Press Release
SRM Contractors Limited
October 01, 2024
Amount
Facilities/Instruments Rating1 Rating Action
(₹ crore)
Long Term Bank Facilities 9.90 CARE BBB+; Stable Upgraded from CARE BBB; Positive
Long Term / Short Term Bank CARE BBB+; Stable / Upgraded from CARE BBB; Positive
84.50
Facilities CARE A3+ / CARE A3
Details of instruments/facilities in Annexure-1.
Rationale and key rating drivers
The upgrade in ratings assigned to the bank facilities of SRM Contractors Limited (SRM) factor in successful fundraising through
initial public offer (IPO) and resultant improvement in liquidity position coupled with improved financial risk profile marked by
comfortable capital structure and healthy debt coverage indicators of the company. The revision in ratings also draw comfort from
increase in scale of operations on the back of better execution of orders in hand along with healthy revenue visibility with healthy
order book position. Further, the ratings also derive strength from experience of the promoters, company’s long track record in
project execution, established market position in the Engineering, Procurement and Construction (EPC) of construction of
roads/bridges/tunnels on higher altitudes. However, the ratings are constrained on account of highly fragmented and competitive
construction industry, inherent execution risks related to projects, working capital intensive nature of operations and geographical
concentrated order book position.
Rating sensitivities: Factors likely to lead to rating actions
Positive factors
• Growth in total operating income (TOI) above Rs. 800 crores and profit before interest, lease rentals, depreciation and
taxation (PBILDT) margin above 16% with improvement and diversification in order book position on a sustained basis.
• Efficient working capital management thereby further improving the liquidity profile of the company
Negative factors
• Decline in scale of operations by more than 20% from existing levels and moderation in operating margins below 12% on
sustained basis
• Elongation in average collection period beyond 90 days and further elongation in gross current assets days adversely
impacting liquidity position of the company.
• Deterioration in the capital structure with overall gearing ratio beyond 0.75x on a sustained basis.
• Any delays in project execution impacting the financial performance and liquidity position of the company.
Analytical approach: Standalone
Outlook: Stable
The ‘Stable’ outlook indicates CARE Ratings’ expectation of continued healthy operating performance and sufficient liquidity,
bolstered by the timely execution of the order book, which is expected to further enhance the financial risk profile over the
medium term.
Detailed description of key rating drivers:
Key strengths
Successful fundraising through IPO and resultant improvement in financial risk profile:
The company recently went for IPO & got listed in April 2024 which resulted in total inflow of Rs. 130.20 crores. Successful fund
raising using IPO resulted in improvement in the financial risk profile & liquidity position of the company. The overall gearing of
the company improved from 0.71x as on March 31, 2023, to 0.33x as on March 31, 2024, primarily on account of share application
money received during IPO. The interest coverage ratio of the company has improved from 6.60x in FY23 (refers to the period
April 01 to March 31) to 7.36x in FY24 (refers to the period April 01 to March 31) on account of better profitability during FY24.
Total debt to gross cash accruals has (TD/GCA) improved to 1.32x as on March 31, 2024 (PY: 1.63x) owing to increased GCA
level.
1
Complete definition of ratings assigned are available at www.careedge.in and other CARE Ratings Limited’s publications.
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Press Release
The overall gearing of the company has further improved to 0.17x as on June 30, 2024, majorly due to receipt of entire IPO
proceeds during Q1FY25 (refers to the period April 01 to June 30) and consequential improvement in networth position.
Care Ratings’ expects the company to maintain its comfortable financial risk profile over medium term, supported by better order
book execution, healthy profitability and absence of any major debt funded capex.
Healthy order book position; albeit remains geographically concentrated:
The company has an unexecuted order book of ~Rs.1,634 crores as on August 31, 2024 which is equivalent to 4.8 times of TOI
of FY24 thereby providing strong revenue visibility in the medium term and includes orders for roads, bridges, canals, tunnels
and small hydro projects. The current order book of the company is majorly from government and quasi government entities,
where the counterparty risk is low. The order book however remains concentrated with ~67% coming from top 5 projects. The
company majorly operates in Jammu & Kashmir (J&K), Uttarakhand and Ladakh region due to expertise in construction of
roads/bridges/tunnels at higher altitudes. Therefore, the order book has geographical concentration in the state of J&K with
around 43% share followed by Uttarakhand with around 21% share and Ladakh having ~17% share; thus, exposing the company
to geographical concentration risk and any adverse change in government policy and rules & regulations related to construction
activities in these areas may impact company’s performance. Further, the management is focusing on diversifying its order book
towards other states in India mainly, Jharkhand, Orissa etc.
While the company’s order book position remains healthy and ensures strong revenue visibility in the medium term, the addition
of new orders and the timely execution of the existing order book will be crucial factors to monitor for ratings.
Growing scale of operations: The company has achieved TOI of Rs. 342.65 crore in FY24, marking an growth of approximately
14% compared to FY23. The growth in TOI was primarily driven by higher order book execution. Further, company's PBILDT &
profit after tax (PAT) margin has remained almost stable at ~12% & ~6% respectively during FY24.
The company has achieved TOI of ~Rs. 55 crores with PBILDT margin of ~18% during Q1FY25. The company is prioritizing the
execution of slope and tunnel projects in the second half of FY25, as these projects offer higher profitability margins compared
to the highly competitive road construction projects.
CARE Ratings anticipates that the company’s scale of operations will continue to grow in the medium term, driven by an expanding
order book and effective execution.
Experienced promoters and established track record in construction industry:
SRM was incorporated in year 2008 by Mr. Sanjay Mehta, who has experience of around two decades in executing diverse
construction & Infrastructural projects. The company has a long track record of successfully completing several projects such as
roads, bridges, canals, tunnels and small hydro projects. SRM has executed projects across northern India with contracts executed
in the state of Uttarakhand, Jammu & Kashmir, Himachal Pradesh, Arunachal Pradesh, Ladakh etc.
Key weaknesses
Presence in a highly fragmented and competitive construction industry:
SRM is a mid-sized player operating in the intensely competitive construction industry wherein contracts are awarded on the basis
of relevant experience of the bidder, financial capability, and most attractive bid price. The highly competitive intensity is on
account of the presence of a large number of contractors resulting in aggressive bidding which exerts pressure on the margins.
Further, aggressive bidding, interest rate risk and delays in projects due to environmental clearance are other external factors
may affect the credit profile of industry players.
Inherent execution risks related to projects:
The construction projects in residential and commercial segments have an inherent risk of delay in execution due to site hand
over, weather conditions and issues related to availability of labour etc. which may result in time and cost overrun in the projects.
However, the long industry experience of SRM’s promoters of around two decades and the company’s long track record mitigates
these risks to some extent.
Working capital intensive nature of operations though efficiently managed:
The company’s operations are capital-intensive, primarily due to an extended collection period resulting from the inclusion of
retention money in projects. The company’s average collection period & inventory period increased to 61 days & 23 days
respectively, in FY24 as against 54 days & 13 days respectively, in FY23 on account of increased order book position. Creditor’s
period remained stable at 26 days during FY24. The operating cycle elongated albeit remained comfortable at 58 days in FY24 as
against 40 days in FY23. Further, gross current assets days of the company stood at 135 days as on March 31, 2024. The company
meets its working capital requirements largely through working capital bank limits, interest free mobilization advances and
stretching of creditors payment. With envisaged growth in scale of operations and healthy order book position, working capital
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Press Release
requirements of the company are expected to increase in medium term. The company’s ability to manage its working capital
requirements with minimal reliance on external debt will remain a key monitorable.
Liquidity: Adequate
Adequate liquidity is marked by sufficient buffer available between expected accruals of ~Rs.53 crores against debt repayment
obligations of ~Rs.9 crores during FY25 (refers to the period April 01 to March 31). The liquidity is further aided by free cash,
bank & FDR balances of ~Rs. 82 crores as on June 30, 2024. Utilization of fund based working capital limit has remained moderate
at around 76% during past 12 months ended August 2024.
The company will be incurring a capex of around Rs.30 crores mainly for additional equipment and machinery requirement for
efficient execution of orders in hand that would be funded out of IPO proceeds & additional term loan as per requirements.
Assumptions/Covenants: Not Applicable
Environment, social, and governance (ESG) risks: Not Applicable
Applicable criteria
Definition of Default
Liquidity Analysis of Non-financial sector entities
Rating Outlook and Rating Watch
Financial Ratios – Non financial Sector
Construction
Short Term Instruments
About the company and industry
Industry classification
Macroeconomic indicator Sector Industry Basic industry
Industrials Construction Construction Civil Construction
SRM Contractors Limited is a Jammu based company which was incorporated on September 04, 2008. The company is engaged
in Infrastructural projects such as roads, bridges, canals, tunnels and hydro projects. The company has executed various work
orders for both Private and Government clients like Border Road Organisation, Indian Railways, etc. The company is registered
as ‘Class A’ contractor with Jammu & Kashmir's Public Work Department.
Brief Financials (₹ crore) March 31, 2023 (A) March 31, 2024 (A) Q1FY25 (UA)
Total operating income 300.29 342.65 54.87
PBILDT 38.30 41.87 9.86
PAT 19.16 22.17 4.77
Overall gearing (times) 0.71 0.33 0.17
Interest coverage (times) 6.60 7.36 4.65
A: Audited UA: Unaudited; Note: these are latest available financial results
Status of non-cooperation with previous CRA:
• Acuite has conducted the review on the basis of best available information and has classified SRM as “Not cooperative”
vide its press release date August 07, 2023, due to non-availability of requisite information to conduct the rating exercise.
• Brickwork has conducted the review on the basis of best available information and has classified SRM as “Not cooperative”
vide its press release dated August 12, 2024, due to non-availability of requisite information to conduct the rating exercise.
Any other information: Not Applicable
Rating history for last three years: Annexure-2
Detailed explanation of covenants of rated instrument / facility: Annexure-3
Complexity level of instruments rated: Annexure-4
Lender details: Annexure-5
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Annexure-1: Details of instruments/facilities
Name of the Date of Coupon Maturity Size of the Issue Rating Assigned and
ISIN
Instrument Issuance Rate (%) Date (₹ crore) Rating Outlook
Fund-based - LT-Cash
- - - - 9.90 CARE BBB+; Stable
Credit
Non-fund-based - LT/ CARE BBB+; Stable / CARE
- - - - 84.50
ST-BG/LC A3+
Annexure-2: Rating history for last three years
Name of Current Ratings Rating History
Sr. the Amount Date(s) and Date(s) and Date(s) and Date(s) and
No Instrument Ty Out- Rating(s) Rating(s) Rating(s) Rating(s)
Rating
. /Bank pe standing assigned in assigned in assigned in assigned in
Facilities (₹ crore) 2024-2025 2023-2024 2022-2023 2021-2022
Fund-based 1)CARE BBB;
CARE BBB+;
1 - LT-Cash LT 9.90 - Positive - -
Stable
Credit (06-Mar-24)
Non-fund- LT CARE BBB+; 1)CARE BBB;
2 based - LT/ / 84.50 Stable / - Positive/ CARE - -
ST-BG/LC ST CARE A3+ A3 (06-Mar-24)
LT: Long term; LT/ST: Long term/Short term
Annexure-3: Detailed explanation of covenants of rated instruments/facilities: Not Applicable
Annexure-4: Complexity level of instruments rated
Sr. No. Name of the Instrument Complexity Level
1 Fund-based - LT-Cash Credit Simple
2 Non-fund-based - LT/ ST-BG/LC Simple
Annexure-5: Lender details
To view the lender wise details of bank facilities please click here
Note on complexity levels of rated instruments: CARE Ratings has classified instruments rated by it based on complexity.
Investors/market intermediaries/regulators or others are welcome to write to care@careedge.in for clarifications.
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Director Director
CARE Ratings Limited CARE Ratings Limited
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E-mail: mradul.mishra@careedge.in E-mail: puneet.kansal@careedge.in
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CARE Ratings Limited E-mail: Rajan.Sukhija@careedge.in
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Assistant Director
CARE Ratings Limited
E-mail: Neeraj.Goyal@careedge.in
About us:
Established in 1993, CARE Ratings is one of the leading credit rating agencies in India. Registered under the Securities and
Exchange Board of India, it has been acknowledged as an External Credit Assessment Institution by the RBI. With an equitable
position in the Indian capital market, CARE Ratings provides a wide array of credit rating services that help corporates raise capital
and enable investors to make informed decisions. With an established track record of rating companies over almost three decades,
CARE Ratings follows a robust and transparent rating process that leverages its domain and analytical expertise, backed by the
methodologies congruent with the international best practices. CARE Ratings has played a pivotal role in developing bank debt
and capital market instruments, including commercial papers, corporate bonds and debentures, and structured credit.
Disclaimer:
The ratings issued by CARE Ratings are opinions on the likelihood of timely payment of the obligations under the rated instrument and are not recommendations to
sanction, renew, disburse, or recall the concerned bank facilities or to buy, sell, or hold any security. These ratings do not convey suitability or price for the investor.
The agency does not constitute an audit on the rated entity. CARE Ratings has based its ratings/outlook based on information obtained from reliable and credible
sources. CARE Ratings does not, however, guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions
and the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE Ratings have paid a credit rating fee,
based on the amount and type of bank facilities/instruments. CARE Ratings or its subsidiaries/associates may also be involved with other commercial transactions with
the entity. In case of partnership/proprietary concerns, the rating/outlook assigned by CARE Ratings is, inter-alia, based on the capital deployed by the
partners/proprietors and the current financial strength of the firm. The ratings/outlook may change in case of withdrawal of capital, or the unsecured loans brought
in by the partners/proprietors in addition to the financial performance and other relevant factors. CARE Ratings is not responsible for any errors and states that it has
no financial liability whatsoever to the users of the ratings of CARE Ratings. The ratings of CARE Ratings do not factor in any rating-related trigger clauses as per the
terms of the facilities/instruments, which may involve acceleration of payments in case of rating downgrades. However, if any such clauses are introduced and
triggered, the ratings may see volatility and sharp downgrades.
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