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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 12.00 | ACUITE A- | Positive | Assigned | - |
| Bank Loan Ratings | 63.00 | ACUITE A- | Positive | Reaffirmed | - |
| Bank Loan Ratings | 137.00 | - | ACUITE A2+ | Assigned |
| Bank Loan Ratings | 113.00 | - | ACUITE A2+ | Reaffirmed |
| Total Outstanding | 325.00 | - | - |
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Rating Rationale |
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Acuité has reaffirmed its long-term rating to ‘ACUITE A-’ (read as ACUITE A minus) and its short-term rating to 'ACUITE A2+' (read as ACUITE A two plus) on the Rs.176.00 Cr. bank facilities of Welspun Michigan Engineers Limited (Erstwhile Welspun Michigan Engineers Private Limited). The outlook is ‘Positive’.
Acuité has assigned its long-term rating to ‘ACUITE A-’ (read as ACUITE A minus) and its short-term rating to 'ACUITE A2+' (read as ACUITE A two plus) on the Rs.149.00 Cr. bank facilities of Welspun Michigan Engineers Limited (Erstwhile Welspun Michigan Engineers Private Limited). The outlook is ‘ Positive’. Rationale for Rating
The rating recommendation takes into consideration augmentation in the revenues emanating from the expected growth in the order book with the Welspun group’s broader market reach, leveraging WMEL’s established market presence in the tunnel infrastructure market. WEL which has a track record of executing large Engineering Procurement and Construction (EPC) contracts for construction of roads, highways among others. The rating also draws comfort from stable business risk profile and financial risk profile. In FY24, the company has achieved revenues of Rs. 408.99 Cr. with order execution supported by improved liquidity position with Welspun group taking up the majority shareholding. Furthermore, the company has a confirmed unexecuted order book of Rs. 1897.78 Cr. as on March 2024, the order book is to be executed in next 3-4 years, providing a revenue visibility in the near to medium term. The order book stands at 4.00 times of the company’s OI in FY24. In addition to confirmed unexecuted order book of Rs1897.78 cr , company is having the pipeline of bidding tenders of Rs 229.00 Cr. in the stream of rehabilitation to the client like BMC and AMC. Out of bidding tender of Rs 229 cr, Rs 160 cr L1 stage is also cleared. The rating factors financial risk profile and the adequate liquidity position of the company. The rating is however constrained by working capital intensive nature of operations and exposure to intense competition in the industry.
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| About the Company |
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Welspun Michigan Engineers Limited (Erstwhile Welspun Michigan Engineers Private Limited) is a Mumbai based company, established in 1973 by Mr. Saurin Patel. The company is a leading civil engineering company and specialises in trenchless technology. WMEL also undertakes underground civil work related to pipeline rehabilitation, pipe-jacking, pipe-ramming, micro tunnelling, segment lining, water drainage, sewage projects and others. The operations are led by Mr. Saurin Patel who has more than 25 years of experience in the field of Civil Engineering and executing Projects in India with extensive experience in tunnelling and pipeline rehabilitation projects. The extensive track record of the company has helped them establish long term relations of over four decades with reputed customers including Municipal Corporation of Greater Mumbai (MCGM), Larsen & Turbo, Mumbai Metropolitan Region Development Authority (MMRDA) and Delhi Jal Board among others. In 2023, 50.10% per cent of the shareholding was acquired by Welspun Enterprises Limited (WEL), making WMEL a subsidiary and subsequently in February 2024, its name was changed to ?Welspun Michigan Engineers Limited.
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| About the Group |
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The company is a subsidiary of Welspun Enterprises Limited, flagship company of the Welspun Group. Welspun Group, promoted by Mr. Balkrishnan G Goenka and Mr. Rajesh R Mandawewala since 1985, is headquartered in Mumbai and has presence across varied business segment such as Home Textiles, Line Pipes, Infrastructure, Steel, Oil & Gas, Retail and Flooring Solutions.
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| Unsupported Rating |
| Not applicable |
| Analytical Approach |
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Acuité has considered the standalone business and financial risk profile of WMEL to arrive at this rating. The rating has been notched-up by considering financial and operational support from its parent/sponsor company – Welspun Enterprises Limited (WEL).
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| Key Rating Drivers |
| Strengths |
| Strong parentage; change in name
Welspun Michigan Engineers Limited (Erstwhile Welspun Michigan Engineers Private Limited) is a Mumbai based company, established in 1973 by Mr. Saurin Patel. The company is a leading civil engineering company and specialises in trenchless technology. In 2023, 50.10% per cent of the shareholding was acquired by Welspun Enterprises Limited (WEL), making it a subsidiary and subsequently in February 2024, its name was changed to its current name. The company has a track record of executing large Engineering Procurement and Construction (EPC) contracts for construction of roads, highways among others. With the Welspun group taking over the majority ownership, the company has benefitted financially in terms of reduction in the finance cost and interim facilities against FDs from the Welspun group. Acuité believes that the company is expected to further benefit operationally and financially as the Welspun’s support would be key driver for WMEL to cater opportunities with a broader market reach, leveraging WMEL’s established market presence in the tunnel infrastructure market. Experienced management and established track record of operations Late Dr Manubhai Patel had started the company who was a Civil Engineer and had an experience of over five decades in civil construction . Currently operations of the company are carried out by his son, Mr. Saurin Patel having experience in a similar industry from two decades.The extensive track record of the company has helped them establish long term relations of over four decades with reputed customers including Municipal Corporation of Greater Mumbai (MCGM), Larsen & Turbo, Mumbai Metropolitan Region Development Authority (MMRDA) and Delhi Jal Board among others. Acuité believes that the company will continue to benefit from its experience in the infrastructure sector and its diversified order book over the medium term. Improvement in revenues, healthy order book position albeit decline in profitability The operations of the company reported a growth of 39.15% in operating income by achieving the revenue of Rs. 408.99 crore in FY24 as against Rs. 293.93 crore in FY23. In 9MFY24, the company has achieved revenues of Rs. 269.68 Cr. and was expecting to close the year at ~Rs. 400 Cr. in FY2024 and the company had surpassed the projections with order execution supported by improved liquidity position with Welspun group taking up the majority shareholding. The company operates in 4 segments namely Segmental Lining, Micro Tunnelling, Rehabilitation and others including construction of railways, bridges, marines and roads. Segmental Lining and micro tunelling contributes the highest at 92.74%, others (construction of railways, bridges and roads) contribute 4.09% and rehabilitation contributes 3.17 % to the total revenue in FY2024. The operating profit margin of the company stood at 23.43% in FY24 against 23.81% in FY23. However, the PAT margins of the company declined and stood at 4.41% in FY24 compared to 11.97% in FY23. The decline in the profitability is mainly due to creating provision for service tax liability and interest amounting to Rs 43.77 cr. ( i.e Rs.12.72 cr. and Rs.31.05 cr. respectively) and the same has been classified under the exceptional items being one time event. This was done as new management had indicated to capture the same in the books of accounts as a prudent measure; there has been no fund outflow for the same. Going forward, the operating profit margins are expected to remain in the range of 24-25 percent over the near to medium term. Furthermore, the company has a confirmed unexecuted order book of Rs. 1897.78 Cr. as on March 2024, the order book is to be executed in next 3-4 years, providing a revenue visibility in the near to medium term. The order book stands at 4.00 times of the company’s OI in FY2024. The management expects the order book to grow further mainly in FY2025 with the wide network and reach of the Welspun group. In addition to confirmed unexecuted order book of Rs 1897.78 cr , company is having the pipeline of bidding tenders of Rs 229 cr in the stream of rehabilitation to the client like BMC and AMC. Out of bidding tender of Rs 229.00 cr, Rs 160.00 cr. L1 stage is also cleared. Healthy financial risk profile The financial risk profile of the company is healthy marked by high net worth, low gearing, and comfortable debt protection metrics. The tangible net worth of the company stood high at Rs. 216.98 crore in FY24 as compared to Rs.199.21 crore in FY23. The total debt of the company stood at Rs. 34.37 crore in FY24 as against Rs. 11.35 crore in FY23. The gearing of the company remained low at 0.16 times in FY24 as against 0.06 times in FY23 and 0.02 times in FY22. The TOL/TNW increased and stood at 0.90 times in FY24 as against 0.47 times in FY23 on account of availment of long-term debt in the FY24. The debt protection metrics remains comfortable though there is declined in debt service coverage ratio of 4.42 times in FY24 as against 6.62 times in FY23 and interest coverage ratio stood at 8.35 times in FY24 as against 10.40 times in FY23. Acuité believes that the financial risk profile of the company will continue to remain healthy on account of healthy cash accruals and no major debt funded capex plans. |
| Weaknesses |
| Working capital intensive nature of operations
The operations of the company are working capital intensive in nature marked by high GCA days which is however improved and stood at 233 days in FY24 as against 268 days in FY23. The GCA days mainly emanated from inventory days due to the nature of the construction industry which has a higher work in progress construction projects. The receivable days improved and stood at 20 days for FY24 as against 37 days for FY23.The inventory levels of the company increased and stood at 135 days during the same period compared against 110 days for FY23. The creditor days of the company improved and stood at 229 days for FY24 as against 307 days for FY23. The average bank limit utilisation by the company remains moderate at ~21% and ~74% for fund based, and non-fund-based facilities for eleven months ended May 2024 despite working capital intensive nature of operations. Exposure to intense competition in a fragmented industry WMEL is engaged in the construction of various urban underground infrastructures. The particular sector is marked by the presence of several mid to big size domestic as well as international players. The company faces an intense competition from other players in the sectors. Risk becomes more pronounced as tendering is based on a minimum amount of biding of contracts. However, this risk is mitigated to an extent as the management has been operating in this since last four decades. |
| Rating Sensitivities |
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| Liquidity Position |
| Adequate |
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The liquidity position of the company remained adequate on account of adequate net cash accruals against matured debt obligations. The net cash accruals of the company stood at Rs.36.41 crore against matured debt obligations of Rs. 3.16 crore during the same period. Furthermore, the average bank limit utilisation by the company remains moderate at ~21% and ~74% for fund based, and non-fund-based facilities for eleven months ended May 2024 despite working capital intensive nature of operations.
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| Outlook: Positive |
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Acuité believes that the company will maintain 'positive' outlook over the medium term on account of the increasing revenues emanating from the expected healthy order book with its parent's -WEL wider network that is expected to leverage the company's long track record of operations. Acuite expects the company to have a healthy order book and comfortable financial risk profile in the near to medium term.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 24 (Actual) | FY 23 (Actual) |
| Operating Income | Rs. Cr. | 408.99 | 293.93 |
| PAT | Rs. Cr. | 18.02 | 35.17 |
| PAT Margin | (%) | 4.41 | 11.97 |
| Total Debt/Tangible Net Worth | Times | 0.16 | 0.06 |
| PBDIT/Interest | Times | 8.35 | 10.40 |
| 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 • Rating Process and Timeline: https://www.acuite.in/view-rating-criteria-67.htm • Infrastructure Sector: https://www.acuite.in/view-rating-criteria-51.htm • Group And Parent Support: https://www.acuite.in/view-rating-criteria-47.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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| *Annexure 2 - List of Entities (applicable for Consolidation or Parent / Group / Govt. Support) | ||||||
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