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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 114.50 | ACUITE A | Stable | Reaffirmed | - |
| Bank Loan Ratings | 615.50 | - | ACUITE A1 | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 730.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITÉ A’ (read as ACUITE A) and short term rating of ‘ACUITÉ A1’ (read as ACUITE A one) on the Rs 730.00 Cr. bank facilities of R K D Construction Private Ltd (RKD). The outlook remains ‘Stable’.
The rating continues to reflect RKD’s healthy business profile supported by its strong project execution capabilities and long track record of work execution in the road and highway sector. The rating also factors in the company’s sound financial risk profile marked by a conservative capital structure and comfortable coverage ratios. These rating strengths are partially offset by RKD’s high exposure to the road sector and the intensity of competition in construction business. |
| About the Company |
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RKD Construction Private Limited was started as a proprietorship firm in 1980 by Late Rohit Kumar Das and was engaged in civil construction activities for road and national highway projects. The constitution was changed to a closely held company in 1996. Currently, the company is managed by Mr Rohan Das. The company has executed projects primarily in the state of Odisha.
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| Analytical Approach |
| Acuité has taken a standalone view of the business and financial risk profile of RKD to arrive at the rating. |
Key Rating Drivers
| Strengths |
| Long operational track record
RKD was founded by Late Rohit Kumar Das in 1996. Presently the company is managed by second generation promoters. Current management has more than two decades of experience in construction business. Over the years, the company has developed expertise in road and highway construction through successful completion of large projects in Odisha.
Healthy scale of operations coupled with strong order book
RKD’s scale of operation stood at healthy levels as reflected from revenue of Rs. 627.17 Cr in FY22 as against Rs. 503.67 Cr in FY21. The company is likely to witness healthy revenue growth in FY23 as RKD has already registered revenue of Rs. 521.66 Cr during 9MFY23(Provisional). The unexecuted order book of Rs. 2204.17 Cr as on December, 2022 (PY Rs. 2057 Cr as on 31.12.2021) imparts strong revenue visibility over the medium term. The orders comprise around 70 per cent issue by NHAI towards construction, upgrading and widening of highways in Odisha and Jharkhand. This includes the HAM project of Rs. 929.35 Cr (PY Rs.1034.65 Cr) which was bagged in FY21 through its subsidiary concern i.e. Palma Gumla Highways Pvt Ltd (rated at Acuité A-/ Stable). Acuite believes that the scale of operation will improve in medium term backed by its strong order book size and high budgetary allocations toward road sector by Government of India.
Stable profitability margins
The company has healthy profitability margins both at the operating and net level. The operating margin of the company stood at 13.37 percent in FY2022 as compared to 15.03 percent in FY2021. The decline in operating margin is due to rise in employee and subcontracting expenses. The profit after tax (PAT) margins of the company stood at 5.15 percent in FY2022 as against 6.36 per cent in the preceding year. Acuité believes that the company will maintain their profit margins over the medium term as major portion of existing orders are road projects which are mostly issued by NHAI.
Healthy financial risk profile
The financial risk profile of the company is healthy marked by healthy net worth, low gearing and moderately comfortable debt protection metrics. The net worth of the company stood at Rs.239.04 Cr as on March 31, 2022 as compared to Rs.206.71 Cr as on March 31, 2021. The gearing of the company stood low at 0.67 times as on March 31, 2022 as compared to 0.85 times as on March 31, 2021. TOL/TNW stood moderate at 1.34 times as on March 31, 2022 as against 1.56 times as on March 31, 2021. The moderately comfortable debt protection metrics of the company is marked by Interest coverage ratio (ICR) at 3.60 times in FY2022 and debt service coverage ratio (DSCR) at 1.17 times in FY2022. The net cash accruals against total debt (NCA/TD) stood low at 0.29 times as on March 31, 2022 similar as previous year. Acuité believes the financial risk profile of the company will remain healthy over the medium term backed by absence of any large debt led capex plan.
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| Weaknesses |
| High segmental and geographical concentration
The company since inception has worked on projects primarily in Odisha. In FY21, the company has bagged a HAM project in Jharkhand worth of Rs. 1035 Cr. issued by NHAI which will help to diversify its presence outside their home territory. Moreover, the company has executed mainly road and highway projects which comprise around 90 percent of the current order book as well thus implying high segmental concentration. However, management is planning to bid for irrigation orders from state government agencies in order to reduce its segmental concentration. |
| Rating Sensitivities |
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| Material covenants |
| None |
| Liquidity Position: Adequate |
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The company has adequate liquidity profile as reflected from its net cash accrual of Rs. 47.22 Cr in FY2022 as against current maturity of Rs. 35.46 Cr. The fund based bank limit utilization of 9 months ended December 2022 stood at around 77 per cent. The current ratio stood moderate at 1.29 times in FY22. However, the moderate working capital management of the company is marked by Gross Current Assets (GCA) of 100 days as on 31st March 2022 as compared to 131 days as on 31st March 2021. Acuite expects the liquidity position of MCMIL to remain adequate over the medium term backed by steady accruals.
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| Outlook: Stable |
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Acuité believes the outlook on RKD will remain ‘Stable’ over the medium term backed by its long track record of operations, strong order book position and comfortable financial risk profile. The outlook may be revised to ‘Positive’ if the company is able to ramp up its scale of operation with substantial improvement in financial risk profile. Conversely, the outlook may be revised to ‘Negative’ in case of substantial deterioration in liquidity or financial risk profile due to increase in working capital requirement.
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| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 627.17 | 503.67 |
| PAT | Rs. Cr. | 32.33 | 32.01 |
| PAT Margin | (%) | 5.15 | 6.36 |
| Total Debt/Tangible Net Worth | Times | 0.67 | 0.85 |
| PBDIT/Interest | Times | 3.60 | 3.58 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable |
| Any other information |
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Not Applicable
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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 |
| 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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