By Sudeep Arekar

India Ratings and Research (Ind-Ra) has upgraded Dilip Buildcon Limited’s (DBL) Long-Term Issuer Rating to ‘IND A+’ from ‘IND A’ while resolving the Rating Watch Positive (RWP). The Outlook is Stable. The instrument-wise rating actions are as follows:

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Fund-based facilities

-

-

-

INR17,931

IND A+/Stable/IND A1

Long-term upgraded; Short-term affirmed

Non-fund based limits

-

-

-

INR30,120

IND A+/Stable/IND A1

Long-term upgraded; Short-term affirmed

Proposed non-fund based limits*

-

-

-

INR2899

Provisional IND A+/Stable/Provisional IND A1

Long-term upgraded; Short-term affirmed

*The rating is provisional and shall be confirmed upon the sanction and execution of loan documents for the above facilities by DBL to the satisfaction of Ind-Ra.

KEY RATING DRIVERS

Asset Sale to Improve Credit Profile: The upgrade reflects Ind-Ra’s expectations of an improvement in DBL’s credit profile as a result of monetisation of its entire portfolio of road assets for a consideration of INR16 billion, to be received over FY18 (INR5 billion) and FY19 (INR11 billion). The company intends to utilise these proceeds to meet working capital requirements, pare debt and meet equity commitments for new projects, if any. As on date, DBL has received INR2.25 billion of these proceeds as advance. Ind-Ra believes that a delay in the receipt of the transaction proceeds might impair the expected improvement in the credit profile and may have a bearing on the ratings. 

DBL’s net financial leverage (standalone debt less unrestricted cash/EBITDA) improved to 2.6x in FY17 (FY16: 3.0x) and EBITDA/net interest coverage at 2.4x (2.1x), primarily driven by an improvement in the scale of operations and resultant EBITDA. The agency expects the net leverage of the company to be below 2.0x by end-FY19, driven by a reduction of debt obligations. 

Order Book Diversification:
At end-December 2017, DBL has a geographically diversified order book. Madhya Pradesh now constitutes around 14% of the total order book (September 2016: 20%, December 2014: 50%) while Maharashtra, Uttar Pradesh, Andhra Pradesh, Goa and Telangana constitute around 33% 14%, 12%, 11% and 6% respectively. Around 80% of DBL’s order book comprised projects related to the construction of roads, highways and bridges (December 2016: 88%), while real estate, urban development, irrigation & canal projects jointly comprised 4% (4%) of the total order book. DBL diversified into the mining sector in FY16, which comprised around 16% of the order book as of December 2017 (December 2016: 8%).

Robust Financial Performance; Healthy Revenue Visibility:
DBL’s revenue increased to INR51 billion in FY17 (FY16: INR40.8 billion), driven primarily by the successful execution of the company’s larger order book than FY16’s, while its EBITDA margin was stable at 19.5% (19.6%). DBL’s order book amounted to INR124 billion (2.4x FY17 revenue) at end-December 2017 (end-September 2016: INR132 billion). In addition, the company has been declared as L1 bidder for Engineering, Procurement and Construction (EPC) and HAM road projects to the tune of INR105.1 billion in 4QFY18 till date. 

Superior Execution Capability:
DBL’s founders have a 29-year-long track record in the civil construction industry. Also, the company has proven execution ability and does not depend on sub-contractors for project execution. The company received an early completion bonus of INR514.9 million in FY17 (FY16: INR564 million), which is a testimony to its strong execution skills. DBL’s asset base and its capex requirements have consequently remained high over the years. At end-FY17, DBL’s gross plant and machinery was INR24.2 billion, while it incurred a capex of INR4.9 billion to acquire new machinery for its roads and mining businesses.

Stretched Working Capital Cycle:
The company’s net working capital cycle remained stretched at 109 days in FY17 (FY16: 112 days), driven primarily by working capital intensity. Geographical diversification has resulted in an increase in the cumulative value of aggregates/raw materials at project sites. However, a reduction in the receivable days of the company in line with its strategy to reduce its exposure to private players by adding more projects from central and state government agencies reduced the impact.

Moderate Liquidity:
DBL utilisation of the fund-based limits was near full for the 12 months ended February 2018. Also, cash flow from operations, though positive, was insufficient to meet its capex requirements. DBL has refinanced part of its long-term high-cost debt through the issuance of 8.9% INR6,000 million non-convertible debentures in December 2017. The debentures have a moratorium of two years and hence would result in lower debt service requirements during 4QFY18-FY19. The agency expects an improvement in the liquidity of the company over the medium term in the event of timely receipts of proceeds from the ongoing asset monetisation transaction. 

Stiff Competition:
DBL operates in the competitive construction industry.


RATING SENSITIVITIES

Positive: A significant increase in the scale of operations led by segmental diversification while maintaining the margins at the existing levels and net financial leverage below 2.0x on a sustained basis would lead to a positive rating action.

Negative:
A delays in receipt of the asset monetisation proceeds resulting in net financial leverage staying above the expected levels of 2.0x on a sustained basis would be negative for the ratings. 


COMPANY PROFILE

Incorporated in 2006 as a private limited company, Bhopal-based DBL acquired a proprietorship concern engaged in a civil construction business, effective 1 April 2007. In August 2010, DBL was reconstituted as a closely held public limited company. In August 2016, 24.4% of its shareholding was made free float after an initial public offering during the month. As of December 2017, its order book was INR124 billion, comprising road projects (80%), mining projects (16%) and real estate, urban development projects and irrigation projects (4%). In 9MFY18, DBL generated revenue of INR51.9 billion, operating EBITDA was INR9.3 billion, EBITDA margin was 17.9%, and interest coverage was 2.7x. At end-9MFY18, the company’s total debt was INR32,750 million.

 

FINANCIAL SUMMARY

 

Particulars

FY17

FY16

Revenue (INR million)

50,976

40,853

EBITDA (INR million)

9,923

7,993

EBITDA margin (%)

19.5

19.6

Total debt (INR million)

25,634

25,114

Interest coverage (x)

2.4

2.1

Cash

222

727

Net leverage (x)

2.6

3.0

Source: DBL, Ind-Ra


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook/Rating Watch

Rating Type

Rated Limits (million)

Rating

22 September 2017

26 December 2016

22 July 2015

Issuer rating

Long-term

-

IND A+/Stable

IND A/RWP

IND A/Stable

IND A-/RWP

Fund-based facilities

Long-/short-term

INR17,931

IND A+/Stable/IND A1

IND A/RWP/IND A1/RWP

IND A/Stable/IND A1

IND A-/RWP/IND A2+/RWP

Non-fund-based limits

Long-/short-term

INR33,019

IND A+/Stable/IND A1

IND A/RWP/IND A1/RWP

IND A/Stable/IND A1

IND A-/RWP/IND A2+/RWP


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity levels of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

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Applicable Criteria

Analyst Names

  • Primary Analyst

    Sudeep Arekar

    Senior Analyst
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th floor, West Wing Plot C-2, G Block. Bandra Kurla Complex Bandra (East), Mumbai 400051
    022 40001748

    Media Relation

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121