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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 1606.97 | ACUITE BBB+ | Stable | Upgraded | Positive to Stable | - |
| Non Convertible Debentures (NCD) | 113.80 | ACUITE BBB+ | Stable | Upgraded | Positive to Stable | - |
| Bank Loan Ratings | 4702.52 | - | ACUITE A2 | Upgraded |
| Total Outstanding Quantum (Rs. Cr) | 6423.29 | - | - |
| Rating Rationale |
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Acuité has upgraded its long-term rating to ‘ACUITE BBB+’ (read as ACUITE triple B plus) from 'ACUITE BBB' (read as ACUITE triple B) and its short-term rating to 'ACUITE A2' (read as ACUITE A two) from ‘ACUITE A3+’ (read as ACUITE A three plus) on the Rs.6,423.29 Cr bank facilities/Non-Convertible Debentures (NCDs) of Patel Engineering Limited (PEL). The outlook has been revised from ‘Positive' to ‘Stable’. |
| 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. |
| 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 growth of ~49% CARG over FY21-23 period majorly on account of strong execution of orders and health order book position of the company. The revenue booked by PEL stood at Rs. 3817.13 Cr. in FY23 as against Rs.3027.79 Cr. in FY22 and Rs.1719.13 Cr. in FY21. The company have been majorly focusing on bidding and execution of hydro projects (which constitute ~60% of the total order book position). stood at Rs.20807 Cr. as on March' 2023 (including L1 orders of Rs.3221 Cr. out of which projects worth Rs.1403.13 Cr. has been converted into LOAs in Q1FY24) which includes a total of 49 projects. The strong and healthy order book shows a revenue visibility over a medium term. Further, the projects of the company are geographically segmented across the 15 states which includes Jammu & Kashmir, Himachal Pradesh, Madhya Pradesh, Maharashtra, Rajasthan, Bihar, Meghalaya among others. However, the operating profit margin of the company witnessed declined in FY23 on account of high base effect as the company completed land sale transaction in FY22 due to which the operating profit margin was higher during that period. The EBIDTA margin of the company declined to 14.16% in FY23 as compared to 15.43% in FY22. On the other hand, the absolute EBITDA of the company improved to Rs.540.48 Cr. in FY23 compared against Rs.467.12 Cr. in FY22. 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. Better realisation of receivables and monetization of non-core assets improved the liquidity position The realisation of receivables by the company has improved significantly marked by improvement in receivable days over the years. The receivable days of the company improved and stood at 67 days for FY23 as against 103 days for FY22 and 136 days for FY21. The improvement was majorly on account of healthy collection efficiency of more than 95% from its top projects (which constitutes ~80 percent to overall revenues). Further, more than 90 per cent of the contracts won and executed by PEL are from central and state Government agencies. Also, the monetization of non-core assets from the management as per earlier plans also supported the improvement in liquidity position of the company and the requisite funds having been distributed to lenders towards repayment of debts. Acuité believes that improvement in realisation of receivables along with timely monetization of non-core assets will remain a key rating sensitivity going forward. 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.2856.54 Cr. as on March 31, 2023 compared against Rs.2554.14 Cr as on March, 31 2022 and Rs 2492.05 Cr as on March, 31 2021. The company have also successfully complete the rights issue of Rs.325 Cr. in March 2023 which was utilised towards project executions and repayment of debt obligations. The gearing level of the company remained improved to 0.54x as on March 31, 2023 as against 0.78x as on March 31, 2022. The company has a total debt of Rs.1552.18 Cr. which comprises long-term debt, short term debt and unsecured loans from promoters. Furthermore, the debt protection matrices of the company remain moderate with interest-coverage-ratio and debt-service- coverage-ratio of 1.70 times and 1.03 times respectively for FY23. Also, the debt to EBITDA of the company witnessed improvement to 2.27x for FY23 as against 3.64x for FY22. 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 |
| Continuing working capital intensive operations
PEL’s working capital operations continue to be intensive marked by Gross Current Asset days (GCA) of 483 days for FY23 as against 577 days for FY22. The inventory days stood at 363 days for FY23 as against 413 days for FY22 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 has improved significantly and stood at 67 days for FY23 as against 103 days for FY22. The improvement in receivable days is majorly on account of healthy collection efficiency from its projects. The company has witnessed working capital stretch in the past due to delayed payments from clients, which in turn had slowed down project execution in certain cases. However, the same has seen an improvement in last years. The working capital intensity is reflected in high average utilization of fund based bank limits at 87 percent for the six months ended March 2023; whereas non fund based bank limits remain utilized at 75 percent over the same period. Acuité believes that the company’s ability to improve its working capital cycle will remain critical for a stable credit risk profile. 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. |
| 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. |
| Rating Sensitivities |
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| Material covenants |
| None |
| 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.236.21 Cr. in FY23 as against the maturing debt obligation of Rs.214.95 Cr. during the same period. Further, the company is expected to generate a net cash accrual in the range of Rs.392 Cr. to Rs.594 Cr. over the medium term against the maturing debt obligation in the range of Rs.50 Cr. during the same period. Further, the Company continues to focus on monetization of non-core assets to reduce debt and further increase liquidity for the Company. The company continues to receive further funds against arbitration awards. Going forward, the company is expecting to receive funds of ~Rs.100 crore by FY24 against arbitration awards which will be utilized to prepay the debt obligations of FY24 and FY25. With the improved realisation of bills, which stood more than 90% realisation of total billing done for the top 10 receivables in FY23, liquidity of PEL is expected to improve going forward. Furthermore, the liquidity of the company is also supported by infusion of funds via rights issue in March 2023 (100% subscription) and additional Rs.105 crores was infused by the promoters during FY23. Also, the average utilization of working capital limits remains at 87% for six months ended March 2023. PEL has an unencumbered cash and bank balance of Rs.170.56 crore and current ratio at 1.26 as on 31 March, 2023. |
| 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. |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 3817.13 | 3027.79 |
| PAT | Rs. Cr. | 155.56 | 52.51 |
| PAT Margin | (%) | 4.08 | 1.73 |
| Total Debt/Tangible Net Worth | Times | 0.54 | 0.78 |
| PBDIT/Interest | Times | 1.70 | 1.39 |
| 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 |
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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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| Note: The entire outstanding of Non Convertible Debentures from LIC has been paid/prepaid and there is no outstanding as on date. |
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