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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 10.00 | ACUITE BBB | Stable | Assigned | - |
| Bank Loan Ratings | 35.00 | ACUITE BBB | Stable | Reaffirmed | - |
| Bank Loan Ratings | 25.00 | - | ACUITE A3+ | Assigned |
| Bank Loan Ratings | 80.00 | - | ACUITE A3+ | Reaffirmed |
| Total Outstanding | 150.00 | - | - |
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Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE BBB’ (read as ACUITE triple B) and the short-term rating of ‘ACUITE A3+’ (read as ACUITE A three plus) on the Rs.115.00 crore bank facilities of V U B Engineering Private Limited (VUBEPL).
Acuité has assigned the long-term rating to ‘ACUITE BBB’ (read as ACUITE triple B) and the short-term rating to ‘ACUITE A3+’ (read as ACUITE A three plus) on the Rs.35.00 crore bank facilities of V U B Engineering Private Limited (VUBEPL). The outlook is ‘Stable’. Rationale for Rating The rating reaffirmation takes into account the stable operating and financial performance of VUBEPL marked by improvement in operating income, range bound operating margins and moderate financial risk profile. The operating income of the company recorded improvement in FY2023 as it stood at Rs. 312.15 Cr. as against Rs.197.35 Cr. in FY2022. Further, till 15th March 2024, the company has generated revenue of Rs. 315 Cr. Further, the operating margins of the company ranged between 6.86-9.04 percent for the three-year period ended FY2023. The rating also factors in the adequate liquidity and moderate financial risk profile marked by moderate networth, low gearing and moderate debt protection metrics. The rating is however constrained by the high working capital-intensive nature of operations marked by higher GCA days and customer concentration risks. Going forward, ability of the company to improve its scale of operations while maintaining its profitability margins and capital structure and maintaining an efficient working capital cycle will remain a key rating sensitivity factor. |
| About the Company |
| VUBEPL incorporated in 2005 is a Mumbai based company engaged in civil construction work. It is promoted by Mr. Pradeep N. Thakkar and Mr. Chintan P. Thakkar. It undertakes projects such as roads, dams, bridges, canals, water treatment plants, water reservoirs, M. S. Pipelines and effluent pipelines. The company is registered as a Civil Contractor (Class IA) with Maharashtra State Public Work Department (MPWD) whereby it can bid for any contract without any limit and also as Class I with various other state departments - Maharashtra Industrial Development Corporation (MIDC), Navi Mumbai Municipal Corporation (NMMC), City and Industrial Development Corporation of Maharashtra Limited (CIDCO), Pune Municipal Corporation (PMC), Rajasthan State Water Resources Department (RWRD), and Karnataka Public Works Department (KPWD). |
| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
| Acuité has considered the standalone business and financial risk profiles of VUBEPL for arriving at the rating. |
| Key Rating Drivers |
| Strengths |
| Experienced management and established track record of operations in the civil construction segment
VUBEPL established in 2005 is engaged in civil construction works by undertaking irrigation, water and effluent treatment plant projects for various state government authorities of Maharashtra, Rajasthan and Jharkhand. The company is promoted by Mr. Pradeep N. Thakkar (Chairman), who is a qualified civil engineer with four decades of experience in civil construction work. He is assisted by his son Mr. Chintan P. Thakkar (Managing Director) having two decades of experience and Mr. Prabhakar M. Sarkate (Executive Director) having nearly three decades of experience in civil construction work. The promoter and directors are being supported by its team of experienced professionals in managing day to day operations of VUBEPL. The extensive experience of the management has enabled VUBEPL to establish long relationships with various Government departments which has ensured a steady order flow. Acuité believes VUBEPL will continue to benefit from its experienced management and established track record of operations in the civil construction segment. Moderate financial risk profile Financial risk profile of VUBEPL is moderate marked by moderate networth, low gearing and moderate debt protection metrics. The networth of the company has improved to Rs.88.34 Cr. as on 31 March, 2023 as against Rs.77.89 Cr. as on 31 March, 2022 on account of moderate accretion to reserves. The gearing (debt-equity) stood at 0.72 times as on 31 March, 2023 as against 0.61 times as on 31 March, 2022. The total debt of Rs.63.47 Cr as on 31 March, 2023 consists of long term bank borrowings of Rs.8.46 Cr, unsecured loans from directors of Rs.16.24 Cr. and short term bank borrowings of Rs.38.76 Cr. The interest coverage ratio stood at 2.08 times for FY2023 as against 2.51 times for FY2022 while the DSCR stood at 1.76 times for FY2023 as against 1.83 times for FY2022. The Net Cash Accruals to Total debt stood at 0.19 times for FY2023 as against 0.14 times for FY2022. The Total outside liabilities to Tangible net worth stood at 2.54 times for FY2023 as against 2.07 times for FY2022. The Debt to EBITDA stood at 2.14 times for FY2023 as against 2.88 times for FY2022. Acuité believes that the financial risk profile of VUBEPL will remain moderate over the medium term due to its moderate debt levels vis-à-vis moderate tangible net worth and moderate debt protection metrics. Stable operating performance VUBEPL reported revenues of Rs.312.15 Cr. for FY2023 as against Rs.197.35 Cr. for FY2022. The turnover in FY2023 increased by 58% mainly because of the orders execution engaged in Civil construction works. Further, the company has unexecuted healthy order book which stood at Rs.1521 Cr. as of January 2024 and which is expected to be executed over the next 2-3 years which provides adequate revenue visibility over the medium term. These orders are acquired majorly from Maharashtra and Rajasthan. For the current year as on 15th March 2024, company has achieved revenue of Rs.315 Cr. Further, the operating margins of the company ranged between 6.86-9.04 percent and PAT margins ranged between 2.93-3.42 percent for the three-year period ended FY2023. Going ahead, the operating margins of the company stood at 7.83 percent for 9MFY2024. Acuité believes that VUBEPL will maintain a stable scale of operations over the medium term in view of the healthy orderbook. |
| Weaknesses |
| Working capital intensive nature of operations
The operations of VUBEPL are working capital intensive even though its Gross Current Assets (GCA) days improved and stood at 222 days for FY2023 which stood high against 265 days for FY2022. The high GCA days is on account of increased debtor days. The inventory cycle stood at 48 days for FY2023 as against 67 days for FY2022. The high inventory cycle is majorly driven by work in progress at different sites and an increase in the stock of raw materials for completing the work orders. This makes the company dependent on bank borrowings for working capital requirements. The average inventory holding period is 90 days. The average fund-based utilization for 12 months period ended December 2023 stood at ~82 percent and for non-fund-based stood at 80%. Apart from this, the company’s receivable cycle, which remains elongated, stood at 113 days in FY2023 as against 84 days in FY2022. The average credit period allowed to customers is 90 days. Further, the creditors also stood improved at 223 days in FY2023 as against 265 days in FY2022. Acuité believes that the ability of VUBEPL to improve and maintain an efficient working capital cycle over the medium term will remain a key rating sensitivity factor. Customers concentration risk VUBEPL is exposed to significant customer concentration risk as it majorly works for the Government of Maharashtra and Rajasthan. Although they had made a foray into undertaking project for Government of Jharkhand in the year FY2022 and FY2023. This makes the company highly dependent on three clients for its revenue. VUBEPL is susceptible to any volatility in financial and operational performance of its clients. Any adverse impact in performance or lower order flow from these clients is likely to have an adverse impact on the operating and financial risk profile of the company. Risk associated with tender based nature of order The revenues of VUBEPL are generated through tender based orders floated by the state government departments with the increasing competition in the industry. |
| Rating Sensitivities |
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Ability to improve scale of operations while maintaining profitability margins and capital structure
Ability to improve and maintain an efficient working capital cycle |
| Liquidity Position |
| Adequate |
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VUBEPL has adequate liquidity position marked by sufficient net cash accruals (NCA) to its maturing debt obligations. The company generated cash accruals in the range of Rs.6-12 Cr. during FY2021 to FY2023 against its repayment obligation in the range of Rs.1-2 Cr during the same period. In addition, it is expected to generate a sufficient cash accrual in the range of Rs.16-30 crores against the maturing repayment obligations of around Rs.1.57-2.44 crore over the medium term. The working capital operations of the company are intensive marked by its gross current asset (GCA) days of 222 days for FY2023 as against 265 days for FY2022 on account of increase in the debtor days during the same period. The average fund-based utilization for 12 months period ended December 2023 stood at ~82 percent and for non-fund-based stood at 80%. The current ratio stands at 1.27 times as on 31 March 2023. The company has maintained cash & bank balance of Rs.5 Cr in FY2023.
Acuité believes that the liquidity of VUBEPL is likely to remain adequate over the medium term on account of sufficient cash accruals against its maturing debt obligations. |
| Outlook: Stable |
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Acuité believes that VUBEPL will maintain 'Stable' outlook over the medium term on account of its experienced management, established track record of operations and healthy order book. The outlook may be revised to 'Positive' in case of significant and sustained growth in revenue and profitability while effectively managing its working capital cycle and keeping the debt levels moderate. Conversely, the outlook may be revised to 'Negative' in case of lower than expected growth in revenue or deterioration in the financial and liquidity profile most likely as a result of higher than envisaged working capital requirements.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 312.15 | 197.35 |
| PAT | Rs. Cr. | 10.69 | 5.79 |
| PAT Margin | (%) | 3.42 | 2.93 |
| Total Debt/Tangible Net Worth | Times | 0.72 | 0.61 |
| PBDIT/Interest | Times | 2.08 | 2.51 |
| 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 |
| 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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