Detailed Rationale

CRISIL Ratings has upgraded its ratings on the bank facilities of Bondada Engineering Ltd (BEL; a part of the Bondada group) to ‘CRISIL A-/Stable/CRISIL A2+’ from ‘CRISIL BBB+/Positive/CRISIL A2’.

 

The upgrade reflects better-than-expected business performance in fiscal 2024, which is expected to further improve over the medium term while the financial and liquidity risk profiles are likely to remain comfortable. Operating income increased to over Rs 800 crore on a consolidated basis in fiscal 2024, from Rs 371 crore in the previous fiscal. Moreover, the order book position improved to over Rs 2,500 crore as on June 30, 2024 (from Rs 1,600 crore on January 2024), driven by the improvement in orders from the solar engineering, procurement and construction (EPC) segment. Backed by healthy order flow and strong execution capabilities, the business risk profile is expected to further strengthen over the medium term, with revenue expected to cross Rs 1,300 crore in fiscal 2025 while the operating margin remains above 8.5%. Order book position is also expected to cross Rs 3,500-4,000 crore, with several large ticket orders in the pipeline and bidding stage.

 

The rating action also factors the Bondada group's healthy financial profile, marked by a comfortable capital structure, adequate cash accrual and robust debt protection metrics. Efficient execution of order book and timely collection of receivables while maintaining its healthy capital structure remains monitorable. 

 

The ratings continue to reflect the proven track record of the group in the telecommunication (telecom) and solar EPC industries, extensive experience of the promoters, diverse business operations, geographical presence, well-established customer base and healthy financial risk profile. These strengths are partially offset by a concentrated order book, susceptibility to tender-based operations and large working capital requirement.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of BEL and its subsidiaries, Bondada Ecobuild Pvt Ltd (BEPL), Bondada Renewable Energy Pvt Ltd (BREPL), Bondada E&E Pvt Ltd (BEEPL), Bondada Green Engineering Pvt Ltd (BGEPL) and Atpole Technologies Pvt Ltd (ATPL). This is because all these entities, collectively referred to as the Bondada group, have common management and fund flow fungibility among them.

 

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:

• Proven track record in the telecom and solar EPC industries and extensive experience of the promoters: The group has been providing EPC and operations and maintenance (O&M) services in the telecom industry since 2012. It has worked on more than 11,600 telecom sites across seven states in India and completed several contracts in the telecom tower EPC and solar EPC segments. Further, the promoters have more than two decades of experience; their strong understanding of market dynamics and healthy relations with customers and suppliers should continue to support the business.

 

• Healthy order book, though concentrated, provides revenue visibility: Order book of over Rs 2,400 crore (ongoing) as of June 2024 is to be executed over the next 12-24 months. The group has managed to secure new orders on the solar segment from NLC India Ltd and Singarenni Colliers Company Ltd, which has improved the solar segment order book to Rs 1,344 crore in June 2024, from Rs 163 crore in January 2024. Further, the management expects the scope of the ongoing BSNL 4G saturation project to be increased; new large ticket orders are in the pipeline/bidding stage, which will further drive the revenue to above Rs 1,200 crore in fiscal 2025. Order book will continue to be concentrated with the top 3 orders constituting more than 85% of the total order book. However, the strong credit risk profiles of the counterparties mitigate concentration risks. Timely execution of the key orders and diversification of order book will be monitorable.

 

• Diverse business operations: The group started its business as a telecom EPC service provider and gradually ventured into other services such as solar EPC, telecom tower and optical fibre cable (OFC) O&M, solar O&M, manufacturing of telecom tower, supply of autoclaved aerated concrete (AAC) blocks and other construction materials and supply of unplasticised polyvinyl chloride products. A diverse range of business operations allows the group to not only weather economic downturns but also position itself for sustained growth in the long term.

 

• Geographical presence and well-established customer base: The group has longstanding relationships with customers and suppliers. It has executed projects in more than 23 states for telecom, solar and OFC-related services. Customers include well-established players in the telecom industry, such as Reliance Jio, Airtel, Tata Communications, Bharti Infratel Ltd, Indus Towers, American Tower and BSNL. BEL has bagged repeat orders from these customers.

 

• Healthy financial risk profile: The company has raised equity of around Rs 43 crore in fiscal 2024, which coupled with healthy accretion resulted in networth of Rs 168 crore as on March 31, 2024. This, along with controlled debt, led to comfortable capital structure with overall gearing of 0.37 time as on March 31, 2024. Though there is no major, debt-funded capital expenditure in the pipeline, working capital borrowing may increase to meet the higher working capital requirement to support the large order book in hand and in the pipeline. Though debt levels are expected to increase, the capital structure will remain comfortable with overall gearing below 0.6 times over the medium term. Debt protection metrics will also remain comfortable, with interest coverage ratio above 8 times over the medium term.

 

Weaknesses:

• Large working capital requirement: Gross current assets stood around 183 days as on March 31, 2024, driven by debtors of 94 days and inventory of 69 days. For the ongoing large order from BSNL, the company receives interest-free mobilisation advances, which will support the working capital requirement. With large orders in hand, ability to manage working capital efficiently over the medium term with limited reliance on external borrowing and maintenance of adequate liquidity will be monitorable.

 

• Susceptibility to tender-based operations: Revenue and profitability will depend on the ability to win large tenders amid intense competition, which requires bidding aggressively, thereby restricting operating margin. Hence, securing large orders from strong counterparties on time will remain crucial to maintaining growth rate over the medium term.

Liquidity: Strong

Liquidity should remain supported by the ample surplus available in cash accrual and bank lines. Bank limit utilisation was around 74% for the 13 months through June 2024. Expected annual cash accrual of over Rs 65 crore will be sufficient to the meet yearly debt obligation of Rs 1-2 crore over the medium term.

Outlook: Stable

The Bondada group will continue to benefit from the extensive experience of the management; timely execution of the large orders in hand should boost business risk profile over the medium term.

Rating Sensitivity Factors

Upward factors

• Healthy flow of orders, resulting in greater diversification of order book, and their efficient execution strengthening business risk profile
• Revenue increasing to above Rs 1,500 crore, leading to higher-than-expected cash accrual

 

Downward factors

• Delays in execution of existing orders, resulting in revenue below Rs 800 crore
• Further stretch in working capital cycle, weakening the financial and liquidity risk profiles

About the Bondada group

BEL was incorporated in 2012 to carry out design and EPC work for the telecom and solar segments. It also provides O&M services to telecom service providers. Mr Ragavendar Rao and Mr B Satyanarayana are the promoters.

 

BEPL (formerly, Smartbrix Infra Technologies Pvt Ltd), manufactures building materials such as AAC blocks, jointing mortar, wall putty and ready plaster at its facility in Krishna district, Andhra Pradesh. The unit has an installed capacity of ~1.50 lakh cubic metre per annum. BEL holds 59.99% of the paid-up capital of BEPL.

 

BREPL (formerly, Bondada Green Energy Pvt Ltd), incorporated in 2023, is a 100% subsidiary of BEL w.e.f November 2023 and will be undertaking solar/wind IPP projects.

 

BEEPL, established in June 2023, manufactures (light emitting diode) LED lights. BEL holds 85.00% of the paid-up capital in the company.

 

BGEPL, incorporated in FY24, wholly owned subsidiary, mainly deals with manufacturing of solar MMS, Telecom towers, telecom poles, transmission towers, crash barriers and industrial cable trays.

 

BEL acquired 60% stake of ATPL in December 2023. It is a leading manufacturer of advanced torque motors and controllers for electric two- and three-wheelers, drones, defense and industrial application motors. ATPL specialises in design, development and production of brushless direct current (BLDC) and permanent magnet synchronous motors. With this acquisition, the company plans to enter into the BLDC motor business.

Any other information: Not Applicable