| AVP Infracon Limited | ||||||
| Ratings upgraded to 'CRISIL BBB-/Stable/CRISIL A3' | ||||||
| Rating Action | ||||||
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| 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 |
This rating rationale (RR) is being published in continuation to the RR dated March 15, 2024, which communicated that the rating was under appeal. Upon due consideration of the additional information received, the rating has been upgraded to ‘CRISIL BBB-/Stable/CRISIL A3’ from ‘CRISIL BB/Stable/CRISIL A4+’. The detailed rationale follows:
Detailed Rationale CRISIL Ratings has upgraded its ratings on the bank facilities of AVP Infracon Limited (AVP) to ‘CRISIL BBB-/Stable/CRISIL A3’ from ‘CRISIL BB/Stable/CRISIL A4+’.
The upgrade reflects the significant improvement in financial risk profile following equity infusion from the company’s initial public offering (IPO) in March 2024; the company raised funds of Rs 52.34 crore through the IPO. It would utilise the funds towards capital expenditure (capex), prepayment of term loans and meet working capital requirements. As a result, networth is expected to increase to over Rs 100 crore as on March 31, 2024, from Rs 43.62 crore as on March 31, 2023. This will improve gearing to less than 0.25 time from 1.19 times in the same period.
The upgrade also reflects the improvement in business risk profile, supported by healthy demand and improved operating margin: revenue increased to Rs 115 crore in fiscal 2023 from Rs 75 crore in fiscal 2022, and is expected to increase further to around Rs 135 crore in fiscal 2024 on the back of a healthy order flow. Operating margin is likely to remain stable at around 20% over the medium term.
The ratings reflect the extensive experience of the promoters in the civil construction industry and improving revenue profile, healthy order book providing revenue visibility, and sound operating efficiency. These strengths are partially offset by a modest capital structure and working capital-intensive operations. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of AVP and its associate entity, AVP RMC, together referred to as the AVP group.
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: Presence of over two decades in the civil construction industry has enabled the promoters to establish healthy relationships with raw material suppliers. The company benefits from its proven track record of project execution for public entities. Healthy order book providing revenue visibility, and sound operating efficiency: Orders of about Rs 200 crore provide revenue visibility for the medium term. Furthermore, operating margin has improved to around 20% in fiscal 2023(against 16.9% in fiscal 2022) and is expected to sustain at similar levels on the back of lower reliance on sub-contracting. Given the tender-based business, ability to scale up while sustaining operating efficiency will remain monitorable. Weakness: Modest capital structure: Networth was large at Rs 43.62 crore as on March 31, 2023, but gearing and total outside liabilities to tangible networth ratio were weak at 1.19 times and 2.28 times, respectively. Improvement in financial risk profile on the back of steady accretion to reserves will remain monitorable.
Working capital-intensive operations: Gross current assets were around 314 days as on March 31, 2023, on account of large inventory of 258 days. Due to the nature of the business, GCAs are expected to remain high over the medium term. |
Liquidity: Adequate Bank limit utilisation was moderate at 80.15% for the 12 months through December 2023. Utilisation is expected to decline to 50-60% on the back of equity infusion through the IPO. Expected annual cash accruals of Rs 15-20 crore will be sufficient to meet yearly term debt obligation of Rs 9-12 crore, over the medium term. The promoters are likely to extend unsecured loans to meet working capital requirements and debt obligation. Unsecured loans from the promoters stood at Rs 15.23 crore as on March 31, 2023, and have been treated as neither debt nor equity. |
Outlook: Stable The company will continue to benefit from the experience of its promoters in the civil construction industry. |
Rating Sensitivity Factors Upward factors:
Downward factors:
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About the Company AVP was set up as AVP Constructions Pvt Ltd in September 2009. On October 6, 2023, it was reconstituted as a private limited company (AVP Infracon Pvt Ltd) and then later as a limited company with the current name on October 20, 2023. It is promoted by Mr D Prasanna (Chairman and Managing Director) and Mr B Venkateshwarlu (Joint Managing Director/Chief Financial Officer).
AVP constructs roads and bridges in Tamil Nadu.
AVP RMC is a partnership firm engaged in the manufacture and supply of readymade concrete. |
Key Financial Indicators
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Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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* - Issuer did not cooperate; based on best-available information
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||
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Criteria Details
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