Rating Rationale
September 11, 2024 | Mumbai
RPP Infra Projects Limited
Ratings reaffirmed at 'CRISIL BBB/Stable/CRISIL A3+'; Rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.385 Crore (Enhanced from Rs.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 RPP Infra Projects Ltd (RIPL).

 

The ratings reflect the extensive experience of RIPL’s promoters in the civil construction industry and the company’s healthy financial risk profile. These strengths are partially offset by exposure to intense competition, susceptibility of operating margin to volatility in raw material prices, and large working capital requirement.

Analytical Approach:

CRISIL Ratings has considered the standalone business and financial risk profiles of RIPL.

Key Rating Drivers & Detailed Description

Strengths:

  • Extensive industry experience of the promoters: Mr R P Arulsundaram, RIPL’s chairman and managing director, has experience of around three decades in civil works for power, commercial buildings and irrigational projects. His wife, Ms A Nithya, who is the chief financial officer of RIPL, also has extensive industry experience. The company’s top management comprises qualified and experienced members, with average experience of 20+ years. The company benefits from its management’s experience in the civil construction industry and their sound understanding of the business dynamics. The company has diversified into various sectors such as roads, irrigation, buildings and substations, leading to a steady increase in revenue over the four fiscals through 2024. Its order book of over Rs 4,100 crore as of August 2024, to be executed in 24-36 months, provides strong revenue visibility. The company booked operating revenue of Rs 1,364 crore for fiscal 2024 against Rs 1,011 crore in fiscal 2023. It is likely to post similar growth in fiscal 2025, with reported revenue of Rs 333 crore in the first quarter of the fiscal.

 

  • Healthy financial risk profile: The networth was healthy at Rs 415.37 crore, while gearing and total outside liabilities to adjusted networth (TOLANW) ratio were comfortable, at 0.1 time and 0.94 time, respectively, as on March 31, 2024. Debt protection metrics were adequate, reflected in interest coverage of 5.94 times and net cash accrual to adjusted debt ratio of 1.77 times for fiscal 2024. The financial risk profile is expected to remain healthy over the medium term on account of no major debt-funded capital expenditure (capex) and moderate operating profitability.

 

Weaknesses:

  • Exposure to intense competition and susceptibility of operating margin to volatility in raw material prices: As the business is predominantly tender-based, revenue depends on the ability to bid successfully for tenders. Competition from major players, as well as many local and small, unorganised players, constrains profitability. Moreover, about 50% of RIPL’s orders are from projects in Tamil Nadu, Uttar Pradesh, Maharashtra, rendering the company susceptible to slowdown in tenders in these regions or changes in state government policies. The operating margin is volatile and susceptible to fluctuations in raw material prices. However, the risk is mitigated by price escalation clause in most of the contracts. RIPL’s operating margin fluctuated between 10.46% and 4.66% in the five fiscals through 2024, due to increase in raw material costs and complexities in the projects undertaken. The margin is expected to sustain at a similar and given the cyclicality inherent in the construction industry, sustained improvement in the profitability will remain monitorable.

 

  • Large working capital requirement: Gross current assets (GCAs) were at 161 days as on March 31, 2024, driven by inventory of 34 days and receivables of 43 days. The large working capital requirement arises from receivables, including receivables outstanding for more than six months of over Rs 51 crore as of March 2024, as the company majorly deals with government entities. The need to provide earnest money, security deposits and margin money for bank guarantee increases the working capital requirement. The company had retention money receivable of around Rs 200 crore as of fiscal 2024, which will be realised based on the defect liability period clause in the contract. Timely realisation of the receivables is a key rating sensitivity factor.

Liquidity: Adequate

Bank limit utilisation was low at 50% on average for the 15 months through June 2024. Cash accrual is expected over Rs 55 crore per annum over the medium term against term debt obligation of Rs 15.71 crore in fiscal 2025.

 

The company had a healthy current ratio of 1.87 times and unencumbered cash and bank balance of around Rs 40 crore as on March 31, 2024.

 

Low gearing and moderate networth provide the financial cushion to withstand adverse conditions or downturn in the business.

Outlook: Stable

CRISIL Ratings believes RIPL will continue to benefit from the extensive experience of its promoters and established relationships with clients.

Rating sensitivity factors

Upward factors:

  • Sustenance of operating profitability around 6% and increase in revenue by 20%, leading to higher cash accrual
  • Continued healthy financial risk profile

 

Downward factors:

  • Decline in revenue by 25% or operating margin falling below 3.5%, leading to lower net cash accrual
  • Steep increase in working capital requirement weakening the liquidity and financial risk profile

About the Company

RIPL was incorporated in 1995 as a private limited company named R P P Construction Pvt Ltd, which was reconstituted as a public limited company with the present name in 2010. The company undertakes civil construction projects for roads, bridges, irrigation, buildings and power projects, primarily for government departments. It is listed on the Bombay Stock Exchange and the National Stock Exchange.

 

The company is managed by Mr R P Arulsundaram and his wife, Ms A Nithya.

Key Financial Indicators

As on / for the period ended March 31

Unit

2024

2023

Operating income

Rs crore

1364.70

1,011.96

Reported profit after tax (PAT)

Rs crore

65.52

23.46

PAT margin

%

4.80

2.32

Adjusted debt/adjusted networth

Times

0.10

0.23

Interest coverage

Times

5.94

3.38

Status of non cooperation with previous CRA:

RIPL has not cooperated with Brickwork Ratings India Pvt Ltd (Brickwork Ratings), which has classified the company as non-cooperative through a release dated Jan 30, 2023. The reason provided by Brickwork Ratings is non-furnishing of information for monitoring of ratings

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 276.89 NA CRISIL A3+
NA Cash Credit NA NA NA 60 NA CRISIL BBB/Stable
NA Proposed Bank Guarantee NA NA NA 35.02 NA CRISIL A3+
NA Proposed Cash Credit Limit NA NA NA 5 NA CRISIL BBB/Stable
NA Long Term Loan NA NA 30-Nov-27 6.29 NA CRISIL BBB/Stable
NA Long Term Loan NA NA 30-Sep-28 1.8 NA CRISIL BBB/Stable
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 73.09 CRISIL BBB/Stable 30-08-24 CRISIL BBB/Stable   --   --   -- Withdrawn
Non-Fund Based Facilities ST 311.91 CRISIL A3+ 30-08-24 CRISIL A3+   --   --   -- Withdrawn
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 25 HDFC Bank Limited CRISIL A3+
Bank Guarantee 170 Indian Overseas Bank CRISIL A3+
Bank Guarantee 10 Bank of India CRISIL A3+
Bank Guarantee 44.97 The Karur Vysya Bank Limited CRISIL A3+
Bank Guarantee 26.92 Canara Bank CRISIL A3+
Cash Credit 7 The Karur Vysya Bank Limited CRISIL BBB/Stable
Cash Credit 35 Indian Overseas Bank CRISIL BBB/Stable
Cash Credit 8 Bank of India CRISIL BBB/Stable
Cash Credit 10 HDFC Bank Limited CRISIL BBB/Stable
Long Term Loan 6.29 Indian Overseas Bank CRISIL BBB/Stable
Long Term Loan 1.8 Bank of India CRISIL BBB/Stable
Proposed Bank Guarantee 35.02 Not Applicable CRISIL A3+
Proposed Cash Credit Limit 5 Not Applicable 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
Rating Criteria for Construction Industry
CRISILs Criteria for rating short term debt

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