| Ashoka Buildcon Limited | ||||||
| Rating outlook revised to 'Negative'; Ratings Reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| ||||||
| 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 revised its outlook on the long term bank loan facilities of Ashoka Buildcon Limited (ABL) to ‘Negative’ from ‘Stable’ while reaffirming the rating at 'CRISIL AA-‘. The short term rating has been reaffirmed at ‘CRISIL A1+‘.
The outlook revision reflects moderation in the business and financial risk profile of the company with reduction in the order book and operating profitability along with delay in asset monetization leading to elevated debt levels.
Orderbook of the company declined to Rs. 11,700 crore as of March 2024, from Rs. 15,809 crore as on March 31, 2023. This resulted in order book to revenue ratio declining to 1.5 times (on fiscal 2024 revenue) from 2.5 times last fiscal. The build-up in order book over the medium term will remain monitorable.
Earnings before interest taxes depreciation amortization (EBITDA) margin of ABL has displayed a declining trajectory over the last six quarters and remained lower, vis-à-vis CRISIL Ratings’ earlier expectation, at ~7.5% during fiscal 2024 (7.8%, 11%, 14.4% in fiscal 2023, 2022 and 2021 respectively). The Ebitda margin is expected to sustain at single digits in fiscal 2025 too. Margin was impacted in the last 2-3 fiscals due to increase in input prices, execution of aggressively bid projects, and diversification into new segments. Over the medium term, projects entailing lower profitability are expected to be completed, and contribution from higher margin projects will increase, leading to gradual recovery in Ebitda margin to 9.5-10% during fiscal 2025 and early double digits during subsequent years. However, lower-than-estimated recovery of the Ebitda margin will remain a key rating sensitivity factor.
Sustained moderation in profitability has resulted in net cash accrual remaining stagnant in the last four fiscals, which, along with increase in working capital requirement emanating from ramp-up in operations, led to rise in debt levels: debt increased to ~Rs 2,400 crore as on March 31, 2024 from Rs 1,979 crore and Rs 1,107 crore as on March 31, 2023 and March 31, 2022, respectively. Increase in debt has led to higher interest expense and consequently, weakened interest coverage ratio. Adjusted interest coverage ratio for fiscal 2024 is ~3.0 times for fiscal 2024 against 4.2 times and 7.5 times in fiscals 2023 and 2022, respectively. Debt protection metrics are expected to improve slightly over the medium term with gradual recovery in profitability.
Additionally, ABL plans to monetise its seven BOT (built operate transfer) and eleven HAM (hybrid annuity model) assets over the medium term. Recently, ABL has completed monetisation of its city gas distribution business and realised Rs 286 crore in the last quarter of fiscal 2024, and the funds were partly utilised to acquire balance stake in GVR Ashoka Chennai ORR Ltd (CORR; erstwhile joint venture of the company). Completion of monetisation of assets is expected to reduce debt levels, support to provide exit to SBI Macquarie (investor in Ashoka Concessions Ltd [ACL; CRISIL AA- (CE)/Negative]) and improve liquidity. ABL has been making efforts to monetise its assets to reduce debt and provide exit to SBI Macquarie, and this will remain monitorable.
The ratings continue to reflect the established track record of ABL in executing engineering procurement & construction (EPC) contracts and built-operate-transfer (BOT) road projects and its order book providing adequate revenue visibility. The ratings also factor in the healthy financial risk profile amidst expectations of funding support and investment in subsidiaries, ACL and Ashoka Sambalpur Baragarh Tollway Limited (ASBTL; ‘CRISIL AA- (CE)/Negative’). These strengths are partially offset by the large working capital requirement and susceptibility to intense competition and cyclicality in the construction industry. |
Analytical Approach CRISIL Ratings has also consolidated the debt of ACL and ASBTL, guaranteed (unconditional and irrevocable) by ABL, while assessing the credit risk profile of ABL. CRISIL has moderately consolidated other special purpose vehicles (SPV’s), as per the approach, the investment requirement, expected cost overrun in under-implementation projects, as well as cash flow mismatches in operational projects of ABL, have been factored into the financials of ABL. ABL is expected to extend equity and support towards cash flow mismatches in ACL and ASBTL.
Furthermore, interest-bearing mobilisation advances (~Rs 852 crore as on March 31, 2024) have been treated as debt.
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: Established track record of executing EPC contracts and BOT road projects Experience of over two decades in the EPC business and established relationships with state government departments, the National Highways Authority of India (NHAI), and the Ministry of Road Transport and Highways should continue to support the business. ABL was one of the early entrants in BOT road projects in India and won its first project in 1997. Along with ACL, it currently has 21 such projects. Of these, 19 are operational and 2 under construction; with over 14,000 lane kilometres (km) having been constructed so far and successfully handed over.
Of the portfolio of 21 projects, ACL houses 13 (six BOT toll and seven HAM) projects. Out of the total 11 HAM projects with the group, nine are in the operational stage or have received provisional completion certificate and two are under construction. Few under-construction HAM projects had right-of-way (ROW) issues, but these are expected to be completed on time, given the strong track record of the EPC contractor and six months of extension provided due to the pandemic.
The order book of ABL has evolved over time. The company has shifted its focus from bidding for BOT and HAM to EPC projects. ABL aims to become an all-sector EPC player over the medium term. The company has been engaged in the roads, power transmission and distribution (T&D) business for 10 years, railways for five years and buildings for two years. It has recently entered into sewage, smart infrastructure and solar projects. Power T&D projects received recently will enable the company to report a healthy increase in scale of operations.
Strong project execution capabilities of ABL are reflected in successful completion of projects within the scheduled time and budgeted cost. The strong in-house EPC division undertakes all project implementation for the BOT/HAM road projects. The group also manufactures readymade concrete and high-grade bitumen, which supports operating efficiency.
Order book providing moderate revenue visibility ABL had order book worth around Rs 15,809 crore as on March 31, 2023, which has reduced to ~Rs 11,700 crore as on March 31, 2024, due to lower awarding in the road sector and healthy execution of existing order book. Order book to sales ratio moderated to ~1.5 times as on March 31, 2024, from 2.5 times as on March 31, 2023. It is expected to improve over the medium term with better awarding this fiscal. Due to lower awarding in the roads segment, share in the order book of the segment has reduced to ~45% (around 52% in previous fiscal) and share of power T&D projects have increased to 41% (around 25% in previous fiscal), railways (7.5%), and the balance in building EPC and other segments. Within the road segment, HAM and EPC account for 10% and 34%, respectively. Moreover, diversified revenue streams will help reduce susceptibility to downturn in any one segment.
Healthy financial risk profile Financial risk profile is healthy with networth and total outside liabilities to tangible networth (TOLTNW) ratio of ~Rs 3,812 crore and 1.26 times, respectively, on March 31, 2024. The TOLTNW ratio is expected to remain healthy despite annual capital expenditure (capex) plans of Rs 100-125 crore and Rs 500-600 crore of equity investment plans (on HAM/BOT projects) over the next 2-3 fiscals. ABL follows a conservative financial policy and hence, capital structure has remained healthy over the years. Adjusted debt (CRISIL Ratings has fully consolidated debt in subsidiaries guaranteed by ABL in its assessment) has increased to ~Rs 2,400 crore as on March 31, 2024 from Rs. 1,979 crore and Rs 1,107 crore as on March 31, 2023 and March 31, 2022, respectively. Increase in debt levels led to higher interest expense and, with moderation in profitability, resulted in deterioration in debt protection metrics: adjusted interest coverage ratio was ~3.0 times for fiscal 2024 (4.2 times, 7.5 times, 8.5 times in fiscals 2023, 2022 and 2021, respectively). With expected improvement in profitability, net cash accrual should improve, leading to improvement in debt protection metrics over the medium term.
About 50% of ABL’s networth is locked in investments made in the underlying BOT and HAM portfolios. However, as most of the HAM projects are complete, equity commitment is expected to reduce to Rs. 100 crore in existing projects and with improvement in toll and debt refinancing in ASBTL, no further support is expected towards any of the projects. Internal accruals are expected to fund the incremental working capital requirement and support growth of ABL, which has been infusing the entire equity commitment towards HAM projects under ACL
ABL has sold its entire stake in Unison Enviro Pvt Ltd (UEPL) to Mahanagar Gas Ltd for a consideration of Rs 287 crore, and has partly utilised the proceeds to acquire the remaining 50% equity stake in CORR from GVR Infra Projects Ltd for a consideration of Rs 185 crore. After the acquisition, CORR has now become a wholly owned subsidiary of ABL. ABL plans to monetise its seven BOT and 11 HAM assets, which will support to provide exit to SBI Macquarie. ABL holds 66% stake in ACL, while the balance stake is held by SBI Macquarie, which had invested Rs 800 crore in ACL in 2012; exit will be provided through monetisation of assets with exit value being capped at Rs 1,526 crore. Any development on the monetisation plans, leading to reduction of debt, will remain monitorable.
Weaknesses: Large working capital requirement
Exposure to intense competition and cyclicality in the construction industry As per the orderbook as on March 31, 2024, ~ 45% of outstanding orders comprised of projects from roads and highways, ~40% from the power T&D and the balance from railways and buildings. Although the company executes projects across segments, revenue remains susceptible to changes in government regulations and the prevailing economic conditions. Furthermore, the company mainly caters to government agencies, expenditure of which is directly linked to the economy. Competition in roads has intensified further due to the recent relaxation in bidding norms by NHAI and Ministry of Road Transport and Highways of India. The increased competitiveness has impacted operating margin, as can be seen from moderation in Ebitda margin in the last two fiscals to 7.5-8% through fiscal 2024, from 12-14% (prior to fiscal 2021). Margin in fiscals 2022 and 2023 was also impacted by increase in input prices and the company diversifying into new segments from earlier concentration in roads.
However, this risk is mitigated by the increased diversification of ABL into varied sectors, which will allow it to bid selectively for projects. Though the company has a strong track record of efficient operations in roads, its performance in new segments such as power T&D and railways will remain monitorable. |
Outlook: Negative CRISIL Ratings believes the business risk profile may weaken due to moderation in EBITDA margin and decline in orderbook, thereby subsequently impacting financial risk profile as well. |
Rating Sensitivity factors
Downward Factors:
|
About the Company
ABL is listed on both the Bombay Stock Exchange and National Stock Exchange. It has significant experience in executing road projects across India and has constructed more than 14,000 lane km till date. This is also reflected in its outstanding BOT/HAM portfolio of 21 projects (including ACL assets) as of fiscal 2024. In the EPC division, ABL constructs roads and bridges for its own BOT projects as well as for third parties. It also executes EPC projects in the power distribution space for various state governments.
ABL set up ACL as a subsidiary in November 2011, and transferred six BOT projects to it. SBI Macquarie also infused Rs 800 crore (39% stake at the time of entry), and ACL acted as an exclusive BOT project developer for both ABL and SBI Macquarie. Out of 11 HAM projects awarded to ABL, seven were housed under ACL. |
Key Financial Indicators (Standalone)*
PAT is high in fiscal 2023 due to Rs. 349 crore of reversal of impairments *as per analytical adjustments made by CRISIL Ratings. **Based on abridged financials |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Includes fund based sub-limit of Rs.130 crore NA: Not applicable |
Annexure – List of Entities Consolidated
|
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Criteria Details
|