and inventory periods stood low in FY2022. The debtor period improved to 6 days in FY2022 as against 24 days in FY2021. The short receivables cycle supports working capital management. Further, inventory holding levels improved and stood low at 13 days in FY2022 as against 22 days in FY2021.

However, Acuite notes the increase in debtor and inventory periods in FY 2023 (Prov). The inventory period increased to 28 days in FY2023 (Prov) as compared to 13 days in FY22. Further, the debtor period increased to 39 days in FY23 as against 6 days in FY2022 on account of increased billing in the fourth quarter. Acuité believes that the working capital requirement is likely to remain at similar levels in the near and medium term.

Competitive and fragmented nature of industry coupled with tender-based business
The company is engaged as a civil contractor, and the sector is marked by the presence of several mid- to large-sized players. The company faces intense competition from other players in the sector. Risk becomes more pronounced as tendering is based on a minimum amount of bidding on contracts, and hence the company must bid for such tenders at competitive prices, which may affect the profitability of the company. However, this risk is mitigated to an extent due to the extensive experience of the management over the past two decades in the construction industry.
Rating Sensitivities
  • ­Significant growth in revenue and profitability margin
  • Elongation of working capital cycle
  • Reduction in order flow
 
Material covenants
­None.
 
Liquidity Position
Adequate

The company’s liquidity is adequate, as evidenced by net cash accruals of Rs. 7.84 crore as of March 31, 2022, as against no debt repayment over the same period. Further, the company is expected to generate sufficient net cash accruals to repay its debt obligations over the medium term. The current ratio improved and stood comfortably at 2.06 times in FY2022 as against 1.63 times in FY2021. Further, the fund- based limit remained moderately utilised at 79.91 per cent and the non-fund based limit at 54.23 per cent over the last 6 months ended April 2023. The unencumbered cash and bank balances of the company stood at Rs. 0.01 crore as of March 31, 2022, as compared to Rs. 0.04 crore as of March 31, 2021. The company has a fixed deposit of Rs. 5.23 crore in FY2022, out of which Rs. 2.45 crore is margin money and the remaining Rs. 2.78 crore is unencumbered. However, the working capital- intensive nature of operations of the company is marked by Gross Current Assets (GCA) of 129 days as of March 31, 2022, as against 137 days as of March 31, 2021.
Acuité believes that going forward, the company will maintain an adequate liquidity position due to steady accruals.
 
Outlook: Stable
Acuité believes NNTDPL will maintain a ‘Stable’ outlook over the medium term given by promoters' extensive industry experience, healthy order book position and above average financial risk profile. The outlook may be revised to 'Positive' if scale of operations, profitability, and working capital cycle improve significantly, and if the company widens geographical presence. Conversely, the outlook may be revised to 'Negative' if financial risk profile weakens because of significantly low cash accrual, or sizeable working capital requirement, or debt funded capital expenditure.
 
Other Factors affecting Rating
­None.
 

Particulars Unit FY 22 (Actual) FY 21 (Actual)
Operating Income Rs. Cr. 145.25 96.39
PAT Rs. Cr. 7.75 4.80
PAT Margin (%) 5.34 4.98
Total Debt/Tangible Net Worth Times 0.48 0.54
PBDIT/Interest Times 5.89 4.58
Status of non-cooperation with previous CRA (if applicable)
­None.
 
Any other information
­None.
 
Applicable Criteria
• 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.
 

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook
07 Apr 2022 Covid Emergency Line. Long Term 1.22 ACUITE BBB- | Stable (Assigned)
Term Loan Long Term 4.00 ACUITE BBB- | Stable (Assigned)
Bank Guarantee Short Term 35.00 ACUITE A3 (Assigned)
Secured Overdraft Long Term 9.00 ACUITE BBB- | Stable (Assigned)
­

Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Complexity Level Rating
Bank of Baroda Not Applicable Bank Guarantee/Letter of Guarantee Not Applicable Not Applicable Not Applicable 35.00 Simple ACUITE A3 | Reaffirmed
Bank of Baroda Not Applicable Covid Emergency Line. Not Applicable Not Applicable Not Applicable 0.54 Simple ACUITE BBB- | Stable | Reaffirmed
Not Applicable Not Applicable Proposed Bank Guarantee Not Applicable Not Applicable Not Applicable 15.00 Simple ACUITE A3 | Assigned
Not Applicable Not Applicable Proposed Secured Overdraft Not Applicable Not Applicable Not Applicable 12.00 Simple ACUITE BBB- | Stable | Assigned
Bank of Baroda Not Applicable Secured Overdraft Not Applicable Not Applicable Not Applicable 9.00 Simple ACUITE BBB- | Stable | Reaffirmed
Bank of Baroda Not Applicable Term Loan Not available Not available Not available 4.68 Simple ACUITE BBB- | Stable | Reaffirmed

Contacts
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About Acuité Ratings & Research
Acuité Ratings & Research Limitedwww.acuite.in