Detailed Rationale

CRISIL Ratings has upgraded its rating on the long-term bank facilities of BL Kashyap and Sons Ltd (BLK) to 'CRISIL B+/Stable' from 'CRISIL B-/Stable'. Short term rating of the company has been reaffirmed at ‘CRISIL A4’.

 

The rating action reflects the improved credit profile of BLK, backed by improvement in the business risk profile with healthy revenue growth of around 12% in fiscal 2024 because of timely order execution. As on June 30 2024, the company has an outstanding order book of Rs 3,300 cr which is 2.65 times of fiscal 2024 revenue and provides revenue visibility for the medium term.  Revenue is expected to grow by around 12%-14% going forward. The company is executing orders which are approximately 85% from private players and remaining from central government entities spread across 7 regions and duly diversified into commercial, residential and institutional building works. The operating margin remained range bound to 8.8-9% in fiscal 2024 with no exceptional losses during fiscal 2024. The operating margin is expected to remain around 9%-10% going ahead, backed by the company’s focus on high-value orders. 

 

The financial risk profile of company has remained modest albeit, improving as reflected in networth and total outside liabilities to tangible networth (TOL/TNW) ratio of Rs 496 crore and 1.66 times, respectively, as on March 31, 2024. Debt protection metrics are moderate, as indicated by interest coverage and net cash accrual to adjusted debt (NCAAD) ratio of 2.51 times and 0.2 times, respectively, in fiscal 2024. Financial risk profile of the company is expected to remain adequate in the medium term with gearing and TOL/TNW expected to remain below 0.7 times and 1.7 times in the medium term. Interest coverage ratio expected at above 2.5 times for the medium term.

 

Liquidity is stretched reflected in higher average utilization of working capital limits at 90% in past 12 months through August 2024. However, with the resolution of one of the long pending debtors, utilization of working capital limits has been moderating to 75% since July 2024. 

 

The ratings continue to reflect BLK’s susceptibility to cyclicality in the commercial real estate segment, its limited revenue diversity and minimal cushion in the working capital limits. These rating weaknesses are partially offset by BLK’s established position in the construction industry.

Analytical Approach

For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of BLK and its subsidiaries, BLK Lifestyle Ltd, Security Information Systems (India) Ltd, BLK Infrastructure Ltd, and Soul Space Pvt Ltd (SSPL). SSPL is BLK's real estate arm, and the other subsidiaries provide related services. All the companies are together referred to as the BLK 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

Weaknesses:

• Modest albeit improving Financial Risk Profile:  The financial risk profile of the company has remained modest however has been improving. The company has repaid more than Rs 300 crore of the restructure debt since the implementation of the CDR and have complied with all the covenants since 2019. Currently the company has only working capital debt. Average utilization in working capital although has remained high at above 90% in the past 6 months through August 2024, however moderated to 70-80% since July 2024 due to resolution of one of its long pending debtors which was in the arbitration. Leverage ratios remained adequate with gearing of 0.66 times and TOL/TNW of 1.66 times in fiscal year 2024. Gearing and TOL/TNW is expected to remain below 0.7 times and 1.7 times respectively in the medium term. Interest coverage ratio is expected to remain above 2.5 times in the medium term with no major debt addition expected.

 

• Susceptibility to cyclicality inherent in the Indian real estate industry: The real estate sector in India is cyclical and affected by volatile prices, opaque transactions, and a highly fragmented market structure. Hence, the business risk profile will remain susceptible to risks arising from any industry slowdown.

 

Strengths:

• Long Vintage of the promoters in the real estate construction business: The promoters of the company have a long vintage of more than three decades in the real estate construction business. The company has pan India presence have completed close to 140 million square feet of construction since its inception. The second generations of the promoters are also involved in the business and involved in the day to day activities of the company.

 

• Improving scale of operations aided by healthy order book providing revenue visibility: Revenue grew around 12% to Rs 1245 crore in fiscal 2024 from Rs 1110 crore in fiscal 2023, supported by timely execution of orders.  The order book of BLK remains healthy at Rs 3,300 cr with 63% of the orders from the commercial real estate sector. The remaining order are from residential (14%), institutional (13%) and infrastructure (10%) segment. In the quarter one fiscal 2025, revenue grew by 39% on year. Revenue is expected to grow by  12%-14% and cross Rs 1400 crore in the medium term with current order books gives visibility for revenue for the next 16-18 months. While the strong order book provides significant revenue visibility over the medium term, timely order execution will be a key monitorable.

Liquidity: Stretched

Liquidity in the company is stretched reflected in average utilization of the working capital limits at 90% in the past 12 months through August 2024. However, working capital limit utilization moderated to approximately 75% since July 2024 post resolution of debtor amounting to ~ Rs 160 crore in July 2024, the proceeds of which were used to settle creditors and repayment of working capital debt. Going forward, liquidity will be supported by healthy net cash accrual, expected above Rs 65 crore per year, against nil debt repayment and limited capex requirement of Rs 45-50 crore per annum. No delay in serving of interest or principle has been observed during the fiscal 2024.

Outlook: Stable

CRISIL Ratings believes BLK will continue to benefit from its established market position and experienced promoters in the real estate EPC segment.

Rating sensitivity factors

Upward factors

• Significant and sustained improvement in liquidity along with improvement in interest coverage
• Sustenance of revenue and operating margins above 9-10% leading to higher net cash accruals

 

Downward factors

• Worsening of liquidity position and deterioration in interest coverage ratio
• Operating margin declining below 6% weakening net cash accruals

About the Company

BLK was established in 1989 by Mr. Vinod Kashyap, Mr. Vineet Kashyap, and Mr. Vikram Kashyap. The company was reconstituted as a public limited company with the current name in 1995. The promoters have been active in the real estate sector since 1978; they transferred their business to BLK after it was formed.

 

BLK provides construction services to customers in the commercial, residential, and industrial segments. The company has also ventured into real estate development and related services, such as furnishing. It has partly restructured its debt under a corporate debt structuring package, which was approved under statutory guidelines then on December 31, 2014.

 

In the first three months of fiscal 2025, the company reported a profit after tax (PAT) of Rs 20  crore (Rs 10 crore in corresponding quarter of fiscal 2024), on net revenue of Rs 350 crore (Rs 253 crore in corresponding quarter of fiscal 2024).

Any other information: Not Applicable