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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 31.43 | ACUITE BB+ | Stable | Reaffirmed | - |
| Bank Loan Ratings | 58.57 | - | ACUITE A4+ | Reaffirmed |
| Total Outstanding | 90.00 | - | - |
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Rating Rationale |
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Acuité has reaffirmed its long-term rating of ‘ACUITE BB+’ (read as ACUITE double B 'Plus') and reaffirmed its short term rating of ‘ACUITE A4+’ (read as ACUITE A four plus) on the Rs.90.00 Cr. bank facilities of Sri Sai Lakshmi Constructions And Co (SSLC). The outlook is ‘Stable’.
Rationale for reaffirmation: The rating reaffirmation takes into consideration the long-standing experience of SSLC’s promoters, its established track record of operations and stable operating income with stable EBITDA margins. The operating income of the firm stood at Rs. 114.40 Cr in FY2023 as against Rs.122.92 in FY2022. The operating margins stood stable at 8.76 percent in FY2023 as against 8.74 percent in FY2022. The financial risk profile of the firm is moderate with low-gearing levels and moderate debt protection metrics.. The overall gearing of the firm stood at 0.24 times as on March 31, 2023 as against 0.13 times as on March 31, 2022. The interest coverage ratio stood at 2.63 times in FY2023 as against 2.91 times in FY2022 and the DSCR stood at 1.68 times in FY2023 as against 2.91 times in FY2022. Further, the rating considers the strong unexecuted order book position which stood at Rs.1147.76 Cr as on November 30, 2023 this providing revenue visibility over the medium term. The rating is however constrained due to working capital intensive operations,tender based nature of operations and presence in a competitive & fragmented industry. |
| About the Company |
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Incorporated in 1997, Sri Sai Lakshmi Constructions & Co (SSLC) is engaged in the business of civil construction and primarily undertakes irrigation works in Andhra Pradesh, Telangana, Uttar Pradesh and Odisha. The entity is promoted by Mr. K. Venkateswara Rao and G. Ratna Prakash along with 7 other partners. The entity undertakes irrigation projects for The Superintending Engineer, Water Resource Department, Government of Andhra Pradesh, SEW Infrastructure Limited, Megha Engineering & Infrastructures ltd among others.
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| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
| Acuité has considered the standalone business and financial risk profile of SSLC to arrive at the rating. |
| Key Rating Drivers |
| Strengths |
SSLC has been engaged in infrastructure development work for more than two decades with established track record in irrigation projects. It has executed several irrigation projects in the State of Andhra Pradesh, Telangana. Mr. K. Venkateswara Rao and Mr. G. Ratna Prakash, the Founder Promoters, are supported by well-qualified and experienced team of professionals to execute the projectsThe company operates in the states of Andhra Pradesh, Telangana, Utter Pradesh and Odisha; providing geographic diversification in its work execution. However, 90 percent of the revenues cater to orders from Andhra Pradesh. Acuité believes that SSLC's longstanding presence, healthy order book, geographically diversified revenue profile is expected to support in improvement of its business risk profile over the medium term.
SSLC has strong presence in irrigation projects over the past two decades in Andhra Pradesh and Telangana region. SSLC's revenues remained stable at around Rs.115 - 120 Cr over the past two years ended FY2023. The firm has an unexecuted order book position of Rs.1147.76 Cr as on November 30, 2023 which is 10 times of FY2023 revenue. This provides strong revenue visibility for the next 2-3 years of time. Out of the aforementioned order book, the firm is planning to execute Rs.300-320 Cr in next two years of time. Acuité believes that healthy order book, and well-funded projects are expected to support SSLC in reporting moderate growth in the operating revenues over the medium term.
The financial risk profile of the firm has remained moderate with moderate capital structure and debt protection metrics. The net worth of the firm stood at Rs.116.18 Cr and Rs.85.29 Cr as on March 31, 2023 and 2022 respectively. The gearing of the firm stood at 0.24 times as on March 31, 2023 against 0.13 times as on March 31, 2022. Debt protection metrics – Interest coverage ratio and debt service coverage ratio stood at 2.63 times and 1.68 times as on March 31, 2023 respectively as against 2.91 times and 1.51 times as on March 31, 2022 respectively. TOL/TNW stood at 0.79 times and 0.68 times as on March 31, 2023 and 2022 respectively. The debt to EBITDA of the firm stood at 2.41 times as on March 31, 2023 as against 0.92 times as on March 31, 2022. Acuité believes that the financial risk profile of the firm is expected to remain moderate over the medium term on account of moderate cash accruals and no significant debt-funded capex plans.
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| Weaknesses |
The working capital management of the firm remained intensive in nature with high GCA days at 535 days as on March 31, 2023 as against 314 days as on March 31, 2022. The GCA days are driven by high debtor days. Inventory days stood at 98 days as on March 31, 2023 as against 86 days as on March 31, 2022. Subsequently, the payable period stood at 218 days as on March 31, 2023 as against 164 days as on 31st March, 2022 respectively. The debtor day stood at 208 days as on March 31, 2023 as against 14 days as on March 31, 2022. Further, the average bank limit utilization in the last twelve months ended November 23 remained at ~88 percent for fund based and 85 percent for non-fund based facility.
SSLC is into irrigation projects, wherein the sector is marked by the presence of several mid to large sized players. The risk becomes more pronounced as tendering is based on minimum amount of bidding on contracts, and susceptibility to inherent cyclicality in the infrastructure segment. Further, it is dependent on State Government's thrust on irrigation and other infrastructure works. Acuité believes that SSLC's revenues and margins are susceptible to the competitive bidding scenario, besides the geographical concentration of its projects to the States of Andhra Pradesh and Telangana.
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| Rating Sensitivities |
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| Liquidity Position: Adequate |
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The firm has generated adequate net cash accruals to service its debt obligations. The net cash accruals stood at Rs.7.04 Cr in FY2023 as against the repayment of Rs.2.43 Cr for the same period and expected to generate cash accruals in the range of Rs.7.4-10.15 Cr. against CPLTD of Rs.1.34- 1.19 Cr. over the medium term. Unencumbered cash and bank balances stood at Rs. 1.18 Cr as on March 31, 2023. However, the firm has working capital intensive operations with GCA days of 535 days in FY2023 against __days in FY2022. Further, the average bank limit utilization in the last twelve months ended November 23 remained at ~88 percent for fund based and 85 percent for non-fund based facility. The current ratio of the firm stood at 2.16 times as on March 31, 2023. Acuité believes that SSLC’s liquidity will remain sufficient over the medium term backed by repayment of its debt obligations and improving accruals.
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| Outlook: Stable |
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Acuité believes that SSLC will maintain a 'Stable' outlook over the medium term backed by its experienced management and healthy revenue visibility backed by healthy order book position. The outlook may be revised to 'Positive' in case of higher than-expected growth in its revenues while maintaining its profitability margins and improving its working capital management. Conversely, the outlook may be revised to 'Negative' in case of any stretch in its working capital management or any significant withdrawal of partner's capital leading to deterioration of its financial risk profile and liquidity.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 114.40 | 122.92 |
| PAT | Rs. Cr. | 4.35 | 4.98 |
| PAT Margin | (%) | 3.80 | 4.06 |
| Total Debt/Tangible Net Worth | Times | 0.24 | 0.13 |
| PBDIT/Interest | Times | 2.63 | 2.91 |
| 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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