Detailed Rationale

CRISIL Ratings has assigned its 'CRISIL AA/Stable' rating to Rs.170 crore non-convertible debentures (NCDs) of G R Infraprojects Ltd (GRIL), and reaffirmed its 'CRISIL AA/Stable/CRISIL A1+' ratings on the bank facilities and existing NCDs.

 

The rating on NCDs worth Rs 132 crore (see 'Annexure- Details of Rating Withdrawn') has been withdrawn on confirmation from the debenture trustee as these are fully redeemed. The withdrawal in line with the CRISIL Ratings withdrawal policy.

 

Healthy order book of Rs 19,253 crore as on December 31, 2023, with orderbook to revenue ratio of 2.4 times provides medium-term revenue visibility. However, revenue is expected to fall 5-6% this fiscal, after 2-3% degrowth estimated in fiscal 2024, owing to lower executable orderbook as on March 31, 2024. This is due to lower awarding by National Highways Authority of India (NHAI) and Ministry of Road Transport & Highways (MoRTH) in fiscal 2024, which constrained growth in the orderbook. However, with expected increase in pace of awarding, order inflow will increase, aiding revenue growth from fiscal 2026.

 

Earnings before interest, tax, depreciation and amortisation (Ebitda) margin is expected to remain range-bound at 13-14% in the medium term, similar to 13-13.5% estimated in fiscal 2024. Even with a conservative bidding philosophy, the company has seen an impact on the profitability because of increased competitive intensity in road projects with entry of smaller players. Therefore, while continuing to bid for hybrid annuity model (HAM) projects with 13-14% operating margin, the company has entered ropeways, T&D and MMLP, which will provide marginally higher margins, supporting overall profitability.

 

The company sold seven of its operational HAM projects to Bharat Highways InvIT in March 2024. As a result, the company has received InvIT units worth around Rs 1,900 crore, which will yield dividend around Rs 150 crore per annum.

 

GRIL has equity commitments of Rs 2,500 crore towards its special-purpose vehicles (SPVs) over the next three years, debt obligation of Rs 200-300 crore per annum and annual capital expenditure (capex) of Rs 125-150 crore over the medium term. This will be funded by cash accrual of over Rs 900 crore per annum, marginal increase in debt and dividend income from InvIT units.

 

Debt protection metrics are expected to remain healthy, with gearing estimated to have improved to 0.16-0.17 time as on March 31, 2024, from 0.26 time a year earlier, aided by improved networth from profit booking from sales of the seven HAM assets. Gearing is expected below 0.3 time over the medium term. Interest coverage ratio which marginally moderated from 12.9 times in fiscal 2023 to an estimated 10.5 times in fiscal 2024, owing to compression in margins, will remain healthy at 7-9 times in the medium term.

 

The company has strong liquidity and financial flexibility. It had unutilised fund-based lines of around Rs 700 crore as of April 2024, unencumbered cash of Rs 383 crore as on March 31, 2024, and InvIT units worth around Rs 1,900 crore.

 

On June 13, 2022, three GRIL employees were arrested on charges of bribery of Rs 4 lakh by the Central Bureau of Investigation (CBI). Consequently, there were raids/surveys on the premises of GRIL and at the residence of the promoter. However, no top management or promoter family members have been implicated. As per disclosures made to the stock exchanges, the company is cooperating fully with the CBI and providing all required documents. There is no major impact on the operations or financial flexibility of the company. Nevertheless, CRISIL Ratings will continue to monitor developments around the case and its impact on the credit risk profile of GRIL.

 

The ratings continue to reflect the established position of GRIL in the construction industry, backed by its strong project execution capabilities, healthy orderbook, efficient working capital management and healthy financial risk profile. These strengths are partially offset by segment concentration in revenue and susceptibility to cyclicality in the construction industry.

Analytical Approach

For arriving at its ratings, CRISIL Ratings has considered the standalone business and financial risk profiles of GRIL and has moderately consolidated its SPVs to the extent of support required over the medium term.

 

Also, CRISIL Ratings has considered interest-bearing mobilisation advances 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 in the construction industry: GRIL has been constructing high-quality roads within stipulated cost and timeline for over two decades. Healthy execution capabilities, owned equipment fleet, sourcing tie-ups and in-house design and engineering teams have helped the company record compound annual growth rate of 6% in revenue over the five fiscals through 2024. With revenue around Rs 8,000 crore estimated in fiscal 2024, GRIL will grow cautiously over the medium term. Expected large investments by the government in the roads and infrastructure sector augurs well for the company.

 

GRIL has a track record of completing projects ahead of schedule and receiving early completion bonus. Under-construction HAM projects and engineering, procurement and construction (EPC) projects are will be completed within expected timelines.

 

Furthermore, the order book is geographically diversified across 17 states. Orders worth over Rs 19,253 crore as on December 31, 2024 (translating into order to revenue [fiscal 2024] ratio of 2.4 times), offer good medium-term revenue visibility. Around 90% of the orders are from central government agencies, thereby reducing counterparty risk, with 86% of orders from NHAI or its subsidiary as on February 29, 2024. Road projects account for around 80% of the order book.

 

• Healthy operating efficiency: Backward integration into manufacturing and processing capacities of various inputs used in road construction and a strong fleet of owned equipment and vehicles have supported the operating efficiency of GRIL. However, due to increased competitive bidding in the roads sector, profitability will be lower over the medium term compared with historical average of 18%. Efficient working capital management, supported by strong sourcing tie-ups and healthy collection efficiency, have ensured a comfortable return on capital employed. Working capital cycle remains moderately stretched with some pressure on receivables owing to high SPV receivables for interest arbitrage. Gross current assets (GCAs) estimated at 188 days as on March 31, 2024, will remain at similar levels over the medium term.

 

• Comfortable financial risk profile: Sustained growth in revenue has helped the company maintain lower reliance on debt. Healthy accretion to reserve along with profit from sale of the HAM SPVs resulted in estimated networth of Rs 6,800 crore as on March 31, 2024.

 

GRIL has large investments in its project SPVs, with 35-40% of its networth expected to be invested in them as on March 31, 2025. A large chunk of these investments is towards HAM projects, which are low-risk owing to their fixed annuities. In these SPVs, the company has equity commitment of Rs 2,500 crore over the next three years. Additionally, the company has debt obligation of Rs 200-300 crore and capex of Rs 125-150 crore per annum over the medium term. This will be funded by cash accrual of over Rs 900 crore per annum, marginal increase in debt and dividend income from InvIT units. Debt is expected to marginally increase in the medium term from around Rs 1,000 crore estimated as on March 31, 2024 (which includes interest-bearing mobilisation advances).

 

Debt protection metrics will remain healthy, with gearing estimated to have improved to 0.16-0.17 time as March 31, 2024, from 0.26 time a year earlier, aided by improved networth from profit booking from sales of the seven HAM assets. Gearing is expected below 0.3 time over the medium term. Interest coverage ratio marginally moderated from 12.9 times in fiscal 2023 to 10.5 times estimated for fiscal 2024 due to compression in margins but will remain healthy at 7-9 times over the medium term. Additionally, diversification into newer segments will not impact the debt metrices in the near term.

 

GRIL is unlikely to extend any corporate guarantee for new project SPVs but will continue to provide support to meet any shortfalls in its SPVs.

 

Weaknesses:

• Limited but slowly improving diversity in the revenue profile: Road projects contribute to bulk of the revenue, unlike EPC players which are present in multiple segments, such as commercial, residential and industrial construction and infrastructure (railways, irrigation, dams and power). Operating performance will remain susceptible to concentration risk, thus increasing exposure to cyclicality and delay in payments. However, the company has diversified into T&D, ropeways and MMLP projects. It will continue to bid for such projects, which will lend some diversity to revenue over the medium term.

 

• Exposure to intense competition inherent in the construction industry: Increased focus of the central government on the infrastructure sector, especially roads and highways, should augur well for GRIL over the medium term. However, as most of the projects are tender-based and the segment is intensely competitive, the company needs to bid aggressively to get contracts. Competition has intensified due to the recent relaxation in bidding norms by NHAI and MoRTH. Operating margin moderated to 13.0-13.5% in fiscal 2024, given input price escalation and rising competition, and remains a key monitorable. Also, owing to cyclicality inherent in the construction industry, the ability to maintain profitability through operating efficiency becomes critical.

Liquidity: Strong

Liquidity is supported by healthy cash accrual, unutilised bank limit and moderate cash and equivalent. Expected cash accrual over Rs 900 crore per fiscal will sufficiently cover debt obligation of Rs 200-300 crore over the medium term. Unencumbered cash and equivalent (at the standalone level) stood at Rs Rs 383 crore as on March 31, 2024. Fund-based limit worth Rs ~800 crore was minimally utilised, averaging 12% in the 11 months through April 2024.

Outlook: Stable

CRISIL Ratings believes GRIL will continue to benefit from its established position in the construction industry and its comfortable financial risk profile.

Rating Sensitivity factors

Upward factors

• Substantial increase in scale and profitability resulting in net cash accruals (excluding any dividend inflow from InvIT units) of over Rs.1200-1400 crore on a sustained basis
• Continuation of prudent working capital cycle
• Strengthening of the capital structure through divestment of stake in HAM projects and increase in cash surplus
• Steps taken towards sectoral diversification

 

Downward factors

• Decline in revenue and profitability resulting in cash accruals (excluding any dividend inflow from InvIT units) of less than Rs.700 cr on a sustained basis
• Deterioration of the capital structure with TOL/TNW ratio increasing significantly
• Significant stretch in the working capital cycle
• Weakening of the liquidity profile or financial flexibility or any adverse impact of search operations on the company

About the Company

GRIL was incorporated in 1995 by the promoter, Mr Vinod Kumar Agarwal and his family members. The company primarily undertakes road construction projects from NHAI and the MoRTH on EPC and HAM basis. It has established emulsion manufacturing plants in Udaipur (Rajasthan), Sandila (Uttar Pradesh) and Guwahati (Assam), with combined installed capacity of 84,960 metric tonne per annum. In addition, it has its own capacities for bitumen processing, thermoplastic road-marking paint and road signage, fabrication and galvanisationzation unit for metal crash barriers.

Key Financial Indicators

As on/for the period ended March 31	Unit	2023	2022
Revenue	Rs.Crore	8148	7932
Profit After Tax (PAT)	Rs.Crore	852	761
PAT Margin	%	10.5	9.6
Adjusted debt/adjusted networth*	Times	0.26	0.27
Interest coverage	Times	12.85	10.21

*Interest bearing mobilisation advances have been treated as debt

Any other information: Not Applicable