Rating Rationale
October 15, 2024 | Mumbai
Knowledge Marine & Engineering Works Limited
Ratings reaffirmed at 'CRISIL BBB/Stable/CRISIL A3+'
 
Rating Action
Total Bank Loan Facilities RatedRs.200 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 & 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 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 23.4% for fiscal 2024 and is estimated to remain at 17.5-20% over the medium term.  

 

  • Healthy financial risk profile: Networth is at Rs 167 crore as on March 31, 2024 with gearing and total outside liabilities o adjusted networth of 0.35 and 0.56 times. Despite planned debt-funded capital expenditure (capex), the gearing and total outside liabilities to adjusted networth ratio are expected to remain below low 1 time over the medium term. 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 13.5 times and net cash accrual to adjusted debt ratio of 0.7 time in fiscal 2024. This is due to moderate leverage and healthy operating profits. 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 164 crore in fiscal 2024 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 an orderbook of more than Rs. 700 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 181 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 has reduced to 96 days as on as on March 31, 2024 and is further expected to reduce over the medium term. 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 45-50 crore per annum in fiscals 2025 and 2026, against yearly debt obligation of Rs 10-20 crore. Unencumbered cash and cash equivalent stood at Rs 51 crore as on March 31, 2024. The fund-based limit was utilised at 38% on average over the 12 months through July 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 Company

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

As on / for the period ended

Unit

FY24

2023

Operating income

Rs crore

163.59

201.53

Reported profit after tax (PAT)

Rs crore

33.00

46.75

PAT margin

%

20.17

23.20

Adjusted debt/adjusted networth

Times

0.35

0.18

Interest coverage

Times

13.46

30.07

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  49.25 NA  CRISIL A3+ 
NA  Cash Credit  NA  NA  NA  22.39 NA  CRISIL BBB/Stable 
NA  Proposed Working Capital Facility  NA  NA  NA  16.34 NA  CRISIL BBB/Stable 
NA  Standby Letter of Credit  NA  NA  NA  11.5 NA  CRISIL A3+ 
NA  Term Loan  NA  NA  31-Mar-29 41.77 NA  CRISIL BBB/Stable 
NA  Term Loan  NA  NA  28-Feb-26 13.75 NA  CRISIL BBB/Stable 
NA  Term Loan  NA  NA  31-Mar-30 45 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 139.25 CRISIL BBB/Stable 04-04-24 CRISIL BBB/Stable 03-04-23 CRISIL BBB/Stable   --   -- --
      --   -- 21-03-23 CRISIL BBB/Stable   --   -- --
Non-Fund Based Facilities ST 60.75 CRISIL A3+ 04-04-24 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 34.75 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
Cash Credit 5 Bandhan Bank Limited CRISIL BBB/Stable
Proposed Working Capital Facility 16.34 Not Applicable CRISIL BBB/Stable
Standby Letter of Credit 11.5 HDFC Bank Limited CRISIL A3+
Term Loan 41.77 HDFC Bank Limited CRISIL BBB/Stable
Term Loan 13.75 CSB Bank Limited CRISIL BBB/Stable
Term Loan 45 Bandhan 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
CRISILs Criteria for Consolidation

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