Rating Rationale
December 11, 2024 | Mumbai
Rajesh Power Services Limited
Ratings reaffirmed at 'CRISIL BBB+/Stable/CRISIL A2'
 
Rating Action
Total Bank Loan Facilities RatedRs.193 Crore
Long Term RatingCRISIL BBB+/Stable (Reaffirmed)
Short Term RatingCRISIL A2 (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 A2’ ratings on the bank facilities of Rajesh Power Services Ltd (RPSL).

 

The shares of the company were listed on BSE SME on December 2, 2024, and raised Rs 160.47 crore via the Initial Public Offering (IPO), out of which Rs 93.47 crore was primary. Out of the proceeds, Rs 25.1 crore is expected to be utilised for capital expenditure (capex), Rs 30 crore for meeting working capital requirements and balance towards general corporate purposes. Subsequently, RPSL's reliance on bank borrowing (both incremental working capital and capex) is expected to reduce significantly. The financial profile is expected to continue to strengthen, however, the successful and timely execution of large orderbook remains key monitorable.

 

The ratings reflect the extensive experience of the promoters in the construction industry along with growing scale of operations, healthy operating margin and comfortable financial risk profile of the company. These strengths are partially offset by susceptibility to risks inherent in the tender-based operations and large working capital requirement.

Analytical Approach

Unsecured loan (Rs 51.76 crore as on as on March 31, 2024) extended by the promoters has been treated as 75% equity and 25% debt as it is subordinated to bank debt and may remain in the business over the medium term.

 

CRISIL Ratings has evaluated the standalone business and financial risk profiles of RPSL.

Key Rating Drivers & Detailed Description

Strengths:

  • Longstanding presence: Experience of more than four decades in the construction segment has enabled the promoters to build strong relationships with reputed customers such as the Gujarat Energy Transmission Corporation Ltd and Uttar Gujarat Vij Company Ltd. The promoters have also diversified revenue into the engineering, procurement, and construction (EPC) division and built a small, though highly profitable, solar division. Outstanding orders of around Rs 2,570 crore (as of September 2024) to be executed in the next 2-3 years, provides healthy medium-term revenue visibility. However, the timely execution of these orders will remain a key rating sensitivity factor.

 

  • Increasing scale of operations and healthy operating margin: Revenue is projected at more than Rs 850 crore in fiscal 2025, significantly up from Rs 285 crore in fiscal 2024, supported by strong orderbook of more than Rs 2,570 crore and successful scale up of operations with timely execution of orders. Revenue is expected to grow by more than 200% in fiscal 2025, backed by healthy year-to-date topline of Rs 313 crore during the first six months of fiscal 2025 (against Rs 99 crore in the corresponding period of fiscal 2024). Operating margin rose to 11.92% in fiscal 2024, from 7.14% in fiscal 2023, led by ramp-up of operations and higher-margin orders. 

 

  • Comfortable financial risk profile: Financial risk profile may continue to improve over the medium term, in the absence of any large, debt-funded capex. The capital structure is marked by a networth of Rs 123.12 crore, gearing of 0.34 time and total outside liabilities to tangible networth (TOLTNW) ratio of 0.97 time as on March 31, 2024. The debt protection metrics remain comfortable with interest coverage and net cash accrual to adjusted debt (NCAAD) ratio of 4.74 times and 0.64 time, respectively, in fiscal 2024. The interest coverage ratio is expected to improve with a sharp rise in scale of operation along with expected improvement in profitability over the medium term.

 

Weaknesses:

  • Susceptibility to risks inherent in tender-based operations: As the company derives its entire revenue from tender-based orders, its ability to successfully bid for projects is critical. Further, intense competition necessitates aggressive bidding, mostly compromising on the operating margin. Moreover, given the cyclicality inherent in the construction industry, the ability to maintain profitability through operating efficiency becomes critical. RPSL is also susceptible to the risk of end-user concentration in revenue as majority of the topline accrues from Gujarat.

 

  • Large working capital requirement: Operations may remain working capital intensive over the medium term due to the nature of business. Gross current assets were more than 215 days as on March 31, 2024, driven by debtors of 146 days and inventory of 53 days. Payables of 55 days partially support working capital. The ability of the company to manage its incremental working capital requirement amid scale up of business will remain monitorable.

Liquidity: Adequate

Liquidity will remain supported by the ample surplus available in cash accrual and bank lines. Bank limit utilisation was 70.81%, on average, for the 12 months through September 2024. Cash accrual is expected at Rs 70-80 crore per annum, against yearly debt obligation of Rs 1-2 crore over the medium term. Current ratio stood healthy at 1.87 times as on March 31, 2024. The promoters are likely to extend need-based funds (equity and unsecured loans) to aid operations. Low gearing and moderate networth should boost financial flexibility.

Outlook: Stable

RPSL will continue to benefit from the extensive experience of its promoters and their established relationship with clients and its comfortable financial risk profile.

Rating sensitivity factors

Upward factors:

  • Revenue increasing to more than Rs 750 crore and healthy operating margin, resulting in a sharp rise in cash accrual
  • Steady improvement in the working capital cycle

 

Downward factors:

  • Higher-than-expected capex or further stretch in the working capital cycle, leading to TOLTNW ratio of 1.5 times
  • Sharp decline in revenue and/or profitability

About the Company

Set up as a partnership firm, Rajesh Traders, in 1971, the entity got reconstituted into a private-limited company with the current name in January 2010. RPSL is a Class A turnkey contractor for Gujarat state electricity boards and an authorised dealer for cable joining kits. In 2012, the company set up a 1-megawatt solar power plant at Patdi in Gujarat.

Key Financial Indicators

As on/for the period ended March 31

Unit

2024

2023

Operating income

Rs crore

284.97

208.03

Reported profit after tax (PAT)

Rs crore

26.02

6.70

PAT margin

%

9.13

3.22

Adjusted debt/adjusted networth

Times

0.34

0.31

Interest coverage

Times

4.74

2.13

Status of non cooperation with previous CRA
RPSL had not cooperated with India Ratings and Research Pvt Ltd, which published its ratings as ‘issuer not cooperating’ through a release dated Oct 12, 2021. The reason provided by the credit rating agency was non-furnishing of information by the company for monitoring the 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  142 NA  CRISIL A2 
NA  Cash Credit  NA  NA  NA  51 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 51.0 CRISIL BBB+/Stable 15-11-24 CRISIL BBB+/Stable 05-07-23 CRISIL BBB/Stable 31-05-22 CRISIL BBB/Stable 31-03-21 CRISIL BBB/Stable Withdrawn (Issuer Not Cooperating)*
      -- 25-04-24 CRISIL BBB/Stable 15-06-23 CRISIL BBB/Stable   -- 07-01-21 CRISIL BBB/Stable --
Non-Fund Based Facilities ST 142.0 CRISIL A2 15-11-24 CRISIL A2 05-07-23 CRISIL A3+ 31-05-22 CRISIL A3+ 31-03-21 CRISIL A3+ Withdrawn (Issuer Not Cooperating)*
      -- 25-04-24 CRISIL A3+ 15-06-23 CRISIL A3+   -- 07-01-21 CRISIL A3+ --
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 83 HDFC Bank Limited CRISIL A2
Bank Guarantee 31 Union Bank of India CRISIL A2
Bank Guarantee 28 Union Bank of India CRISIL A2
Cash Credit 39 Union Bank of India CRISIL BBB+/Stable
Cash Credit 12 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
Rating Criteria for Construction Industry
Rating Criteria for Engineering Sector
CRISILs Criteria for rating short term debt

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