­Promoters’ extensive experience in civil construction industry; established track record of operations in Telangana; healthy order book providing long term revenue visibility
RNC, a special class civil contractor, has established presence in executing projects related to primarily construction and development of buildings, roads and highways amongst others for both public and private sector. Mr. Anaparti Bapineedu, the managing partner of RNC, has nearly 3 decades of experience in the line of civil construction. Prior to his venture in RNC, Mr. Bapineedu was heading the Operations of Roads Division of Meenakshi Group, Hyderabad and has gained experience in the diversified fields of Infrastructure development. Mr. Devineni Sriman, partner of the firm, has gained 20 years of experience in the mechanical field and possess expertise on various type of construction equipment. With the promoters’ extensive industry experience and timely execution of its past projects, RNC has been able to establish long-standing relationship with various government divisions and private players such as Executive Engineer TSEWIDC Division (Medak), Greater Hyderabad Municipal Corporation (GHMC), Larsen & Toubro Limited (L&T) Hyderabad Road Development Corporation Limited (HRDCL) and many region-wise state and national highway authorities amongst others. As per year-to-date figures, till November 30, 2022, the firm has recorded revenue of Rs.123.01Cr. . The firm has outstanding orders value of Rs.758.35Cr as November 30,2022, the same is to be executed in next 12-24 months

Tender based nature of operations; central and state funded projects ensuring timely receivables
RNC executes only tender-based projects mostly funded by central government and state government bodies with low reliance on work received as a sub-contract from other civil construction entities. The funded projects either have budgetary support or are funded by a consortium of banks. Once the tender is allotted, Earnest Money Deposit (EMD) of around 2.0 per cent along with performance guarantee of 5.0 per cent (varies on basis of department, nature, tenure and size of contract work) is deposited against the BG. The firm raises bills on milestone basis. RNC has the option of availing mobilization advance, but avails limited amount from the same. The retention money is usually 5.0 per cent of the contract value which is to be released after a defect liability period of 2-3 years. Out of the 5.0 per cent of the retention money, 3.0 per cent is released upon completion of the project by the end of final bill and rest amount of nearly 2.0 per cent is retained as withheld amount by the authorities. Since, the nature of operations is tender based, the business depends on the ability to bid for contracts successfully. RNC has success rate of 60 per cent in bidding.

Moderate financial risk profile:
Financial risk profile of the firm is moderate in FY22. As the gearing of the firm has deteriorated to 1.68 times as on March 31,2022 from 0.79 times as on March 31, 2021. This is due to new equipment loans taken by the firm in FY22. Net worth of the firm has improved in FY22 to Rs.40 Cr at the same time it is observed that there are withdrawal of partner’s capital during FY22. Debt- EBITDA of the firm has deteriorated to 4.25 times in as on March 31,2022 from 2.04 times as on March 31, 2021. Interest coverage ratio and debt service coverage ratio stood at 2.72 times and 1.22 times as on March 31,2022. TOL/TNW of the firm has increased to 2.02 times as on March 31,2022. Acuite believes that financial risk profile of the company will improve in the medium term.

­Intensive working capital cycle:
The firm’s working capital cycle is intensive which is evident from the Gross Current Asset (GCA) days of 231 days. GCA days of the firm has increased to 231 days as on March 31, 2022 from 145 days as on March 31, 2021. High GCA days is on account of increased debtor days to 131 days as on March 31, 2022 from 74 days in the previous year. As the firm follows monthly billing pattern, the bills for the central government funded and special funded projects are to be raised on the month end and the firm will receive the payments within 40-60 days. Current ratio of the firm is healthy at 2.83 times. Bank limits have been moderately utilized at an average of 73 percent in the past 12 months ending November, 2022. Acuite believes that working capital cycle will improve in the medium term

Geographical concentration on the revenue profile:
Out of the pending order book value of Rs.758.36 Cr, 95 percent of the orders are to be executed in Telangana region of R&B department, Public health department of TS. Apart from these orders the firm also has orders which are completely funded by central government like NHAI, Specially funded by central government and state government projects like construction of medical college, Widening of roads, laying of ring road.  The firm has executed orders of Rs.154.5Cr as on December 15, 2022, 99 percent of these orders are of Telangana region. The firm only undertakes those projects which are specially funded by central government or state government. This draws high geographical concentration risk on the revenue profile of the company

Susceptibility to tender-based operations  
Revenue and profitability depend entirely on the ability to win tenders. Entities in this segment face intense competition, thus requiring them to bid aggressively to procure contracts; this restricts the operating margin to a moderate level. Also, given the cyclicality inherent in the construction industry, the ability to maintain profitability margin through operating efficiency becomes critical.   Acuité believes that the firm’s business profile and financial profile can be adversely impacted on account of presence of stiff competition, and has inherent risk of susceptibility to tender based operations.