Detailed Rationale

CRISIL Ratings has upgraded its ratings on the bank facilities of GPT Infraprojects Ltd (GPTIL; part of the GPT group). to ‘CRISIL A/Stable/CRISIL A1’ from ‘CRISIL A-/Stable/CRISIL A2+’.

 

The upgrade reflects improvement in business risk profile of the company with revenue of Rs 1018 crore in fiscal 2024 exhibiting 26% growth as against the previous year owing to healthy order flow and execution of projects well ahead of scheduled timelines. The company has continued its growth momentum in fiscal 2025 with revenue recorded of Rs 529 crore in the first six months and estimated revenue of over Rs 1200 crore for the whole fiscal backed by major order book execution in Q4 of the fiscal as observed over the past few fiscals. GPTIL is expected to improve its revenue profile over the medium term backed by a healthy outstanding order book of around 3,600 crore which provides healthy revenue visibility. Operating efficiency remains supported by execution well ahead of scheduled timelines with healthy Return on Capital Employed (ROCE) and EBITDA Margin expected around 25% over the medium term supported by reduced reliance on external working capital debt. Operating profitability is expected to be sustained at an improved level of 13% over the medium term backed by higher margin orders and better economies of scale through increased scale of operations. Streamlined project execution and improvement in realisations led to reduction in unbilled revenue which has led to improved working capital cycle, with expected gross current assets (GCAs) at around 180-200 days over the medium term.

 

Financial risk profile is strong marked by networth of Rs 497.32 crore as on September 30th, 2024 supported by equity infusion through QIP in Q2FY2025 and steady accretion to reserves which is further expected to increase over the medium term backed by healthy profitability.  Low dependence on external debt amid equity infusion through QIP has further strengthened the capital structure. In the absence of any debt funded capital expenditure (capex) plan, the gearing is expected below unity over the medium term. Debt protection metrics expected to remain robust going forward driven by steady profitability and cash accrual.

 

The ratings also factor in strong liquidity marked by moderately utilised bank lines at 65% despite increased scale supported by improved working capital cycle. Accruals are estimated at Rs 90-150 crore per annum going forward against negligible debt obligations. Promoter support in the form of unsecured loans or equity shall be available if needed.

 

The ratings reflect the extensive experience of the promoters in the civil construction business, and the strong project execution capabilities, healthy order pipeline and robust financial risk profile of the company. These strengths are partially offset by large working capital requirement and susceptibility to risks inherent in tender-based business.

Analytical Approach:

For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of GPTIL and its subsidiaries, GPT Investments Pvt Ltd, GPT Concrete Products South Africa Ltd, Jogbani Highway Pvt Ltd and RMS GPT Ghana Ltd. This is because as all these entities, collectively referred to as the GPT group, have common management and significant financial linkages, and are in the same business.

 

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 market presence, experienced management and reputed clientele: GPTIL has been engaged in the civil construction and railway sleeper manufacturing business for over four decades and has weathered business cycles over the years. The company derives most of its revenue from manufacturing of engineered capital goods and civil construction projects in roads, bridges and railway segment where long-term contracts with clients provide a steady source of revenue. GPTIL has taken up initiatives to diversify its revenue sources on both sides of the value chain, from manufacturing of concrete sleepers to execution of construction projects. The company has geographical and customer diversification which should continue to improve scalability. GPTIL has a well-established customer base with clients like Rail Vikas Nigam Limited (RVNL), NHAI, NHIDCL, Indian Railways amongst others in its portfolio. The diversification is reflective of strong understanding of market dynamics owing to longstanding presence of the promoters in the industry and healthy relationships with customers and suppliers. The key promoters has been associated in the industry over the past three decades and has been instrumental in business expansion and forging client relationships. The extensive experience of the promoters has helped the company bag steady contracts and scale up operations. Order book of more than Rs 3,600 crore as on September, 2024 which is to be executed over the next 2-3 years provides healthy revenue visibility in the near term. Backed by strengthening business risk profile through steady order flow as well as ramped up order execution, GPTIL has clocked in an estimated revenue of Rs 529 crore in the first six months of fiscal 2025 and is expecting to close fiscal 2025 at a turnover of over Rs 1,200 crore. Fiscal 2024 revenue stood at 1,018 crore as against 809 crore in the previous fiscal, exhibiting 26% growth. Consistent growth in the order book and timely execution of contracts is expected to drive the business risk profile, going forward. Maintenance of healthy order book amid eligibility to bid in larger value orders division and established market position in the manufacturing of railway concrete sleepers segment and expected orders from new projects are likely to support the market position over the medium term. 

 

Favorable industry scenario with higher investments envisaged in end-user industries over the medium term should continue to support business risk profile. New orders from government counterparts shall enable the company in clocking turnover at a compound annual growth rate (CAGR) of 25% over the medium term. Timely execution of orders and payment realisations without hindrances will continue to be a monitorable.

 

Operating margin has been healthy estimated at 11.91% as on September 30th, 2024 on the back of execution of remunerative orders, better operational efficiency through increased scale of operations as well as embedded price escalation clauses in the orders. Going forward, operating margin is expected to be sustained at an improved level of 13% over the medium term  driven by benefits from economies of scale, higher productivity and leadership position of the company enabling passage of any hike in key raw material cost to customers.

 

• Robust financial risk profile: The financial risk profile should remain supported by steady accretion to reserves. Networth is healthy estimated around Rs 497.32 crore as on September 30th, 2024, as against Rs 294.63 crore as on March 31st, 2024 backed by steady accretion to reserves. With steady accretion to reserve, networth is expected to increase over the medium term. Healthy operating performance in first six of fiscal 2025 coupled with equity infusion of ~Rs 175 crore in Q2 of fiscal 2025 via QIP has further strengthened networth and capital structure. The funds raised were earmarked for  working capital requirement thereby reducing external working capital borrowings and interest costs. In the absence of large, debt-funded capex, steady cash generation is expected to further strengthen financial flexibility.  Amid steady accretion to reserve on the back of improved profitability along with reduced dependency on external borrowings, capital structure stands improved with gearing and total outside liabilities to tangible networth (TOL/TNW) ratio expected around 0.20 time and 0.60-0.65 time respectively over the medium term. Furthermore, with limited exposure to external borrowing and healthy operating profitability, debt protection metrices shall also remain comfortable, as reflected in interest coverage improving to over 6 times and net cash accruals to adjusted debt (NCA/AD) ratio around 1-1.20 times over the medium term. However, any major debt-funded capex or investments in JVs along with a rise in working capital requirement will remain a key monitorable.

 

Weaknesses:

• Large working capital requirement: Operations are working capital intensive due to tender based nature of business and the company primarily undertaking civil construction contracts under and supply of railway concrete sleepers to public sector organisations such as Indian Railways, NHAI, Rail Vikas Nigam Limited (RVNL) amongst others. Supply to large organisations in roads, bridges and railway segment which exercise considerable bargaining power, entails a long credit period. Furthermore, in the EPC business, receivables are elongated due to the long execution period of projects, milestone-based payments and the retention money requirement that is released post the defect liability period. Besides, the project billing and delivery schedule is usually concentrated towards the end of every fiscal, with more than 40 per cent of the sales in Q4, resulting in elevated working capital indicators as on year ending dates. The company has higher unbilled revenue as the business model entails construction of bridges with longer execution periods and billing is done on milestone basis only after approval by authorities. Bills being raised on milestone basis are realised within 30 days post submission. With great thrust of the government on infrastructural development, fast execution of budgeted projects and diversification in the order book with reduced contribution from longer payment cycle projects, debtor cycle has improved considerably from fiscal 2024 onwards and is expected to be sustained going forward as well. Diversification in order book in terms of counterparties, business segments and geography over the years has ensured strong scale of operations over the years. The inventory levels of the company have been moderate around 120-150 days owing to the lengthy order execution cycle and work in progress, which entails multiple inspections at various stages of execution. Uncertified work done on the project remains unbilled, as billing is done on milestone basis after certification of a portion of work done as per the tender terms. Consequently, GCA days net of liquid investments is expected around 200 days over the medium term marked by other current assets comprising unbilled revenue, retention money and inventory days averaging at 120-150 days respectively. 

 

Although, the company has been receiving timely payments owing to budgetary allocations in place and on the back of robust industry demand scenario, any unprecedented stretch in the working capital cycle will remain a key rating sensitivity factor.

 

• Susceptibility of operating performance to cyclical demand in end-user industries and tender-based business: The demand for company’s manufactured products and sustenance of operating performance through civil construction contracts is mainly linked to the capex programmes of end-user industries such as infrastructure, roads and bridges and Railways thereby exposing the company to the investment plans of its customers, especially during an economic slowdown when the governmental organisations may defer capex. GPTIL undertakes civil construction work for construction of roads and bridges as well as manufacturing of railway concrete sleepers under engineering, procurement and construction model (EPC) and turnkey basis and bags projects by submitting bids for tenders floated by government entities. Hence, revenue and profitability depend on ability to bid successfully for tenders. Contracts are of 2-3 years, and non-renewal/receipt of contracts could affect revenue. Any delay or deferment of capex in end-user industries could constrain scalability. Growth in revenue also depends largely on the company's ability to bid successfully and remains susceptible to intense competition from several local players. Sustenance of healthy order book and timely order execution while sustaining profitability shall remain a key monitorable.

Liquidity: Strong

Bank limit utilization of fund based limits was around 65% during the past twelve months through September 2024. Expected annual cash accrual of over Rs 90-150 crore per annum will be more than sufficient to meet yearly term debt repayment obligation of around Rs 15 crore per annum, over the medium term; the remaining accrual will cushion liquidity. In addition, it shall enhance financial flexibility to cushion any exigencies, incremental working capital requirement or capex plans of the company.  Healthy unencumbered liquidity in the form of cash and bank balance, fixed deposits and investments of around Rs 16.48 crore as on September, 2024 further support liquidity. Healthy support from promoters in the form of unsecured loans shall be available if needed. Current ratio is expected to be healthy over 2 times going forward further enhancing financial flexibility. Low gearing and strong networth support financial flexibility and provide the necessary financial cushion in case of any adverse conditions or downturn in the business. Incremental working capital requirement is expected to be funded by internal accruals, equity infusion and enhancement in non-fund based external borrowings.

Outlook: Stable

GPTIL will continue to benefit from its established business risk profile over the medium term, supported by its healthy order position and established market presence in the construction of roads and bridges and manufacturing of sleepers division, thereby ensuring healthy cash generation. The financial risk profile is likely to remain healthy, driven by sustenance of comfortable capital structure with no major debt funded capital expenditure (capex) plans

Rating sensitivity factors

Upward factors:

• Sustenance of healthy operating performance on the back of healthy order book flow and timely execution along with sustenance of diversification in order book and operating margin leading to higher generation of cash accruals over Rs 200 crore on a sustained basis.
• Sustenance of healthy financial risk profile with no large unprecedented debt funded capital expenditure (capex) or acquisition along with improvement in net debt/EBITDA ratio and healthy liquidity levels

 

Downward factors:

• Deterioration in operating performance leading to significant decline in operating profitability, thereby reducing cash accruals below Rs 50 crore per fiscal
• Higher-than-expected debt-funded capex, any unexpected acquisitions or any elongated stretch in the working capital cycle resulting in material increase in leverage thereby significantly weakening the financial and liquidity risk profiles

About the Company

GPTIL is the flagship company of the GPT group, which undertakes civil infrastructure projects and manufactures concrete sleepers and iron castings for railways and healthcare sectors. The company is promoted by Mr Dwarika Prasad Tantia, Chairman, Mr. Om Tantia and Mr Shree Gopal Tantia, Managing Director. Mr Atul Tantia and Mr Vaibhav Tantia (sons of Mr DP Tantia) are the chief financial officer and chief operating officer, respectively.

Key Financial Indicators (Consolidated)*

Particulars	Unit	2024	2023
Revenue	Rs crore	1018.28	809.15
Profit after tax (PAT)	Rs crore	55.64	29.77
PAT margin	%	5.46	3.68
Adjusted debt / adjusted networth	Times	0.64	0.90
Interest coverage	Times	3.94	2.63

*CRISIL Ratings’ adjusted financials

Any other information: Not Applicable