Rating Rationale
April 04, 2024 | Mumbai
Knowledge Marine & Engineering Works Limited
Ratings reaffirmed at 'CRISIL BBB/Stable/CRISIL A3+'; Rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.200 Crore (Enhanced from Rs.80 Crore)
Long Term RatingCRISIL BBB/Stable (Reaffirmed)
Short Term RatingCRISIL A3+ (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed rationale

CRISIL Ratings has reaffirmed its CRISIL BBB/Stable/CRISIL A3+’ ratings on the bank loan facilities of Knowledge Marine & Engineering Works Ltd (KMEW).

 

The ratings continue to reflect the extensive experience of the promoters in the shipping industry along with the established track record, sound operating efficiency and healthy financial risk profile of KMEW. These strengths are partially offset by modest scale of operations, susceptibility to risks related to the tender-based nature of business and timely execution of orders and dependence on the shipping and maritime industry.

Analytical approach

CRISIL Ratings has consolidated the business and financial risk profiles of KMEW with its subsidiaries -- KMEW offshore Pvt Ltd, Indian Ports Dredging Pvt Ltd, Knowledge Infra Ports Pvt Ltd, Knowledge Marine Co. WLL and Knowledge Dredging Co. WLL. This is because these subsidiaries are strategically important to KMEW and have a significant degree of operational integration with it.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. 

Key rating drivers and detailed description

Strengths:

  • Extensive experience of the promoters along with established track record: The promoter family has been associated with the shipping industry for over 15 years. They have established a strong relationship with port authorities including Kolkata Port Trust, Vishakhapatnam Port Trust, Deendayal Port Trust and Dredging Corporation of India. Furthermore, the company has demonstrated robust execution capabilities  in terms of quality and pace, which has resulted in a strong reputation. Also, the promoters have strong technical know-how and healthy track record in shipping ancillary segments  chartering of speed boats and dredging of ports. Established market position should continue to support the business risk profile over the medium term.

 

  • Sound operating efficiency: Operating margins have remained healthy at above 30% over the four fiscals through 2023 and continues to remain healthy at 33.8% during the first half of fiscal 2024. Operating efficiency should remain robust, driven by high economies of scale and in-house capabilities to refurbish vessels which provides competitive advantage over other peers. Return on capital employed ratio stood at 53.4% for fiscal 2023 and is estimated to remain at 20-25% for fiscal 2024.  

 

  • Healthy financial risk profile: Networth is expected to be Rs 165-170 crore as on March 31, 2024. Despite planned debt-funded capital expenditure (capex), the gearing and total outside liabilities to adjusted networth ratio are expected to remain low at 0.25-0.3 time and 0.45-0.5 time, respectively, as on March 31, 2024. This is due to moderate reliance on external funds to fund the working capital requirement and steady accretion to reserves. Debt protection metrics were comfortable, with interest coverage ratio expected to be 13-14 times and net cash accrual to adjusted debt ratio of 0.8-0.9 time in fiscal 2024. This is due to moderate leverage and healthy operating profit. The financial profile is expected to remain healthy over the medium term.

 

Weaknesses:

  • Modest scale of operations and susceptibility to risks related to the tender-based nature of business: Though revenue has increased to Rs 201.5 crore in fiscal 2023 from Rs 61.2 crore in fiscal 2022, it continues to remain modest. Modest scale limits pricing power with suppliers and customers, and limits the benefits related to economies of scale. The revenue is dependent on achieving healthy orderbook and timely execution of orders. The company operates in a tender-based industry, which has predefined criteria with respect to track record and physical infrastructure. Business certainty depends on timely order execution, which in turn relies on various external factors such as customer clearances and any change at their end.  The company has achieved revenue of Rs 106.9 crore in the first half of fiscal 2024 and currently has orderbook of Rs 651 crore to be executed over the next 3-7 years. Significant growth in revenue through timely execution of orders would remain a key monitorable over the medium term.

 

  • Dependence on the shipping and maritime industry: The shipping industry handles 95% of the international trade volume and almost 70% of overall traded volume of India. Despite being intensely competitive, the industry has improved owing to the recent economic recovery. Better performance of end-user industries prompts customers to invest in modernisation of infrastructure and technology systems. Hence, entities in the segment are dependent on the business outlook of customers.

 

  • Large working capital requirement: Gross current assets (GCAs) are expected to be high at 130-145 days as on March 31, 2024. The debtors had increased to 270 days as on September 30, 2023 due to delay in receiving a large payment from a customer. However, that payment has been received and debtors are expected to reduce as on March 31, 2024. Inventory levels continue to remain low. Sustenance of the working capital cycle through timely payment from customers would remain monitorable over the medium term.

Liquidity: Adequate

Cash accrual is projected at Rs 38-40 crore per annum in fiscals 2024 and 2025, against yearly debt obligation of Rs 9-11 crore. Cash and cash equivalent stood at Rs 65.5 crore as on March 31, 2023. The fund-based limit was utilised at 67% on average over the 12 months through January 2024. The surplus cash available in cash accrual and bank lines along with cash and cash equivalent will aid financial flexibility.

Outlook: Stable

KMEW will continue to benefit from the extensive experience of its promoters and their established relationships with clients.

Rating sensitivity factors

Upward factors:

  • Sizeable and sustainable increase in revenue and profitability, led by continuous work orders, leading to cash accrual above Rs 50 crore
  • Improvement in the working capital cycle leading to improved liquidity profile

 

Downward factors:

  • Decline in revenue or profitability, resulting in cash accrual below Rs 20 crore
  • Large, debt-funded capital expenditure or substantial stretch in the working capital cycle leading to deterioration in the liquidity profile

About the group

KMEW, incorporated in 2015, is engaged in providing dredging services, owning and operating marine craft, and repairing, maintaining and refitting marine crafts and marine infrastructure. Its head office is in Mumbai and operations are spread across major ports in the country through branch offices in Kolkata, Vishakapatnam, Kandla, Vadinar and Sittwe, Myanmar. Mr Saurabh Daswani, and Ms Kanak Kewalramani are the promoters.

Key financial indicators: Consolidated

As on/for the period ended

Unit

H1 FY24

2023

2022

Operating income

Rs crore

106.88

201.53

61.20

Reported profit after tax (PAT)

Rs crore

24.77

46.75

19.99

PAT margin

%

23.18

23.20

32.67

Adjusted debt/adjusted networth

Times

0.21

0.18

0.53

Interest coverage

Times

22.56

29.88

12.88

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of instrument(s)

ISIN Name of the instrument Date of
Allotment
Coupon
Rate (%)
Maturity
Date
Issue size
(Rs.Crore)
Complexity
Level
Rating assigned
with outlook
NA Bank guarantee NA NA NA 38.5 NA CRISIL A3+
NA Cash credit NA NA NA 17.39 NA CRISIL BBB/Stable
NA Proposed working capital facility NA NA NA 122.75 NA CRISIL BBB/Stable
NA Term loan NA NA Feb-2026 21.36 NA CRISIL BBB/Stable

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Knowledge Marine & Engineering Works Pvt Ltd

Full

Business linkages

KMEW Offshore Pvt Ltd

Full

Indian Ports Dredging Pvt Ltd

Full

Knowledge Infra Ports Pvt Ltd

Full

Knowledge Marine Co. WLL

Full

Knowledge Dredging Co. WLL

Full

Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 161.5 CRISIL BBB/Stable   -- 03-04-23 CRISIL BBB/Stable   --   -- --
      --   -- 21-03-23 CRISIL BBB/Stable   --   -- --
Non-Fund Based Facilities ST 38.5 CRISIL A3+   -- 03-04-23 CRISIL A3+   --   -- --
      --   -- 21-03-23 CRISIL A3+   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 24 CSB Bank Limited CRISIL A3+
Bank Guarantee 14.5 Bank of Maharashtra CRISIL A3+
Cash Credit 16.39 HDFC Bank Limited CRISIL BBB/Stable
Cash Credit 0.5 Bank of Maharashtra CRISIL BBB/Stable
Cash Credit 0.5 CSB Bank Limited CRISIL BBB/Stable
Proposed Working Capital Facility 120 Not Applicable CRISIL BBB/Stable
Proposed Working Capital Facility 2.75 Not Applicable CRISIL BBB/Stable
Term Loan 21.36 HDFC Bank Limited CRISIL BBB/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Understanding CRISILs Ratings and Rating Scales
CRISILs Criteria for Consolidation

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