| Amara Raja Infra Private Limited | ||||||
| Ratings placed on 'Watch Developing' | ||||||
| Rating Action | ||||||
| ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has placed its ratings on the bank facilities of Amara Raja Infra Private Limited (ARIPL) on ‘Rating Watch with Developing Implications’.
The rating action follows the scheme of arrangement involving ARIPL and group company Amara Raja Power Systems Ltd (ARPSL), wherein one of the business segments of ARPSL, EPC/Projects (includes assets, liabilities, properties, titles, rights, duties, obligations), is being demerged from ARPSL as a going concern into ARIPL. The scheme is aimed at consolidating/streamlining the business assets of the Amara Raja group leading to operational rationalisation and optimum utilisation of resources. ARIPL has already filed an application with the National Company Law Tribunal (NCLT) and approvals from shareholders/creditors are expected by the end of June 2022.
CRISIL Ratings understands that the scheme of arrangement will be applicable effectively from April 1, 2022, subject to the approval of NCLT, lenders and other stakeholders.
The scheme can increase the scale of operations of ARIPL and improve its ability in for bidding for larger projects by fulfilling the revenue/networth criteria. However, debt is also expected to increase as debt from EPC/Projects business of ARPSL gets transferred to ARIPL as a part of scheme. CRISIL Ratings will engage with the company’s management to understand the exact contours of the split, its timeline, the expected asset-liability position of the entities post the split, and its implications on the business and financial risk profiles of the group. CRISIL Ratings will continue to monitor developments regarding the transaction and take rating action on its completion and once there is clarity regarding its impact on the credit risk profile of ARIPL.
The ratings continue to reflect the steady improvement in ARIPL’s consolidated order book with increasing share of external customers and steady orders from companies in the Amara Raja group, and healthy operating profitability in the civil construction business and facility management services. The ratings also factor in the company’s healthy financial risk profile. These strengths are partially offset by limited, though improving, customer and geographical diversity in revenue, susceptibility to cyclicality and intense competition in the civil construction sector. |
Analytical Approach CRISIL Ratings has considered the standalone business and financial risk profiles of ARIPL. |
Key Rating Drivers & Detailed Description Strengths:
While ARIPL has a healthy order flow from the Amara Raja group companies, there has been a considerable increase in orders from external customers over the past two years. The increasing share of external orders improves revenue diversity and reduces dependence on group companies. ARIPL also bids for large corporate projects, which on materialising, will further boost the order book over the medium term.
The financial risk profile is supported by healthy capital structure and adequate debt protection metrics. The construction services business is working capital intensive. However, ARIPL’s working capital management has improved significantly backed by timely receivables collection procedures. Also, customer advances of 10-15% for each order have strengthened cash flows, thereby ensuring minimal dependence on debt to fund operations. Accordingly, gearing declined to 0.22 time as on March 31,2021 from 0.47 time a year earlier.
Weaknesses:
As of fiscal 2021, ARIPL derived about 70% of its revenue from projects executed for the Amara Raja group companies, and hence, was susceptible to the risk of any drop in order flow from the group companies. Track record of executing projects outside the group, though limited, has been improving consistently. ARIPL has been leveraging the group’s experience to win large contracts from external customers and to bag repeat orders. As the share of orders from external customers (especially large corporate orders) is expected to increase over the medium term, ARIPL’s ability to maintain its currently favourable margins and to manage its working capital efficiently will remain a challenge and a key rating sensitivity factor.
The construction industry is cyclical and susceptible to economic downturns. ARIPL is a relatively small player in the highly competitive civil construction industry. The high fragmentation in the industry can be attributed to low entry barriers, because of low capital intensity. The presence of a large number of small players restricts pricing flexibility of players such as ARIPL, resulting in pressure on margins. |
Liquidity: Adequate ARIPL has adequate liquidity. The company utilised bank lines moderately at 30% on average during fiscal 2022. Expected cash accrual of above Rs 60 crore in fiscal 2023 will be sufficient to fund capex and working capital requirement and to meet debt obligation of Rs 12-15 crore per annum over the medium term. Also, financial support from the promoters will be forthcoming during exigencies. |
Rating Sensitivity factors Upward factors
Downward factors
|
About the Company ARIPL, part of the Amara Raja group, was incorporated in 2008. The company provides civil, mechanical and electrical construction services primarily for the industrial segment. Since its inception, ARIPL has been catering to the construction requirements for the expansion plans of other Amara Raja group companies. The company started to execute projects for external customers in 2015 in a small way. ARIPL started executing medium-scale residential projects for external customers in Tirupati in fiscal 2018. |
About the Group The Amara Raja group, established in 1985, is promoted by Mr Ramachandra Galla and his family members, who own 100% of the equity capital in ARIPL. The group comprises eight companies, including the flagship Amara Raja Batteries Ltd, the second largest player in the storage batteries segment in India. All the group companies are established and operate from Tirupati. |
Key Financial Indicators
|
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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
^100% interchangeability between letter of credit and bank guarantee |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||
|
Criteria Details
|