| R.V.R. Projects Private Limited | ||||||
| Rated amount enhanced | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has reaffirmed its 'CRISIL A-/Stable/CRISIL A2+' ratings on the bank facilities of R.V.R. Projects Private Limited (RVR). |
| Analytical Approach |
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For arriving at its ratings, CRISIL has considered unsecured loans (Rs 5.93 crore as on March 31, 2020) extended to RVR by the promoters as debt. That is because there have been withdrawals in the past, though these loans are interest-free in nature. Part of the mobilisation advances (Rs 56.21 crore as on March 31, 2020) carries interest, and hence have also been treated as debt. |
| Key Rating Drivers & Detailed Description |
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Strengths * Established track record in executing EPC contracts RVR benefits from its established track record of more than two decades in the EPC business across various segments, including defence, building construction, ports, irrigation, and roads. Over the years, the company has developed strong relationships with several state government departments, Defense Research and Development Organisation (DRDO), and other public sector undertakings by virtue of implementing projects under stringent timelines and security arrangements, while maintaining high quality standards. The company is rated as a Class 1 contractor and is one of the few players on DRDO's panel of contractors that implements works across civil, electrical, and mechanical segments. Furthermore, RVR has demonstrated execution capability in the BOT (built, operate, transfer) segment through its port project from Krishnapatnam Port Company Limited (KPCL). All the three phases of this project had been successfully completed and have been operational since May 2015. RVR plans to sell its stake in the project to KPCL. Timelines and sale proceeds of this monetisation will remain key monitorables. * Moderate order pipeline providing revenue visibility over the medium term Of the order pipeline of around Rs 9,650 crore as of June 2020, about Rs 3,300 crore is either stuck or facing funding issues. Nonetheless, executable orders remained healthy at around Rs 6,350 crore as of June 2020. Around 66% of the executable orders are from the irrigation segment, 23% from roads, 10% from defence, and the remaining 1% from water supply and building construction segments. While executable order book to revenue (fiscal 2020) is high at 7 times, most of these orders are to be executed over a period of 24 to 36 months, thereby providing healthy revenue visibility over the medium term. The company plans to bid for hybrid annuity mode (HAM) road projects awarded by National Highways Authority of India (NHAI; rated 'CRISIL AAA/Stable') in the near term, to utilise the funds from the sale proceeds of KPCL BOT project, if they exit. This would help the company support scale of operations with order diversification. Expected receipt of proceeds from the exit from the KPCL project will support the investment requirements for these orders. However, given that RVR would be new to undertaking BOT/HAM road projects, aggression in bidding and successful execution of these orders will be key monitorables. * Strong financial risk profile Operating income, which grew by an average of 12% over the five fiscals through 2019, declined by 22% in fiscal 2020 on account of a subdued operating and political environment in Andhra Pradesh for the first-half of fiscal 2020 following elections and a change in government. Operating margin has sustained at around 20% for the past five fiscals, resulting in steady accretion to reserves and networth growing more than 750 crore as on March 31, 2020. Furthermore, RVR has low dependence on external borrowing, leading to moderate debt of Rs 217 crore (includes interest-bearing mobilisation advances of Rs 59.3 crore). Cash and cash equivalents were healthy at around Rs 398 crore as on March 31, 2020, which included around Rs 332 crore of unencumbered cash balances. Gearing remained low at around 0.3 times while total outside liabilities to tangible networth ratio was below 0.5 times, as on March 31, 2020. Lower debt and healthy profit levels has resulted in strong debt protection metrics. Revenue is expected to dip by 15-20% and operating margin is expected at 16-18% in fiscal 2021 because of the loss of execution expected in the first two quarters of fiscal 2021 following the pandemic. However, lower dependence on debt supported by moderate accrual will help the company sustain its financial risk profile. Weaknesses * Susceptibility to volatility in working capital cycle Although RVR maintains a healthy working capital cycle with gross current assets (GCAs; net off cash) below 120 days, it is susceptible to volatility in the working capital cycle given the high dependence on timely certification and receipt of payments from customers, and moderate inventory requirement in its operating segments. Furthermore, inventory is subject to approvals by, and payments from, clients, which if not timely, can result in large work-in-progress inventory. Receivables position (inclusive of retention money) rose to around Rs 250 crore as on September 30, 2019, from less than Rs 130 crores as on March 31, 2019, due to non-availability of funding for majority of the irrigation and road orders. The situation improved with the clearance of a large part of the pending bills from the irrigation projects, and improved to below Rs 150 crore as on March 31, 2020. The outstanding receivables are largely from KPCL BOT project. However, given that order execution is largely for state projects, there could be delay in payment realisation which was faced in recent past. Ability to sustain working capital cycle at current level will remain a monitorable. * Segmental and geographical concentration in revenue Orders from the irrigation segment comprised around 65% of total executable orders as of June 2020. Furthermore, around 67% of the executable orders are funded by the state governments of Andhra Pradesh and Telangana. Orders from the defence segment, which constituted majority of the orders till fiscal 2015, have slowed down in the past 2-3 fiscals, resulting in order book concentration towards irrigation. Orders from defense segment are expected to remain moderate in the future, and the company intends to focus on other segments (including water supply and roads) to sustain diversification. * Exposure to intense competition and cyclicality in the construction industry The construction industry is fragmented, leading to intense competition at the bidding stage. Operating margin is restricted on account of thin margins while bidding for projects. Moreover, growth of players is susceptible to changes in government regulations and economic conditions. Intense competition and cyclicality will continue to restrict RVR's growth and profitability. |
| Liquidity Strong |
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Liquidity is strong, with modest repayments, moderate bank limit utilisation and healthy unencumbered cash and cash equivalents. Cash accrual has been over Rs 125 crore in the past three fiscals and is expected to remain at a similar level over the medium term, vis-a-vis low annual debt repayment of less than Rs 1 crore and moderate capital expenditure (capex) requirement of below Rs 30 crore. |
| Outlook: Stable |
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CRISIL believes RVR will continue to benefit from its healthy business risk profile over the medium term, supported by its established market position and strong order pipeline. Financial risk profile will remain strong backed by lower dependence on external borrowing and adequate working capital cycle. |
| About the Company |
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Incorporated in 1999 and promoted by Mr Rayala Venkateswara Rao, RVR executes projects as an EPC contractor in the industrial, institutional, technical, piling, marine, dredging, and residential segments. Over the past decade, it has diversified into EPC works in the ports, irrigation, water supply, and roads segments. |
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL 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. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||
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