Hari Construction and Associates Private Limited

January 25, 2018

Summary of rated instruments

Previous Rated Amount Current Rated Amount
Instrument* Rating Action
(Rs. crore) (Rs. crore)
[ICRA]BBB (Stable); Rating reaffirmed and
Fund-based Limits 8.00 10.00 removed from the ‘Issuer Not Cooperating’
category
[ICRA]BBB (Stable)/ [ICRA]A3+; Rating
Non fund-based Limits 32.00 40.00 reaffirmed and removed from the ‘Issuer
Not Cooperating’ category
Total 40.00 50.00
*Instrument details are provided in Annexure-1

Rating action
ICRA has reaffirmed the long-term rating of [ICRA]BBB (pronounced ICRA triple B) assigned to the Rs. 8.00-crore1 cash-
credit facility of Hari Construction and Associates Private Limited (HCAPL) 2. ICRA has also reaffirmed the long-term rating
of [ICRA]BBB and short-term rating of [ICRA]A3+ (pronounced ICRA A three plus) assigned to the Rs. 40.00-crore
(enhanced from Rs. 32.00 crore earlier) non-fund based bank facility of HCAPL. ICRA has also assigned a long-term rating
of [ICRA]BBB to the Rs. 2.00-crore term loan of HCAPL. The outlook on the long-term rating is Stable. ICRA has also
removed the ratings from the ‘Issuer Not Cooperating’ category.

Rationale
The assigned ratings take into consideration the established track record of operations supported by the experienced
promoters with demonstrated capabilities in the construction sector and the longstanding relationship with the reputed
customers, which helps in securing repeat orders. The ratings also take into account the steady increase in the scale of
operations over the past few years, resulting in higher profits and cash accruals. The ratings also favourably factor in the
financial-risk profile of the company characterised by a conservative capital structure and comfortable level of coverage
indicators. ICRA notes that HCAPL had an outstanding order-book of around Rs. 495 crore (~3 times of OI in FY2017) at
the end of FY2017, which provides adequate revenue visibility in the near to medium term.

The ratings are, however, constrained by the intense competition owing to the fragmented nature of the construction
industry. This coupled with a tender-based contract-awarding system keeps HCAPL’s margins under check. The ratings
also take into account the high exposure to the government and public sectors, which makes the company vulnerable to
delays in execution of work orders arising from slow regulatory approvals, bureaucratic intervention, lack of strong
internal-monitoring mechanisms etc. It also remains exposed to volatility in raw-material prices, though presence of
price-variation clause in most of the contracts mitigates such risk to an extent. The company remains exposed to high
geographical concentration risk with major ongoing projects primarily concentrated in Bihar; although, recent expansion
to Jharkhand and West Bengal could mitigate this risk to some extent, going forward. ICRA notes that any potential
delays in order execution could adversely impact the revenue growth and the overall business-risk profile of HCAPL.
Additionally, the company’s ability to manage its working-capital position would remain a key rating sensitivity.

1
100 lakh = 1 crore = 10 million
2
For complete rating scale and definitions, please refer to ICRA's website www.icra.in or other ICRA Rating Publications

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Outlook: Stable

ICRA believes HCAPL will continue to benefit from its established position in the construction sector and long-standing
relationship with the reputed customers. The outlook may be revised to 'Positive' if substantial growth in revenue and
profitability and better working-capital management strengthen the financial-risk profile. The outlook may be revised to
'Negative' if cash accrual is lower than expected, or if any major capital expenditure, or stretch in the working-capital
cycle, weakens liquidity.

Key rating drivers

Credit strengths
Established track record of operations supported by a reputed customer base – The company has been operating in the
construction sector since 1999 and has an established track record in constructing main-line railway tracks, platforms,
railway sidings etc. The company has a long relationship with its customers, which helps in securing repeat orders. The
clientele of the company is highly reputed, which consists of government departments (96%) and public-sector
undertakings, keeping counterparty risk at a low level.

Steady increase in the scale of operations over the past few years – HCAPL’s revenue has been growing at a
compounded annual growth rate of around 21% over the period between FY2012 and FY2017 primarily on the back of
timely execution of orders in hand and securing of large contracts from the government departments/ PSUs.

Healthy order-book position – The outstanding order-book position of the company stood at around Rs. 495 crore at the
end of FY2017, which was ~3 times the operating income generated in FY2017. Hence, the revenue visibility of HCAPL
remains comfortable over the short to medium term.

Conservative capital structure and comfortable coverage indicators – The capital structure of the company has
remained conservative, over the years, on the back of healthy accretion to net worth and low reliance on external debt.
On account of healthy profitability and low gearing, the coverage indicators continued to remain comfortable in FY2017
against the previous fiscals.

Credit challenges
Fragmented and highly competitive nature of the industry – The highly fragmented nature of the construction industry,
coupled with a tender-based contract-awarding system, keeps its margins under check. The presence of several large and
small-scale players in the construction industry leads to intense competition in the bidding process, which puts
downward pressure on the company’s revenue and profitability.

Revenue remains exposed to delays in execution – HCAPL, like other players in the civil-construction business, remains
exposed to significant execution risk due to delays arising from slow regulatory approvals, bureaucratic interventions,
lack of strong internal-monitoring mechanisms etc, which might impact its revenue growth and liquidity position, going
forward.

High geographical concentration risk – HCAPL is exposed to high geographical concentration risk with its operations
being carried out almost entirely in Bihar. However, its recent expansion to Jharkhand and West Bengal could mitigate
this risk to some extent, going forward.

Exposed to risks of raw-material shortages and volatility in material prices – The company remains exposed to risks of
raw-material shortage and volatility in material prices, which could result in a delay in execution of work orders and
adversely impact its top-line and profitability. However, the presence of built-in price-escalation clauses in most of the
contracts mitigates such risks to an extent.

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Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below.

Links to applicable criteria:

Corporate Credit Rating Methodology
Construction Entities

About the company:

Established as a partnership entity, in 1999, HCAPL was subsequently converted into a private limited company in 2009.
It is involved in civil construction. The company’s core area of operations includes constructing main-line railway tracks,
platforms, railway siding, pre-stressed concrete structures, girder and pipe-line bridges for various government agencies
and public-sector undertakings. HCAPL’s current projects are primarily located in Bihar, Jharkhand and West Bengal.

Key financial indicators

FY2016 FY2017
(Audited) (Audited)
Operating Income (Rs. crore) 152.39 162.04
PAT (Rs. crore) 6.90 6.86
OPBDIT/ OI (%) 7.76% 8.14%
RoCE (%) 32.49% 27.77%

Total Debt/ TNW (times) 0.33 0.36

Total Debt/ OPBDIT (times) 0.86 1.03
Interest Coverage (times) 6.46 6.07
NWC/ OI (%) 9.66% 13.32%

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

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Rating history for last three years:
Current Rating (FY2018) Chronology of Rating History for the past 3 years

Amount Date & Date &

Instrument Amount Date & Date & Rating in
Outstanding Rating in Rating in
Rated Rating FY2018
Type (Rs. crore) FY2017 FY2016
(Rs.
March 31, January November November January
crore)
2017 2018 2017 2016 2016
[ICRA]BBB (Stable)
Long [ICRA]BBB [ICRA]BBB [ICRA]BBB-
1 Cash Credit 8.00 7.87 ISSUER NOT
Term (Stable) (Stable) (Stable)
COOPERATING*
Long [ICRA]BBB (Stable)/
[ICRA]BBB [ICRA]BBB [ICRA]BBB-
Bank Term/ [ICRA]A3+
2 40.00 37.56 (Stable)/ (Stable)/ (Stable)/
Guarantee Short ISSUER NOT
[ICRA]A3+ [ICRA]A3+ [ICRA]A3
Term COOPERATING*
Long [ICRA]BBB
3 Term Loan 2.00 0.94 - - -
Term (Stable)
*Issuer not cooperating, based on best available information

Complexity level of the rated instrument:

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The
classification of instruments according to their complexity levels is available on the website www.icra.in

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Annexure-1: Instrument Details
Date of Amount
ISIN No Coupon Maturity Current Rating and
Instrument Name Issuance/ Rated
Rate Date Outlook
Sanction (Rs. crore)
NA Cash Credit NA NA NA 8.00 [ICRA]BBB (Stable)
[ICRA]BBB (Stable)/
NA Bank Guarantee NA NA NA 40.00
[ICRA]A3+
NA Term Loan Dec-2016 NA Jun-2020 2.00 [ICRA]BBB (Stable)
Source: Hari Construction and Associates Private Limited

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ANALYST CONTACTS
Mr. K Ravichandran Mr. Sujoy Saha
+91 44 4596 4301 +91 33 7150 1184
ravichandran@icraindia.com sujoy.saha@icraindia.com

Mr. Sandipan Kumar Das Ms. Nabanita Sengupta

+91 33 7150 1190 +91 33 7150 1123
sandipan.das@icraindia.com nabanita.sengupta@icraindia.com

RELATIONSHIP CONTACT
Mr. Jayanta Chatterjee
+91 80 4332 6401
jayantac@icraindia.com

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
naznin.prodhani@icraindia.com

Helpline for business queries:

+91-124-2866928 (open Monday to Friday, from 9:30 am to 6 pm)

info@icraindia.com

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
companies as an independent and professional investment Information and Credit Rating Agency.

Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit
Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.

For more information, visit www.icra.in

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ICRA Limited
Corporate Office
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Tel: +91 124 4545300
Email: info@icraindia.com
Website: www.icra.in

Registered Office
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Branches

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