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Rating CARE has assigned a ‘CARE BBB-’ (Triple B Minus) rating to the Long-term Bank Facilities of Dharti Dredging and Infrastructure Limited (DDIL). This rating is applicable for facilities having tenure of over one year. Facilities with this rating are considered to offer moderate safety for timely servicing of debt obligations. Such facilities carry moderate credit risk. CARE assigns ‘+’ or ‘-’ signs to be shown after the assigned rating (wherever necessary) to indicate the relative position within the band covered by the rating symbol. These ratings are assigned to the long-term bank facilities aggregating Rs.42 crore. The rating factors in the company’s experience in the capital dredging, healthy order book position, diversification into allied activities, improved profitability margins and lower gearing ratios. The rating is, however, constrained by devolvement of Letter of Credit (LCs) in the recent past, stressed liquidity scenario of the company, increasing debtors position and high fixed costs towards dredgers. The ability of the company to successfully bid and carry out capital dredging projects in the future, uncertainties in infrastructure projects and improvement in its liquidity scenario are the key rating sensitivities.
Background Dharti Dredging and Infrastructure Ltd. (DDIL), the second-largest dredging company in India, after Dredging Corporation of India (DCI), is engaged in capital dredging activities. DDIL commenced its operations with one dredging unit at Paradeep Fishing Harbor in 1993. Over the years, the company has diversified into trenching and back filling works for the oil and gas industry for domestic as well as international clients. The company experienced a slowdown in its operations during the years FY2003-04 and FY2004-05 due to inadequate capital dredging projects in India. In March 2005, Tebma Shipyard Ltd., which owned over 83% of the share capital, disinvested its entire share holding in favor of SKH Impex Ltd., promoted by Mr. A. Rajendra, a technocrat. Further, in FY06, Mr. Rajesh Jhunjhunwala and associates invested Rs.50 crore in the company, making available the much-needed own capital to ease the pressure on the capital structure of the company. Mr. A Rajendra has worked with Punj Lloyd for about 15 years in different areas including dredging-related work.
CREDIT ANALYSIS & RESEARCH LIMITED
2008. the company also receives about 10% of the contract value as advance for the mobilisation of all the necessary equipment to undertake the project. the average industry experience of the management in dredging and oil exploration is about 28 years. Oman (DDCP) (70% holding). the company had un-executed orders of Rs.535 crore which is about 2. 2008.Ta-Lung and Ta-Hsing with an annual dredging capacity of 62. This contract would be renewed every year for a period of one year. flood control and various other civil projects. road embankment projects.44 times of the total income achieved in FY08. Operations DIL executes various types of projects like. (Taiwan) in October 2007 at USD7. trenching and back filling works related to offshore pipeline installation. The company secures orders by way of tenders invited by Government Companies/Agencies as well as from the private companies. The company has a fleet of ten owned and six hired dredgers. land reclamation. the company had two subsidiaries. DDCP. Most of the orders of the company are fixed-price contracts wherein any adverse impact of the cost of the project directly affects the profitability of the company. As on March 31. The company took a supplier’s credit of Rs. capital dredging. The order book is to be completed by October 2009.55 lakh cubic meter. Indonesia (PTDO) (WOS) and Dharti Dredging and Construction Partners LLC. due to shortage of such large-sized dredgers. the company purchased the same on a suppliers’ credit basis. for a 14-year period with monthly repayment installment equaling the monthly hire charges. The company hires the required dredgers on a case-by-case basis for a particular project. DDIL has taken a dredger on hire from PTDO. de-weeding of lakes. revenue from the dredging activity comprises the major portion (around 84% in FY08) of the total revenue of the company. PT Dharti Offshore. in FY09 the company reversed the purchase transaction for these two dredgers and took them on hire till October 2009 with the same terms and conditions. on hire from Hung Hua Construction Co. However. The company undertakes pre-bidding survey of the site to determine the complexities involved in the capital dredging activity. CREDIT ANALYSIS & RESEARCH LIMITED 2 . As on March 31. at present. Ltd. However.346. Most of the dredgers are cutter suction dredgers. does not have any operations.. Although most of the senior management team has joined the company in recent times. However.The Managing Director looks after the day-to-day operations of the company and is ably assisted by the qualified professionals heading different departments.9 lakh per month per dredger on yearly contract. However. The company had taken two dredgers .41 crore from Hung Hua Construction Ltd.
13 4.77 Mar-08 219.17 566.39 14.37 3.92 2.64 21.82 6.29 June-06 83.53 12.01 0.69 Mar-07 105.58 12.36 20. mainly due to company’s strategy of taking dredgers on hire. the PBILDT margin had been volatile over the period.88 0.73 1.22 0. For FY08.51 7.70 13.46 28.78 2. trenching and back filling.67 1.84 30.92 June-05 22.06 12.81 32.72 3.90 4.10 2.60 0.66 4.68 87.56 27.78 0.80 104.08 0.43 12.219.91 1.82 0.35 0.80 2.52 0.21 crore.30 1.23 6. total income stood at Rs.49 5.Financial Results (Rs.04 35. mainly for capital dredging.90 2.44 6.20 7. crore) For the year / As on March 31.70 32.04 103.84 18. Working Results Total Income PBILDT Interest and Finance Charges Depreciation PAT (After Deferred Tax) Net Cash Accruals Financial Position Share Capital Net worth Total Capital Employed Net Fixed Assets Net Working Capital Ratios Profitability (%) PBILDT / Total Income PAT / Total Income ROCE (Average Total Capital Employed) Solvency (times) Long Term Debt Equity Ratio Overall Gearing Ratio Interest Coverage Total Debt / Net Cash Accruals Liquidity Current Ratio Quick Ratio Turnover Average Collection Period (Days) Average Creditors (Days) 85 70 75 86 93 105 1.26 9.82 55.03 14.48 2. as and when CREDIT ANALYSIS & RESEARCH LIMITED 3 .33% over the past four years on the back of new orders.18 14.21 60.84 520.30 37.16 20. PBILDT also showed a consistent increase from FY05 to FY08.67 9. However.49 2.88 Average Inventory (Days) 61 76 73 Total income for DDIL had shown a Compounded Annual Growth Rate (CAGR) of 112.10 6.55 9.46 3.70 1.66 2.73 46.77 3.77 6.78 1.19 3. a y-o-y growth of 56%.08 9.98 13. In line with the growing revenue.73 19.36 12.93 10.
The company reported a turnover of Rs.10x as on June 30. to cater to the increasing order book of the company. PBILDT margin in 9MFY09 increased to 30. respectively. as on March 31.82x on account of increase in working capital borrowings to fund the increased debtors due to non-payment of dues by various parties as a result of technical differences on the amount of work done and increase in the current portion of the long-term debt. 2007. related to equipment hire and mobilisation expenses.21 crore in FY08. respectively. 2007. on the back of augmentation of new dredgers over the years. As per the audited results for 9MFY09.60x and 0. due to fixed operating lease charges. There was a decline in the PAT margin for 9MFY09. as on March 31. the PBILDT margin improved to 27. during FY08 resulted in drastic increase in the long-term debtequity and the overall gearing ratio to 4. which kept the PAT margin low at 6. including floating crafts.69 crore in 9MFY09 as against a turnover of Rs.426 crore.88x in FY08. mainly due to longterm supplier’s credit.82% compared to 12. The company’s net fixed assets have shown a steady increase from FY06 to FY08. 2008 to Rs. Additional debt.82% in FY08 on account of reduced operational expenditure. despite improvement in the PBILDT margin. The increased turnover was on account of improved execution capability of the company backed by increased dredging orders. However. 2005 to 0. The current ratio of the company was fairly comfortable till FY07. 2006 and March 31.35 crore on March 31. the interest coverage has shown an improvement over the period from FY05 to FY08. as a result of dip in the hire charges during FY08. as on March 31. Infusion of equity in FY06 and FY07 enabled the company improve its debt-equity ratio from 2. respectively. the liquidity scenario of the company appears to be stressed.219. resulted in significant increase in the interest and depreciation cost for the company in FY08. 2008 the same had shown a decline to 0. The addition of five dredgers and the loan taken for the same.49x.08x in FY08 from 3. on y-o-y basis the same declined to 2. Although. in line with increase in revenues. Thus.67%.224.42% as against 27. on account of increased depreciation 4 CREDIT ANALYSIS & RESEARCH LIMITED .required. with devolvement of part amount of two L/Cs (for 2-3 days) due to late payments received from parties. 2007 mainly due to procurement of five dredgers and procurement of various other equipment.13x and 4. The company had taken dredgers on hire during FY06 and FY07 which resulted in dip in the PBILDT margin.521 crore from Rs. The liquidity situation further deteriorated in April 2009. However. DDIL had outperformed its previous full year results of FY08. however. combined with increased interest expenses resulted in an increase in total debt to net cash accruals to 9.73x in FY07. 2008.19x.01x as on June 30.01x and 0. compared to 0. the additional debt of Rs. on account of increase in interest expenses. The company’s net fixed assets have shown a sudden increase as on March 31.23% in FY07.
given that Indian player’s bid is within the 10% of lowest bid. Mangalore and Kochi.41 crore due to cancellation of orders for two new dredgers. as well as the projects under way at Haldia. The dredging activity is largely dependent on port development. Dredging activity in India is expected to grow by two to three times in the next few years as the existing main ports are expanded and new private ports and additional terminals are built to service larger and more vessels.346. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. Further. land reclamation and environmental aspects and regulations.07x. Paradeep. disburse or recall the concerned bank facilities. there was a major decline in the debt to equity and overall gearing ratios as on December 31. Capital dredging is a sub-activity to the main civil construction work in developing new ports and harbors and is often subcontracted to a specialist dredging contractor. the domestic dredging companies enjoy preference over foreign competition.cost. CARE does not.55 million) and Ennore (USD31. related to purchase of dredgers and other equipment.61x and 1. Industry The main objective of capital dredging is the creation of deeper and/or wider waterways to improve navigation of ships.13x for 9MFY09 compared to 2. on account of reduction of suppliers’ credit of Rs. Under this policy. respectively. Large capital dredging projects include those being finalised at Nhava Sheva (estimated at USD177. maintenance and expansion programme. estimated at 1 billion cubic meters in the next five years. Maintenance dredging is the process of excavating or removing soil from below water using dredgers. based on the amount and type of bank facilities. This is designed to protect domestic players from foreign dredging competition. However. CREDIT ANALYSIS & RESEARCH LIMITED 5 .44 million at various ports across India. The next couple of years are expected to see implementation of dredging projects worth USD444.77 million).77 million). interest coverage improved marginally to 2. The growth in the dredging market is largely affected by the growth in world trade. Most entities whose bank facilities are rated by CARE have paid a credit rating fee. due to improved PBILDT margin. 2008 to 0. (USD55. if they meet the technical requirement. April 2009 Disclaimer CARE’s ratings are opinions on credit quality and are not recommendations to sanction. guarantee the accuracy.08x for FY08. In India. Tuticorin. however. renew. if a foreign company emerges as the lowest bidder. Capital dredging project involves thorough analysis of the soil conditions before the bidding. India offers huge market potential for dredging companies. the Indian company is given a chance to match the bid. adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. deeper draught requirements of ports. As per industry sources.
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