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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 1606.97 | ACUITE BBB+ | Stable | Reaffirmed | - |
| Non Convertible Debentures (NCD) | 113.80 | Not Applicable | Withdrawn | - |
| Bank Loan Ratings | 4702.52 | - | ACUITE A2 | Reaffirmed |
| Total Outstanding | 6309.49 | - | - |
| Total Withdrawn | 113.80 | - | - |
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Rating Rationale |
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Acuité has reaffirmed its long-term rating to ‘ACUITE BBB+’ (read as ACUITE triple B plus) and its short-term rating to 'ACUITE A2' (read as ACUITE A two) on the Rs.6,309.49 Cr. bank facilities Patel Engineering Limited. The outlook is ‘Stable’.
Also, Acuité has withdrawn the long-term ratings on Non-Convertible Debentures (NCDs) of Rs.113.80 Cr. without assigning the rating of Patel Engineering Limited as we have received the withdrawal request from the company and NDC from the lender. The withdrawal is in accordance with Acuite’s policy on withdrawal of rating as applicable to the respective facility / instrument. Rationale for Rating Rating is reaffirmed based on the stable operating and financial performance of the company. The revenues of the company witnessed moderate Y O Y growth of 15.59% in FY24 majorly on account of strong execution of orders and healthy order book position. The unexecuted order book value stood at Rs.18,663.04 Cr. as on March' 2024 which includes a total of 49 projects. The strong and healthy order book shows revenue visibility over the medium term. The revenue booked by PEL stood at Rs. 4412.04 Cr. in FY24 as against Rs.3817.13 Cr. in FY23 and Rs. 3027.79 Cr. in FY22. The absolute EBITDA of the company improved to Rs.625.00 Cr. in FY24 compared against Rs. 557.88 Cr. in FY23. However, the operating profit margin remained at similar levels at 14.17% in FY24 as compared to 14.62% in FY23. Also, the PAT margin increased to 6.47% in FY24 as against 4.08% in FY23. The rating considers the extensive experience of promoters, long track record of operations, above average financial risk profile and adequate liquidity position of the company. The rating is however constrained by the working capital-intensive nature of operations of the company and exposure to intense competition in a fragmented industry.
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| About the Company |
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Incorporated in 1949, Mumbai-based Patel Engineering Limited (PEL) has been engaged in the construction of dams, bridges, tunnels, roads, piling works, industrial structures and other kinds of heavy civil engineering works in areas like hydro, irrigation & water supply, urban infrastructure and transport. PEL has also forayed into development of power, road and real estate projects in the past. The company has a consistent track record in executing complex domestic and international projects. PEL has completed over 85 dams, generated over 12000 MW hydro projects and over 300 km of tunneling projects. The directors are Mrs. Kavita Sanjiv Shirvaikar, Mr. Rupen Pravinbhai Patel, Mr. Ramasubramanian Kuppusubramanian, Mr. Sunanda Rajendran, Mr. Shambhu Singh and Mr. Ashwin Ramanlal Parmar.
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| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
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Acuité has taken a standalone view of the business and financial risk profile of PEL to arrive at the rating.
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| Key Rating Drivers |
| Strengths |
| Established business operations and experienced management
PEL has been engaged in EPC/infrastructure development for more than seven decades with a national presence and a track record of civil contract execution across India. Mr. Rupen Patel, Managing Director of PEL, has an experience of more than two decades in the construction industry. His father, Mr. Pravin Patel (Ex-Chairman), has a wide experience of more than four decades in EPC industry, town planning and architecture. The management is ably supported by a well-qualified and experienced team of professionals. Some of the landmark projects completed by PEL includes 1880 MW Koyna Hydro Electric project, 900MW Srisailam Left Bank Hydro Power Station, Kalwakurty Lift Irrigation Project, Construction of high-altitude roads (Karzok to Chumar), construction of Dam for Shillong Water Supply and the Tuirial Hydroelectric Project in Mizoram among others. The company is also construction the largest hydro project in India with 2000 MW in Subansiri river in Arunachal Pradesh. The extensive experience of the promoters in the industry has helped the company build its market presence across the country. Also, the company has experienced in execution of well diversified projects among segments like hydropower/ tunnelling, irrigation, transportation & urban infrastructure. Acuité believes that PEL will continue to benefit from its experience in the infrastructure sector and its diversified order book over the medium term. Reputed clientele over the years PEL has gained necessary pre-qualification criteria for heavy infrastructure sectors by successfully completing large ticket, technologically advanced and technically complex projects. On account of its established presence in the industry, PEL has been able to build esteemed client profile spanning both private as well as government agencies. Some of the key customers include North Eastern Electric Power Corporation Limited (NEEPCO), National Thermal Power Corporation Limited (NTPC), National Hydro Power Corporation (NHPC), National Highway Authority of India (NHAI), Karnataka State Highways Improvement Project (Government of Karnataka), Satluj Jai Vidyut Nigam Ltd (SJVN, Mini Ratna) and IRCON among others. Further, it has entered into joint venture partnerships with several esteemed companies around the globe including Age Construction and Trading Inc., a Turkish Co. and the Hyderabad based KNR Constructions Ltd among others. The capabilities of its JV partners enhance credibility and capability to execute complex and special projects. Healthy business risk profile with a strong order book position The business risk profile of the company remained healthy, reflected by continuous improvement in revenue from operations over the years. The revenues of the company witnessed healthy Y O Y growth of 15.59% in FY24 majorly on account of strong execution of orders and healthy order book position of the company. The revenue booked by PEL stood at Rs. 4412.04 Cr. in FY24 as against Rs.3817.13 Cr. in FY23 and Rs. 3027.79 Cr. in FY22. The absolute EBITDA of the company improved to Rs.625.00 Cr. in FY24 compared against Rs. 557.88 Cr. in FY23. However, the operating profit margin remained at similar levels at 14.17% in FY24 as compared to 14.62% in FY23. PAT increased to Rs.285.60 Cr. in FY24 as against Rs. 155.56 Cr. in FY23. Also, the PAT margin increased to 6.47% in FY24 as against 4.08% in FY23. The company has been majorly focusing on bidding and execution of hydro projects (which constitute ~62% of the total order book position). The unexecuted order book value stood at Rs.18,663.04 Cr. as on March' 2024 which includes a total of 49 projects. Acuité believes that the revenues of the company will continue to show a positive growth over the medium term on account of healthy order book position and strong execution of projects. Above average financial risk profile PEL’s financial risk profile remains above average marked by healthy net worth, relatively low gearing and moderate debt coverage indicators. The net worth of the company stood at Rs. 3145.17 Cr. as on March 31, 2024 compared against Rs.2856.54 Cr. as on March, 31 2023. The gearing level of the company remained at a similar level at 0.55x as on March 31, 2024 as against 0.54x as on March 31, 2023. The company has a total debt of Rs.1732.16 Cr. as on March 31, 2024 as against Rs.1542.18 Cr. as on March 3, 2023. Furthermore, the debt protection matrices of the company improved with interest-coverage-ratio and debt-service- coverage-ratio of 2.33 times and 1.58 times for FY24 as against 1.70 times and 1.03 times in FY23 respectively. Also, the debt to EBITDA of the company witnessed an improvement to 2.08x for FY24 as against 2.27x for FY23. Acuité believes that the financial risk profile of the company will continue to remain above average on account of healthy scale of operations and profitability over the medium term. |
| Weaknesses |
| Working Capital intensive operations
PEL’s working capital operations continue to be intensive marked by Gross Current Asset days (GCA) of 479 days for FY24 as against 485 days for FY23. The inventory days stood at 350 days for FY24 as against 365 days for FY23 which is majorly on account of unbilled revenue, bills raised but not yet approved by the government and arbitration claims pending awards being classified in work-in-progress. However, the receivables days stood at 62 days for FY24 as against 67 days for FY23. The improvement in receivable days is majorly on account of healthy collection efficiency from its projects. The working capital intensity is reflected in high average utilization of fundbased bank limits at 83 percent for the twelve months ended March 2024; whereas non-fundbased bank limits remain utilized at 75 percent over the same period. Competitive and fragmented industry PEL is engaged as an EPC contractor. This particular sector is marked by the presence of several mid to large sized players. The company faces intense pricing competition from the other players in the sectors. The risk becomes more pronounced as tendering is based on minimum amount of bidding on contracts and susceptibility to inherent cyclicality in the sector. Acuité believes that PEL is well positioned on account of its longstanding relationship with well-established international players in the infrastructure industry and the long track- record of its promoters spanning nearing six decades. Further, PEL is also exposed to regulatory risks, which can affect its ability to complete projects in a timely manner and to secure new projects from time to time. PEL had in the past experienced delays in commencement as well as execution of projects on account of delays in regulatory and environmental approvals. This may, in turn, result in significant cost escalations leading to lower than expected operating profitability. Acuité believes that the company’s ability to improve its working capital cycle will remain critical for a stable credit risk profile. |
| ESG Factors Relevant for Rating |
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The environmental risks associated with the civil engineering industry are GHG emissions, material efficiency, and waste management. Issues such as air pollutant emissions, energy efficiency, and environmental management are also critical to the industry. The company has programs and initiatives for the reduction of GHG emissions, waste, and overall energy usage. Community support and development, employee safety, and human rights are primary concerns for the civil engineering industry. Other issues such as product quality and responsible procurement are critical to the industry. The company has adopted policies and strategies related to community services, human rights, and product or service quality. Additionally, the company provides training and career development to its employees. Factors such as management compensation and board independence hold primary importance within this industry. Similarly, business ethics, financial audit and control, and shareholders’ rights are other material issues for the industry. The company has adopted policies on board independence and retention of its Key Managerial Personnel. Additionally, the company complies with the Companies Act 2013 for board independence, external auditor rotation, audit committee and SEBI regulations for related party transactions.
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| Rating Sensitivities |
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| Liquidity Position |
| Adequate |
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PEL has adequate liquidity position marked by sufficient net cash accruals against its maturing debt obligation. The company has generated a net cash accrual of Rs. 382.73 Cr. in FY24 as against the maturing debt obligation of Rs. 111.78 Cr. during the same period. Further, the company is expected to generate a net cash accrual in the range of Rs.382.74 Cr. to Rs.450.16 Cr. over the medium term against the maturing debt obligation in the range of Rs.177.39 Cr. and Rs.180.42 Cr. during the same period. In April 2024, the company raised Rs. 400 crores through a QIP and in May, 2024 the company received approximately Rs. 150 crores from the Mauritius arbitration award. The funds received are planned to be utilised towards working capital requirements and reducing the overall debt.The average utilization of working capital limits remains at 83% for twelve months ended March 2024; whereas non-fund-based bank limits remain utilized at 75% over the same period. PEL has an unencumbered cash and bank balance of Rs.191.00 crore as on 31 March 2024.
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| Outlook: Stable |
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Acuité believes that PEL will maintain a ‘Stable’ outlook over the medium term owing to its experienced management, long track record of operations and improved scale of operations with better realisation of receivables. The outlook may be revised to 'Positive' if the company demonstrates substantial and sustained growth in its revenues and profitability from the current levels and is able to timely monetize its non-core assets. Conversely, the outlook may be revised to 'Negative' in case the company registers lower than expected growth in revenues and profitability or deterioration in its working capital management due to further pileup of receivables leading to deterioration in its financial risk profile and liquidity.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 24 (Actual) | FY 23 (Actual) |
| Operating Income | Rs. Cr. | 4412.04 | 3817.13 |
| PAT | Rs. Cr. | 285.60 | 155.56 |
| PAT Margin | (%) | 6.47 | 4.08 |
| Total Debt/Tangible Net Worth | Times | 0.55 | 0.54 |
| PBDIT/Interest | Times | 2.33 | 1.70 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not applicable |
| Any other information |
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None
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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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