June 18, 2020

Modern Construction Company (Delhi): [ICRA]B+ (Stable)/[ICRA]A4 assigned

Summary of rating action

Current Rated Amount
Instrument* Rating Action
(Rs. crore)
Long Term – Fund Based – CC 42.50 [ICRA]B+ (Stable); assigned
Short Term – Non-fund Based 32.50 [ICRA]A4; assigned
Total 75.00
*Instrument details are provided in Annexure-1

Rationale
The assigned ratings reflect the weak liquidity position of Modern Construction Company (Delhi) (MCCD), which is
further constrained by the susceptibility of the firm’s working capital position to any payment mismatches with
clients and sub-contractors, as well as the risk of underperformance by sub-contractors. The firm has no buffer on
its working capital facilities and has limited cash and cash equivalents as on date. This is likely to be further
impacted by the Covid-19 pandemic. Going forward, enhancement of its working capital facilities will be crucial to
manage its liquidity position and for timely completion of its projects. The ratings also consider the decline in
MCCD’s revenues in FY2020 as a result of the National Green Tribunal (NGT) ban on construction activities for a
part of FY2020, which stopped its operations for upto 2 months. Further, because of disruptions caused to its
operations by the Covid-19 pandemic, the company’s OI, profitability, and liquidity position will continue to be
impacted over the near to medium term. The ratings are also weakened by the limited geographical diversification
of MCCD’s order book with all projects confined to NCR. The firm is also exposed to risks associated with its
constitution as a partnership. Continuous capital withdrawals by its partners in the recent fiscals has weakened its
capital structure.

Nonetheless, the ratings factor in the extensive track record of MCCD in the civil construction industry. Its
promoters have more than four decades of experience and extensive technical know-how. The firm has leveraged
on its experience to develop healthy relationships with its clients, suppliers and sub-contractors. The ratings also
consider the healthy outstanding order book of the company. As most projects are expected to be executed over
the next 24–36 months, it provides medium-term revenue visibility for the firm.

The Stable outlook on the [ICRA]B+ rating reflects ICRA’s opinion that MCCD will continue to benefit from the long
track record of its operations and strong order book.

Key rating drivers and their description

Credit strengths
Extensive experience of promoters in civil construction business – The promoters of MCCD have been in the civil
construction business for more than four decades and have extensive technical know-how. This has enabled them
to develop healthy relationships with its clients, suppliers and sub-contractors. The firm receives repeat projects
from its major clients.

1
Healthy OB/OI provides revenue visibility for medium term – As on March 31, 2020, MCCD’s outstanding order
book position was Rs. 937.2 crore (OB/OI of ~3.9 times based on the OI for FY2019). Most of these projects are
expected to be executed over the next 24–36 months, providing medium-term revenue visibility for the firm.

Credit challenges
Weak liquidity owing to stretched receivables – MCCD’s liquidity is weak with no buffer in its working capital
limits. The firm’s receivable cycle is also stretched with it receiving delayed payments from its clients. As on March
31, 2019, its receivable days were 152 times, which are likely to be further impacted by Covid-19. Further, it has
low cash and cash equivalents as on date. Going forward, an enhancement in its working capital limits would be
crucial to maintain its liquidity position and for timely completion of its projects.

Deteriorated revenue in FY2020; further weakness likely in FY2021 owing to Covid-19 impact – MCCD’s revenues
deteriorated in FY2020. Its operations had stopped during the NGT ban on construction activities in November
2019, which impacted its top line. The firm’s revenues declined to approximately Rs. 192 crore in FY2020 from Rs.
243 crore in FY2019. Given the Covid-19 pandemic, the firm’s OI, profitability, and liquidity position will remain
impacted over the near to medium term.

Limited geographical diversification with order book confined to NCR – The firm’s order book has high
geographical concentration. As on date, all of its pending projects are in NCR. In fact, ~33% and ~27% of its
outstanding order book is for projects in Noida and Ghaziabad, respectively.

Risks associated with partnership constitution – MCCD also faces risks associated with its status as a partnership
firm. Continuous capital withdrawal by its partners have weakened its capital structure.

Liquidity position: Stretched

MCCD’s liquidity is stretched owing to full utilisation of its limits and low cash and cash equivalents. In the 12-
month period ending in March 31, 2020, the firm’s average working capital utilisation was 100%. This apart, its
liquidity position is likely to be further impacted by Covid-19. Going forward, an enhancement in its working capital
limits is crucial to maintain liquidity position and for timely completion of its projects.

Rating sensitivities
Positive trigger: ICRA could upgrade MCCD’s rating if the firm is able to maintain consistent healthy order book
position and timely execution of the projects, leading to sustained revenue growth and improvement in
profitability and liquidity position. Specific credit metrics could include TOL/TNW below 2.8 times on a sustained
basis.

Negative trigger: ICRA could downgrade MCCD’s rating if there is any delay in execution of the existing order book
or a weaker order book position due to prolonged impact of Covid-19, leading to lower revenues and profitability
than the anticipated levels, or if the liquidity position worsens. Further, elongation of its working capital cycle
owing to stretched receivables could result in a ratings downgrade. Specific credit metrics could include DSCR
below 1.1 times on a sustained basis.

2
Analytical approach
Analytical Approach Comments
Applicable Rating Methodologies Corporate Credit Rating Methodology
Parent/Group Support Not applicable
Consolidation/Standalone Not applicable

About the company

MCCD was set up as a proprietorship concern, Modern Construction Co, in 1976 by the Late M K Jain. The firm got
its current name in 1987 and is now a partnership firm managed by Mr. Nirmal Jain, Mr. Manish Jain, and Ms.
Ruchika Jain. It undertakes contracts to construct multi-storied buildings, shopping malls, institutions, schools,
townships, administrative buildings, hostels, factories, roads, bungalows, farmhouses, research laboratories, and
hospitals in NCR.

Key financial indicators (audited)

FY2018 FY2019
Operating Income (Rs. crore) 208.4 243.3
PAT (Rs. crore) 9.1 10.8
OPBDIT/OI (%) 8.0% 7.6%
RoCE (%) 22.1% 22.1%

Total Outside Liabilities/Tangible Net Worth 6.6 5.4

(times)
Total Debt/OPBDIT (times) 2.6 2.2
Interest Coverage (times) 3.0 3.4
DSCR 1.9 1.6

Status of non-cooperation with previous CRA: CRISIL moved MCCD’s rating to non-cooperation on
January 16, 2020. The rating is now denoted as CRISIL BB/Stable (ISSUER NOT COOPERATING)/CRISIL A4+(ISSUER
NOT COOPERATING).

Any other information: None

3
Rating history for past three years
Rating (FY2020) Rating History for the Past 3 Years
Instrument Amount Current Rating FY2019 FY2018 FY2017
Type Amount Rated
Outstanding
18-Jun-2020 - - -
Fund Based – Cash - - -
1
Credit
Long Term 42.50 42.50 [ICRA]B+ (Stable)

2 Non-fund Based Short Term 32.50 32.50 [ICRA]A4 - - -

Amount in Rs. Crore

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

4
Annexure-1: Instrument details
Date of Amount
Issuance / Coupon Maturity Rated Current Rating and
ISIN Instrument Name Sanction Rate Date (Rs. crore) Outlook
Fund Based – Cash
NA NA NA NA 27.25 [ICRA]B+ (Stable)
Credit
Fund Based – Cash
NA NA NA NA 15.25 [ICRA]B+ (Stable)
Credit – Proposed
NA Non-fund Based NA NA NA 17.50 [ICRA]A4
Non-fund Based -
NA NA NA NA 15.00 [ICRA]A4
Proposed
Source: MCCD

Annexure-2: List of entities considered for consolidated analysis: Not applicable

5
Analyst Contacts
K. Ravichandran Manish Ballabh
+91-44-45364301 +91-124-4545812
ravichandran@icraindia.com manish.ballabh@icraindia.com

Vipin Jindal Jayesh Ghosh

+91-124-4545355 +91-124-4545392
vipin.jindal@icraindia.com jayesh.ghosh@icraindia.com

Relationship Contact
Jayanta Chatterjee
+91 80 4332 6401
jayantac@icraindia.com

MEDIA AND PUBLIC RELATIONS CONTACT

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

Helpline for business queries:

+91-9354738909 (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

6
ICRA Limited
Corporate Office
Building No. 8, 2nd Floor, Tower A; DLF Cyber City, Phase II; Gurgaon 122 002
Tel: +91 124 4545300
Email: info@icraindia.com
Website: www.icra.in

Registered Office
1105, Kailash Building, 11th Floor; 26 Kasturba Gandhi Marg; New Delhi 110001
Tel: +91 11 23357940-50

Branches

Mumbai + (91 22) 24331046/53/62/74/86/87

Chennai + (91 44) 2434 0043/9659/8080, 2433 0724/ 3293/3294,
Kolkata + (91 33) 2287 8839 /2287 6617/ 2283 1411/ 2280 0008,
Bangalore + (91 80) 2559 7401/4049
Ahmedabad+ (91 79) 2658 4924/5049/2008
Hyderabad + (91 40) 2373 5061/7251
Pune + (91 20) 2556 0194/ 6606 9999

© Copyright, 2020 ICRA Limited. All Rights Reserved.

Contents may be used freely with due acknowledgement to ICRA.

ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to a process of
surveillance, which may lead to revision in ratings. An ICRA rating is a symbolic indicator of ICRA’s current opinion on the relative capability of the issuer
concerned to timely service debts and obligations, with reference to the instrument rated. Please visit our website www.icra.in or contact any ICRA
office for the latest information on ICRA ratings outstanding. All information contained herein has been obtained by ICRA fro m sources believed by it to
be accurate and reliable, including the rated issuer. ICRA however has not conducted any audit of the rated issuer or of the information provided by it.
While reasonable care has been taken to ensure that the information herein is true, such information is provided ‘as is’ without any warranty of any
kind, and ICRA in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such
information. Also, ICRA or any of its group companies may have provided services other than rating to the issuer rated. All information contained
herein must be construed solely as statements of opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication
or its contents