Rating Rationale
March 15, 2024 | Mumbai
AVP Infracon Limited
Ratings reaffirmed at 'CRISIL BB/Stable/CRISIL A4+'
 
Rating Action
Total Bank Loan Facilities RatedRs.35 Crore
Long Term RatingCRISIL BB/Stable (Reaffirmed)
Short Term RatingCRISIL A4+ (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its CRISIL BB/Stable/CRISIL A4+ ratings on the bank loan facilities of AVP Infracon Ltd (AVP; the AVP group) Formally known as AVP Constructions Private Limited.

 

The ratings continue to reflect the extensive experience of the promoters in the civil construction industry, healthy order book providing revenue visibility and sound operating efficiency. These strengths are partially offset by average capital structure and large working capital requirement

 

This Rating Rationale (RR) is being published in line with regulatory timelines, while the rated entity has appealed the rating. CRISIL Ratings is evaluating the appeal alongwith additional information shared, and shall publish a separate RR after the same is completed.”

Analytical Approach:

CRISIL Ratings has combined the business and financial risk profiles of AVP with its associate entity, AVP RMC, together referred to as the AVP group.

 

Unsecured loan (Rs 15.23 crore as on March 31, 2023) extended by the promoters has been treated as nether debt nor equity as it is expected to remain in the business

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation..

Key Rating Drivers & Detailed Description

Strengths:

  • Extensive experience of the promoters: The promoters have more than two decades of experience in the civil construction industry; their strong understanding of market dynamics and healthy relationship with the suppliers and customers should continue to support the business. The group benefits from its proven track record of project execution for public entities when bidding for tenders.

 

  • Healthy order book, providing revenue visibility and sound operating efficiency: AVP has orders worth about Rs 200 crore, to be executed over the next 12-18 months, providing revenue visibility over the medium term. The operating margin improved to around 20% since fiscal 2023 from around 10% in fiscal 2021 and is expected to sustain at similar levels, driven by reduction in reliance of sub-contracting. Given the tender-based nature of operations, the ability of the group to scale up operations while sustaining operating efficiency will remain a key monitorable.

 

Weaknesses:

  • Average capital structure: Networth was Rs 43.62 crore on March 31, 2023, with gearing of 1.19 times and total outside liabilities to tangible networth ratio of 2.28 times. Improvement in the capital structure, led by steady accretion to reserve, is a key rating sensitivity factor.

 

  • Large working capital requirement: The working capital cycle is likely to remain stretched (due to the nature of business) and will be closely monitored. Gross current assets were around 314 days as on March 31, 2023, led by huge inventory of 258 days.

Liquidity: Adequate

Liquidity should remain supported by the ample surplus available in cash accrual and bank lines. Bank limit utilisation was 80.15% for the 12 months through December 2023. Cash accrual is projected at Rs 15-20 crore per annum, against yearly debt obligation of Rs 9-12 crore over the medium term. The promoters are likely to extend timely, need-based funds (unsecured loans) to aid financial flexibility.

Outlook: Stable

The AVP group will continue to benefit from the extensive experience of its promoters.

Rating Sensitivity factors

Upward Factors:

  • Sustained improvement in scale of operation and better operating efficiency leading to net cash accruals of above Rs 16 Crore
  • Improvement in working capital cycle and/or sizable infusion of capital leading to improvement in leverage levels and overall credit profile.

 

Downward Factors:

  • Deterioration of operating margins to below 12%, leading to lower cash accruals.
  • Any large debt funded capital expenditure and/or stretch in working capital requirements which shall adversely impact the financial and liquidity position of the company

About the Group

Incorporated in September 2009 as AVP Constructions Pvt Ltd and converted into AVP Infracon Pvt Ltd on October 06, 2023, the company was reconstituted into a public-limited company with the current name on October 20, 2023. The company undertakes civil works such as construction of roads and bridges in Tamil Nadu. The promoters -- Mr D Prasanna (Chairman and Managing Director) and Mr B Venkateshwarlu (Joint Managing Director/CFO) -- manage the business. The company is proposing to go for an initial public offering shortly.

 

AVP RMC is a partnership firm engaged in the manufacture and supply of readymade concrete. Majority of the sales is made to AVP

Key Financial Indicators

As on/for the period ended March 31

Unit

2023

2022

Operating income

Rs crore

115.28

75.87

Reported profit after tax (PAT)

Rs crore

14.83

2.75

PAT margin

%

12.9

3.6

Adjusted debt/adjusted networth

Times

1.19

2.03

Interest coverage

Times

5.41

3.37

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the
instrument
Date of
Allotment
Coupon
Rate (%)
Maturity
Date
Issue size
(Rs. Crore)
Complexity
Level
Rating assigned
with outlook
NA Cash credit NA NA NA 23 NA CRISIL BB/Stable
NA Bank guarantee NA NA NA 12 NA CRISIL A4+

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

AVP Infracon Ltd

Full

Significant business and financial linkages

AVP RMC

Full

Significant business and financial linkages

Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 23.0 CRISIL BB/Stable   -- 19-05-23 CRISIL BB/Stable   -- 26-11-21 CRISIL BB-/Stable CRISIL BB-/Stable
      --   -- 27-01-23 CRISIL BB- /Stable(Issuer Not Cooperating)*   --   -- --
Non-Fund Based Facilities ST 12.0 CRISIL A4+   -- 19-05-23 CRISIL A4+   -- 26-11-21 CRISIL A4+ CRISIL A4+
      --   -- 27-01-23 CRISIL A4+ (Issuer Not Cooperating)*   --   -- --
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 12 The Federal Bank Limited CRISIL A4+
Cash Credit 23 The Federal Bank Limited CRISIL BB/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Approach to Recognising Default
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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