Detailed Rationale

CRISIL Ratings has upgraded its ratings on the bank facilities of Deepak Builders and Engineers India Limited (DBEIL) to ‘CRISIL BBB+/Stable/CRISIL A2’ from ‘CRISIL BBB-/Stable/CRISIL A3’.

 

The rating upgrade factors in company’s sustained improvement in the business risk profile on account of healthy order book execution and stable operating efficiencies. In the ongoing fiscal till Sept-24, company had already clocked in turnover of Rs. 227 crores. Resultantly, the revenue is expected at Rs 600-650 crore for full year fiscal 2025, marking an annual growth of over 15-20% and expected to grow with similar pace in fiscal 2026 as well. Further, the revenue visibility over the medium term stands healthy backed by more than Rs. 1500 crore of order book outstanding as of Sept-24, i.e., over 3 times the revenue for fy24. The business risk profile has been further aided by healthy operating efficiencies backed by steady increase in operating profitability to over 25.55% during fy25 (April-Sept), 22% during fy24, prudent working capital management and hence healthy return on capital employed ~ 25-30% estimated during fy25.

 

The upgrade also factors in improvement in the financial risk profile with better leverage and comfortable debt protection metrics. This was on account of an initial public offer (IPO) that raised nearly Rs. 260 crore leading to improvement in networth estimated to more than Rs 400 crore in fiscal 2025. These funds are to be utilised towards payment of running debt leading to improvement in the capital structure with total outside liabilities to adjusted networth (TOL/ANW) ratio expected to improve to 0.5-0.6 time from 2.60 times in fiscal 2024. The debt protection metrics are expected to remain comfortable with an interest coverage ratio of over 6 times, over the medium term, amid steady operating profitability. Liquidity has also strengthened on the back of improved net cash accrual following steady increase in revenue and better profitability. This has improved the cushion between net cash accrual and debt obligation.

 

The rating continues to reflect DBEIL's established market position backed by extensive industry experience of the promoters and healthy financial risk profile. These strengths are partially offset by working capital intensive operations and moderate scale of operations.

Analytical Approach:

CRISIL Ratings has evaluated the standalone business and financial risk profiles of DBEIL.

Key Rating Drivers & Detailed Description

Strengths:

• Established market position and extensive industry experience of the promoters: The promoters have around three decades of industry experience in executing civil construction projects and has established good market position with timely execution of projects. The company has a healthy relation with its customers HSCC India Limited, National Project Construction Corporation Limited (NPCC), Wapcos Limited, Engineer India Limited, other government agencies on account of its regular orders and successful execution of large projects. This has helped the company to clock steady growth in revenue over the years, evident by compound annual growthy rate (CAGR) of 15-18% during past four fiscals through Fiscal 25.

 

• Healthy financial risk profile: Networth is estimated to be healthy at over Rs 400-420 crore as on March 31, 2025 with the infusion of funds through the IPO that raised nearly Rs 260 crore. Furthermore, these funds are to be utilised towards payment of running debt leading to improvement in the capital structure with TOLANW ratio expected to improve to 0.5-0.6 time from 2.60 times in fiscal 2024. Despite debt-funded capital expenditure (capex) in the near term to enhance capacity, the capital structure is expected to remain comfortable due to healthy accretion to reserves. The debt protection metrics are expected to remain moderate with interest coverage and net cash accrual to total debt ratios of 6-7 times and 0.5-0.70 time, respectively. Although the financial risk profile is expected to be comfortable, any large debt or cost overruns in the planned capex would be monitorable.

 

Weaknesses:

• Moderate scale of operations: Despite reporting a healthy CAGR of nearly 15-18% over the last four years through fiscal 2025, revenue expected to remain moderate at Rs. 600-650 crore in fiscal 2025. Revenue growth is supported by order book of nearly Rs. 1500 as of September 2024 and revenue booking of Rs 227 crore done till September 2024. Furthermore, scalability is dependent upon ability to win tenders and their successful execution thereafter. However, its timely execution amidst efficient working capital management, will remain a key monitorable.

 

• Working capital intensive operations: Operations continue to remain working capital intensive with estimated gross current assets (GCA’s) of 200-220 days over the past three fiscal through FY25. The working capital requirement further increased during FY24, as on account of competitive pricing, company opted for high inventory buying leading to increase in inventory holding days to 249 as of Mar 31, 2024 from 162 days as on same date during fiscal 2023. The company books higher revenue in the last quarter, which increases the working capital requirement towards the end of the fiscal and given the nature of the civil construction business and high work-in progress inventory, the working capital requirement will remain high. Debtor days stood range bound at 60-90 days during the discussed period. With bulk of the inventory being deployed towards business specific requirement in the ongoing fiscal compounded with expected deployment over the medium term, in line with project execution timelines, CRISIL Ratings believes the overall inventory holding and GCA shall moderate over the medium term. However, sustained improvement in the same will remain a key monitorable.

Liquidity: Adequate

Bank limit utilisation is high at around 83 percent for the past 12 months ended October 2024.  Cash accruals are expected to be over Rs 90-100 crore which will be sufficient against maturing term debt obligation of Rs. 10-12 crores over the medium term. In addition, it will be act as cushion to the liquidity of the company. Current ratio was comfortable at 1.64 times as on March 31, 2024 and shall continue to remain so over the medium term as well.

Outlook: Stable

CRISIL Ratings believes DBEIL will continue to benefit from the extensive experience of its promoter, and established relationships with clients.

Rating sensitivity factors

Upward factors

• Sustained improvement in scale of operation with stable operating margins of 20-22%.
• Prudent working capital management leading to lower dependence on external debt and an improved leverage position.

 

Downward factors

• Delay in order execution or lower profitability, leading to lower-than-expected net cash accrual.
• Stretch in the working capital cycle leading to higher debt, thus weakening the financial risk profile with gearing ratio increasing to 1.8 times.

About the Company

DBEIL was incorporated as a proprietorship firm in the year 1984 by Mr. Deepak Kumar Singal. Later, the firm was converted to a partnership firm in 1990, and subsequently reconstituted as a private limited company in 2017. In 2022, the company was converted into a closely held public company under the current name. DBEIL is engaged in the business of government contract work and construction of infrastructure facilities including hospitals, bridges, roads, government buildings, etc. It is based in Ludhiana, Punjab.

 

DBEIL is promoted by Mr. Deepak Kumar Singal and Mrs. Sunita Singal (spouse).

Any other information: Not Applicable