| Tata Projects Limited | ||
| Rating Reaffirmed | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL A1+' rating on the Rs 1,400 crore commercial paper issuance of Tata Projects Limited (TPL).
The rating reflects the company’s strong business risk profile, supported by its established market position and large scale with diverse and complex projects. Strong managerial and funding support from the Tata group enhances its financial flexibility.
These strengths are partially offset by large working capital requirement and modest financial risk profile.
Despite Covid-19 led headwinds, revenue increased by 15% to Rs 12,187 crore in fiscal 2021 driven by robust execution in the second half. Operating margin remained subdued due to Covid-related costs and partly due to increase in provisions towards receivables. Gross current assets (GCAs), excluding cash, were sizeable over 420 days, resulting in sustained high total outside liabilities to tangible networth (TOLTNW) ratio of over 10 times as on March 31, 2021.
Though the second wave of Covid-19 impacted project execution in the first quarter of fiscal 2022, revenue was higher by over 80% on-year. With the easing of lockdowns and streamlining of logistics issues, execution has picked up, which should support healthy revenue growth of 15-20% for the fiscal. Profitability may remain under pressure due to high commodity prices and inability recoup productivity losses due to Covid. GCAs are expected to moderate on higher execution and better collection amidst government liquidity relief measures. CRISIL Ratings believes gearing and overall indebtedness levels to moderate through potential capital structural changes. This would be a crucial monitorable.
Any resurgence of the pandemic weakening the payment track record of central and state government entities will bear watching. Pertinently, sustained pressure on GCAs and overall indebtedness may lead to a downgrade in the rating. |
Analytical Approach CRISIL Ratings has applied its group notch-up framework to factor in the extent of support available from the Tata group. CRISIL Ratings has also combined the financials of TPL's subsidiaries to reflect the operational and financial linkages with these entities. |
Key Rating Drivers & Detailed Description Strengths:
TPL is a large and diversified player in the domestic engineering, procurement and construction (EPC) space, with presence across core and heavy civil infrastructure, irrigation, oil & gas, transmission & distribution, buildings and factories, transport, and plants and systems segments. Strong order inflow in the plants and systems and urban infrastructure segments have led to a well-diversified order pipeline. Orders of Rs 50,800 crore as of June 2021 offer strong revenue visibility for the next 3-4 years.
TPL has executed complex projects such as the freight corridor, metro and heavy civil projects through the joint venture (JV) route with strong partners, aiming to build execution capability in new segments. It has undertaken more independent projects in the past 18-24 months and bagged several large independent projects in the refinery, industrial segments, and power segments. The company continues to adopt a prudent biding strategy and improved its pre-bid risk management practices with a focus on cash flows management, execution and profitability. Large share of independent projects, along with focus on high-margin projects, should improve profitability over the medium term.
TPL, a part of the Tata group’s infrastructure, aerospace and defense vertical, has gained prominence due to its increasing scale of operations, execution of complex and prestigious projects, size of the addressable market in the EPC industry and ability to generate healthy returns over the long term. TPL is jointly held by several Tata group companies and has senior group executives on its board of directors. Being part of the Tata group, it derives significant financial flexibility and access to low-cost funds from banks and capital markets. Sustenance of support from the Tata group and its ownership in TPL are key rating sensitivity factors.
Weaknesses:
As of March 31, 2021, GCAs were large at 420 days compared with 401 days a year earlier mainly due to higher billing in the fourth quarter as well as slow progress in release of past dues. The company has sizeable retention money blocked in completed as well as ongoing projects. Substantial claims related to change in scope and price variations also constrain the working capital management. However, the risk of bad debt is mitigated as over 80% of the orders are for government bodies and public sector enterprises. Moreover, arrangements with sub-contractors in sync with milestone payments, claims, and retention money help ease the pressure. As of March 31, 2021, net working capital was 82 days and the company was able to better leverage its supply chain eco-system by extending various financial solutions to vendors.
For the current fiscal, the working capital intensity is likely to moderate slightly amidst the government liquidity relief measures. Furthermore, the management’s intention to focus on collection, liquidation of claims and judicious bidding for new projects with lower working capital intensity should keep the overall working capital requirement in check.
Large working capital intensity and low capitalization led to sustained high total outside liabilities to tangible networth (TOL/TNW) ratio of over 10 times and financial leverage of 2.24 times as on March 31, 2021 moderated from 2.67 times as on March 31, 2020. Higher debt amidst slow collection and pressure on profitability led to a weak interest coverage of 1.75 times for fiscal 2021. Improved profitability and potential capital structure changes should lead to improvement in both the indebtedness level and the debt protection metrics. |
Liquidity: Adequate For fiscal 2022, net cash generation is expected at Rs 325-375 crore which should be adequate to cover maturing debentures of around Rs 150 crore. Liquidity is also supported by moderate utilization of the fund-based bank limits averaging 52% in the 12 months through June 2021 and financial flexibility derived as part of the Tata group. Unencumbered cash balance was Rs 410 crore as on June 30, 2021. |
Rating Sensitivity factors Downward factors
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About the Company TPL, incorporated in 1979, is one of India's leading EPC companies. It operates through four strategic business groups: industrial systems, core infrastructure, urban infrastructure, and services. A brief profile of TPL’s business segments:
TPL is held by several Tata group companies. The largest shareholder is The Tata Power Company Ltd ('CRISIL AA/Stable/CRISIL A1+'), which holds 47.78% of the subscribed equity shares of TPL. Other stakeholders include Tata Chemicals Ltd ('CRISIL A1+'; 9.56%), Tata Sons Ltd ('CRISIL AAA/FAAA/Stable/CRISIL A1+'; 6.67%), Voltas Ltd (6.67%), Tata Industries Ltd ('CRISIL AAA/Stable/CRISIL A1+'; 3.00%), Tata Capital Ltd ('CRISIL AAA/Stable/CRISIL A1+'; 2.20%) and Omega TC Holdings Pte Ltd (OTCHPL; 24.12%). OTCHPL is an investment holding company of the Tata Opportunities Fund, which is one of the private equity funds sponsored by Tata Capital Pte Ltd, Singapore.
The Tata group is a global enterprise, headquartered in India, comprising over 100 independent operating companies. |
Key Financial Indicators
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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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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