| Vascon Engineers Limited | ||||||
| Ratings upgraded to 'CRISIL BBB+/Stable/CRISIL A2' | ||||||
| Rating Action | ||||||
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| 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 upgraded its ratings on the bank facilities of Vascon Engineers Limited (VEL) to 'CRISIL BBB+/Stable/CRISIL A2' from 'CRISIL BBB/Stable/CRISIL A3+’.
The upgrade in the ratings reflect the overall improvement in the operational and financial risk profile of the company driven by its execution track record in the engineering, procurement and construction (EPC) as well as higher deliveries in the real estate segment and stable performance of GMP Technical Solutions Pvt Ltd, leading to ~50% growth in the operating income to Rs. 1019 crore in fiscal 2023 from Rs 657 crore in fiscal 2022. This along with robust operating profit margins lead to healthy net worth of Rs 908 crore and consequently led to improved leverage indicators as reflected in TD/OPBDITA of 1.1 times, interest cover of 5.01 times and TOL/TNW of 0.8 times as on March 31, 2023. Going forward, CRISIL’s expects the operating performance of VEL to be sustained on the back of stable cash-generating EPC business duly supported by adequate external order book of Rs. 1739 crore as on March 31, 2023, which is estimated at 2.5 times of its FY2023 operating income (OI), providing revenue visibility. Consolidated revenue is expected to increase ~7%, aided by EPC revenue which is expected to reach ~Rs. 700-730 crore in fiscal 2024 and stable manufacturing segment. Further, real estate collections are expected to increase gradually and will improve in the ongoing fiscal with healthy launch pipeline and committed receivables of Rs 111 crore as on March 31, 2023. The debt protection metrics are also expected to remain healthy with gearing of under 0.3x and TOL/ANW of ~0.8 times over the medium term.
The rating takes comfort from the adequate buffer in both fund-based and non-fund-based facilities post enhancement in the working capital limits. The rating continues to derive comfort from the extensive experience of the company’s promoters, its healthy execution track record in the civil construction business and its reputed clientele comprising primarily public sector/Government entities, resulting in moderate counterparty risk. Unencumbered cash and equivalents stood at Rs 13 crore as on June 30, 2023 at the standalone level. VEL is likely to maintain cushion of 10% of the working capital limit and unencumbered cash and equivalents of Rs 7 crore for any exigency.
These strengths are partially offset by large working capital requirement, large slow-moving real estate inventory and exposure to intense competition and cyclicality in the EPC segment. |
Analytical Approach CRISIL Ratings has considered the consolidated financial and business risk profile of VEL along with its subsidiaries. The consolidation is on account of the common management and business synergies among the group companies.
Subsidiaries of the company include Marvel Housing Pvt Ltd, Vascon Value Homes Pvt Ltd, GMP Technical Solutions Pvt Ltd, GMP Technical Solutions Middle East (Step Subsidiary), Almet Corporation Ltd, Marathawada Realtors Pvt Ltd and Vascon EPC Ltd. Associates and joint ventures of VEL include Phoenix Ventures, Cosmos Premises Pvt Ltd, Vascon Saga Construction LLP, Vascon Qatar WLL, Mumbai Estates Pvt Ltd and Ajanta Enterprises, Vascon Developers LLP
Extent of Consolidation: Full
Interest-bearing mobilisation advances have been treated as debt.
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: Healthy financial profile and credit metrics There has been continued improvement in VEL’s operational and financial profile supported by steady execution, healthy profitability and healthy accretion of reserves. The healthy profit margins and accruals are driven by the prudent project bidding, stable manufacturing segment and higher deliveries in the real estate segment in fiscal 2023. Further, the presence of price escalation clauses in most of the outstanding contracts in the order book reduces the exposure to raw material price volatility to an extent. With healthy accretion to reserves, VEL’s net worth increased to Rs. 908 crore as on March 31, 2023 from Rs. 806 crore as on March 31, 2022. This along with low debt levels led to improved credit metrics as reflected in TD/OPBDITA of 1.1times, TOL/TNW of 0.79 times and interest coverage ratio of 5.01 times as on March 31, 2023, vis-à-vis TD/OPBDITA of 8.0 times, TOL/TNW of 0.8 times and interest coverage of 3.09 times as on March 31, 2022. Going forward, it is expected that the credit metrics will remain healthy with TOL/TNW to remain below 0.8 time and TD/ OPBDITA to remain below 2.0 times in the medium term.
As on June 30, 2023 unencumbered cash and equivalents stood at Rs 13 crore at the standalone level. VEL is likely to maintain cushion of 10% of the working capital limit and unencumbered cash and equivalents of Rs 7 crore for any exigency.
Established position in EPC (buildings), supported by healthy order book and counterparty profile VEL benefits from the established track record of the management in executing construction contracts for the infrastructure, real estate and manufacturing segments on an EPC basis. The company also has strong technical capabilities and domain expertise in the construction and execution of complex projects.
The company had external orders worth Rs 1,739 crore as on Mar 31, 2023, and plans to continue to focus on government projects. Furthermore, almost 78% of the orders are derived from government projects, which lends visibility to the uninterrupted cash flow, thereby providing assurance of stable operating performance over the medium term and supporting the business risk profile.
Weaknesses: Large working capital requirement and large slow-moving real estate inventory The company’s operations are working capital intensive operations on account of its real estate business. Inventory remained stretched over the last two years because of the strong backlog as a result of unsold real estate units, which stood at Rs 257 crore (excluding Rs 148 cr as land and development potential) as on March 31, 2023. Receivables have been on an improving trend since the government bodies became the main counterparty for the EPC business. The company will continue to focus on government-related projects, which will help keep the receivables low. With a proportion of revenue from the EPC business expected to be stable over the medium term, receivables are likely to remain at 80-90 days. However, liquidation of some of the slow-moving inventory will remain a key monitorable.
Exposure to risks related to saleability of real estate projects Saleability and implementation risks in the real estate sector persist, as reflected by sharp fluctuations in real estate income, sales and collections over the past few fiscals. In light of the weak demand scenario in the past, certain projects have demonstrated limited progress. Ability to liquidate real estate inventory of ~Rs 257 crore (excluding Rs 148 cr as land and development potential) as on March 31, 2023, delay in completion or launch of real estate projects and any additional debt taken on to support real estate cash flow mismatch will remain a key monitorable. |
Liquidity: Adequate Given the healthy profit margins and comfortable leverage, CRISIL expects the cash flows to be sufficient to meet the company’s debt obligations and regular capex outflow. Cash accrual, expected at over Rs 80 crore per annum, along with cash generation from the real estate business, will sufficiently cover yearly debt obligation of Rs 20-30 crore over the medium term.
Unencumbered cash and equivalents stood at Rs 13 crore as on June 30, 2023 on standalone level. Fund-based bank lines of Rs 18.5 crore remained unutilised over the 12 months ended Mar 31, 2023. VEL continues to focus on liquidity management by monetising the non-core assets. |
Outlook: Stable The credit risk profile of VEL should continue to benefit from its healthy order book, improving operating performance, healthy capital structure and adequate liquidity. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Company VEL, based in Pune, is engaged in the EPC, real estate construction and development business. The company was incorporated in January 1986 by Mr Vasudevan and commenced operations through construction of the Patalganga factory of Cipla in November 1986. Up until 1998, the company was a real estate contractor, executing contracts for third parties.
The real estate business of VEL comprises construction of residential and office complexes along with information technology parks, industrial units, shopping malls, multiplexes, educational institutions and hotels. Under the EPC segment, VEL has executed construction contracts. It primarily caters to government departments and authorities. The company, which has presence of more than 30 years in the EPC and real estate industry, has delivered over 200 projects with area of around 50 million square feet under the EPC as well as real estate business. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Guaranteed Emergency Credit Line |
Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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