Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL A/Stable/CRISIL A1’ ratings on the bank facilities of Eagle Infra India Limited (EIIL). CRISIL Ratings has also reaffirmed its 'CCR A/Stable' corporate credit rating to EIIL.

 

The ratings continue to reflect EIIL's established track record of executing various kind of engineering. Procurement & construction (EPC) projects and Toll collection contracts, healthy order book providing revenue visibility and a comfortable financial profile. These strengths are partially offset by its susceptibility to tender-based operations, and to revenue-related risks associated with toll collections and exposure to cyclicality in the construction industry.

Analytical Approach:

For arriving at the ratings, CRISIL Ratings has considered the standalone financials of EIIL, and has consolidated the special-purpose vehicles (SPVs), where EIIL has outstanding corporate guarantees (CGs) for the entire tenure of the debt, as on March 31, 2022. Further, CRISIL Ratings has moderately consolidated other SPVs to the extent of support required (investment requirement, expected cost overruns in under-implementation projects, as well as cash flow mismatches in operational project) over the medium term.

 

Interest bearing mobilisation advances have been treated as debt. Unsecured loans from the promoters 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 and toll collection contracts: EIIL has an established track record in toll collection business and execution of diverse EPC contracts, supported by extensive experience of its promoters. The promoters have about four decades’ experience in the construction business and have established relationships with counterparties such as state government departments, National Highways Authority of India (NHAI; rated 'CRISIL AAA/Stable'), and the Ministry of Road Transport & Highways and other government agencies. Also EIIL has been present in toll collection business primarily for NHAI for over 11 years and has developed an expertise which enabled it to establish a market position for itself.

 

Revenue had shown a 18% CAGR growth over past five fiscal through 2022, supported by growth in both toll collection business and construction contracts. The company generated around 60% revenue from toll collection business while rest is from execution of construction projects. In recent time, the company has augmented its EPC order book; along with existing roads project, the company has obtained EPC projects in sewage treatment (STP) and new orders from overburden removal from WCL

 

EIIL’s strong project execution capabilities and expertise in toll collection segment shall continue to support its business risk profile over medium term.

 

• Healthy order book providing strong revenue visibility: EIIL presently has works in hand of over Rs. 4800 crores, providing healthy revenue visibility over the medium term. Out of these, around Rs. 3800 crores of orders are from EPC segment (over 3.5 times revenue of EPC revenue in fiscal 2022) and rest are from Toll collection segment. The toll collection contracts are short tenure and company regularly bid for newer contracts. Currently it has around Rs. 1050 crores of Toll collection contracts under bidding. The EPC orderbook has also diversified with order from road segment, HAM projects, Sewage Treatment Plants (STPs), metro related works and recently awarded overburden removal from coal mines projects. The same helps the company to reduce order and sector concentration risks.

 

EIIL has also demonstrated adequate operating efficiencies reflected in operating margin and RoCE of around 7-8% and 24-32% over the last five years. The operating margin in EPC and toll collection businesses have been steady at about 13% and 3-3.5% respectively.

 

• Comfortable financial profile: While the company's revenue has grown to over Rs. 2800 crores in fiscal 2022 from Rs 1049 crore in fiscal 2017, its reliance on debt continues to be low. Total debt as on March 31, 2022 stood at Rs 279 crore of which included unsecured loans and ICDs from promoters and affiliates of over Rs. 140 crores. Growth has been largely funded through internal accrual. Continued healthy accretion to reserves has resulted in strong networth at over Rs 578 crore as on March 31, 2022. Supported by a growing networth and moderate debt, gearing is comfortable at 0.48 times for fiscal 2022. Debt protection metrics are comfortable and will remain steady with interest coverage ratio at around 5.5-6.5 times over the medium term.

 

The company is required to undertake capex of around Rs. 80-90 crores in near term for adding vehicles and machinery fleet for recently received overburden removal projects which will be debt funded to the tune of around 80-85%.

 

EIIL currently has a portfolio of 3 under- construction HAM projects which has incremental investment requirement of around Rs. 85 crores over current fiscal. Healthy accruals shall support these investments along with need-based fund support from promoters.

 

Weaknesses:

• Susceptibility to revenue-related risks associated with toll collections: The company bids for toll collection contracts via e-tendering process and the bidding criteria is based on the highest quote for remittances to the authority. On winning the bid, EIIL is required to make the fixed annual remittances payable to NHAI/other authorities on monthly/periodic basis; however, its revenue would vary depending on the actual traffic on road. Profitability is dependent heavily on the accuracy of the company's forecasts and the efficiency of its toll collections.

 

• Susceptibility to intense competition and cyclicality inherent in the construction industry: Revenue remains susceptible to economic cycles that impact the construction industry. Furthermore, the company mainly caters to government agencies, expenditure of which is directly linked to the economy. The large number of players in the construction segment results in intense competition, which could impact the operating margin. Given the cyclicality inherent in the construction industry, the ability to maintain operating efficiency becomes critical. Risk is mitigated to some extent on account of the company's diversified business nature i.e into toll collection and construction segment.

Liquidity: Adequate

Liquidity is supported by healthy cash accruals and moderately utilized bank lines. Fund based bank limit utilization has remained moderate at around 47 percent for the past twelve months ended March 2022. Cash accruals are expected to be over Rs 160-170 crore which shall be sufficient against term debt obligation of Rs 21-30 crore over the medium term. In addition, it will be act as cushion to the liquidity of the company. Current ratio was healthy estimated at 1.40 times on March 31, 2022.

 

Low gearing and healthy net worth support company’s financial flexibility. Nonetheless, the company has yet not received enhancement in its bank lines and timely availability enhanced limits remains critical to take up new large projects. Also, majority of equity investments towards ongoing HAM projects have been completed with limited additional funds to be infused over medium term.

Outlook: Stable

CRISIL Ratings believe EIIL 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 by over 20% and sustenance of operating margin, leading to higher cash accruals
• Sustenance of healthy financial risk profile and liquidity
• Significant improvement in performance of operational toll projects strengthening overall credit profile

 

Downward factors

• Decline in operating performance reflected in fall in revenue by more than 25% percent and/or operating profitability margin below 6%
• Severe stretch in working capital cycle
• Delays in project implementation or deterioration in performance of operational toll projects, leading to higher-than-expected support requirement or sizeable investments/ extension of corporate guarantees in new HAM projects or in associates

About the Group

EIIL was established as partnership firm in 1981as Eagle Construction Co and later in 2011 it got converted into closely held public limited with the current name. EIIL is promoted by the Rupchandani family and currently headed by its MD Mr. Udhav Rupchandani.

 

EIIL operates as a toll collection agent & manages toll-collection contracts primarily of NHAI which are on revenue sharing basis with NHAI. Revenue sharing quote being the basis of award of toll collection contract in tendering process.

 

It is also engaged in civil construction & infrastructure projects works such as constructions & upgradation of road, bridges, sewage treatment, buildings constructions, etc for state and central government entities. EIIL is a special class A contractor of various government departments & PWD.

 

EIIL group currently has three operational BOT/OMT projects and 3 HAM project. It has additional three under construction HAM projects. 

Key Financial Indicators:

As on / for the period ended March 31		2022*	2021
Operating income	Rs crore	2806	2549
Reported profit after tax	Rs crore	132.5	111.03
PAT margins	%	4.72	4.35
Adjusted Debt/Adjusted Net worth	Times	0.48	0.50
Interest coverage	Times	5.62	6.72

*Provisional

Status of non cooperation with previous CRA:

EIIL has not cooperated with Brickwork Ratings India Private Limited which classified it as not-cooperative vide a release dated August 11, 2021. The reason provided is non-furnishing of information for monitoring the rating.

Any other information: Not applicable