March 31, 2021

Shree Gautam Construction Co. Ltd.: Rating assigned

Summary of rating action

Current Rated Amount

Instrument* Rating Action
(Rs. crore)
Fund based- Working Capital Facilities 30.00 [ICRA]A-(Stable); assigned
Total 30.00
*Instrument details are provided in Annexure-1

Rationale
The rating takes into account the significant increase in scale of operations of Shree Gautam Construction Co. Ltd. (SGCCL)
with an increase in operating income (OI) at a CAGR of 22% during FY2015-FY2020 to Rs. 623 crore. The company’s operating
profile is supported by a healthy pending order book of Rs. 2,150 crore in February 2021, with order inflow of around Rs. 490
crore in 9M FY2021, that provides an adequate revenue visibility of over three years based on its OI in FY2020. Further, the
company had been declared L1 in projects worth over ~Rs. 750 in February 2021. Despite the adverse impact of Covid-19
pandemic on operations, SGCCL was able to ramp up project execution, with billed revenues of Rs. 545 crore in 11M FY2021
(prov), against Rs. 487 crore in FY2020. Further, the rating also favourably takes into account the healthy financial profile of
SGCCL, marked by improving profitability, with operating profit margin of 14% in 9M FY2021 (prov) compared to 11% in
FY2019. The rating notes its conservative leverage, with TOL/TNW of 0.6 times, supported by limited dependence on
borrowings and advances, as well as comfortable debt coverage indicators, with interest cover of 7.5 times and DSCR of 2.4
times for 9M FY2021. The rating factors in the established track record of SGCCL spanning over three decades in the
construction sector, and the experience of the promoter group in working on projects in the region.
The rating is, however, constrained by revenue concentration in the order book with most of the projects (86%) arising from a
single client – The Public Works Department of Assam (PWD-Assam) – and being in a single geography (90%) – Assam. However,
in terms of funding, about 70% of the projects are funded through Central Government schemes. Further, about 38% of the
projects in the order book have been slow-moving orders, which results in exposure to execution and cost overrun risks. The
progress on these projects will remain a rating monitorable. The rating considers the absence of price escalation clause in most
of the contracts, which exposes profitability to any sharp movement in raw material prices. The rating is also constrained by
the moderate level of working capital intensity, particularly during the peak season, attributable to longer bill realisation
period, retention money blockage and seasonality in operations.
ICRA has also taken cognisance of an investigation and arrest carried out by the Central Bureau of Investigation (CBI) in July,
2019, involving former employees/ directors and a promoter of the company. While no material impact of the same has been
noted on the financial or operational profile of SGCCL thus far, any adverse outcome of the investigation impacting its credit
profile, going forward, will remain a key rating sensitivity.
The Stable outlook on the rating reflects ICRA’s expectation the company will maintain its healthy revenue growth, supported
by adequate revenue visibility from current order book and will also benefit from the experience of its promoters in the sector.

Key rating drivers and their description

Credit strengths

Healthy order book position with adequate revenue visibility – SGCCL had an order book outstanding of Rs. 2,147 crore as of
February 2021. The order inflow has been healthy during the year. The company received orders worth Rs. 489 crore during
the first nine months of FY2021. Further, it had been declared the L1 bidder in projects worth over ~Rs. 750 in February 2021.

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 Thus, the revenue visibility of the company based on its OI in FY2020 is over 3 times, which is adequate considering the average
execution time of two to three years. Despite the adverse impact of the Covid-19 pandemic on the operations, SGCCL was able
to ramp up project execution. The company clocked revenues of Rs. 545 crore in 11M FY2021, against Rs. 487 crore in FY2020.
Healthy profitability and cash accruals, low leverage and comfortable debt coverage metrics – The rating favourably takes
into account the healthy financial profile of SGCCL, marked by improving profitability, with operating profit margin of 14% in
9M FY2021 compared to 11% in FY2019, supported by healthy margins in the recent projects. While ICRA notes the absence
of price escalation clause in most of the contracts, which exposes its profitability to any sharp movement in raw material prices,
the margins have remained healthy thus far. Further the company has a conservative leverage level, supported by limited
dependence on borrowings and advances. The TOL/ TNW ratio has remained comfortable at 0.6 times in December 2021. The
debt coverage indicators are also comfortable with interest coverage ratio of over 7 times and DSCR of over 2 times in 9M
FY2021.
Established track record of operations – SGCCL has an established track record of operations in the construction sector. The
entity was initially set up as a partnership firm by the Singhi family in 1979. The undertaking was later converted into a private
company in 1998. Over the years, the company has been undertaking building construction works and road construction works,
primarily in Assam. The Public Works Department of Assam has been a key client of the company.

Credit challenges

Order book concentration with most projects from single client and geography; moderate execution risks – The rating is
constrained by revenue concentration with majority of the projects (86%) arising from single client – PWD-Assam – and limited
to a single geography (90%) – Assam. However, about 70% of the projects are funded through the Central Government
schemes. Further, about 38% of the projects in the order book have been slow-moving orders, resulting in exposure to
execution risks. The progress on these projects will remain a rating monitorable.
Moderate working capital intensity – The company has moderate working capital-intensive operations, particularly during the
peak season, on account of longer receivables period and retention amounts blocked in ongoing projects. The bill realisation
period from the key client of the company, PWD-Assam, is on the higher side at 30-45 days, with billing remittances being
limited during April-May. Further, the retention in projects from PWD cannot be released before the completion of the
projects, with a portion remaining blocked during the defect liability period as well. It also faces some seasonality in operations,
as the project execution remains affected by heavy monsoon during the first half of the year.
Ongoing investigation against promoter, though ICRA notes that operations and funding availability have not been impacted
– ICRA has taken cognisance of an investigation carried out by the Central Bureau of Investigation (CBI) in July, 2019, involving
former employees/ directors and a promoter of the company. While no material impact of the same has been noted on the
financial or operational profile of SGCCL thus far, any adverse outcome of the investigation impacting its credit profile, going
forward, will remain a key rating sensitivity.

Liquidity position: Adequate

The company had an unencumbered cash balance of Rs. 8.6 crore as on December 31, 2020 and unutilised fund-based working
capital limit of Rs. 42.6 crore as on December 31, 2020, that provides an adequate liquidity cushion. The debt repayments of
Rs. 11.9 crore falling due in FY2022 can be comfortably met through estimated cash flow from operations.

Rating sensitivities

Positive factors – The rating maybe upgraded if the company achieves greater diversification in terms of geographical presence
and clientele, significant increase in scale and profitability, along with reduction in working capital intensity.
Negative factors – The rating maybe downgraded if there is slowdown in order inflow or significantly lower-than-anticipated
billing or an increase in working capital requirements that adversely impacts the liquidity position. The rating may also be

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 downgraded in case of any adverse outcome of the ongoing CBI investigation against the promoters, thereby adversely
affecting the overall credit profile of SGCCL.

Analytical approach

Analytical Approach Comments

Applicable Rating Methodologies
Parent/Group Support
Consolidation/Standalone
Corporate Credit Rating Methodology
Rating Methodology for Construction Entities
Not applicable
The rating is based on standalone financial statements of the rated entity

About the company

SGCCL is a Guwahati-based engineering procurement and construction (EPC) company, that undertakes infrastructure projects.
The company is promoted by the Singhi family and has a three-decade track record in the sector. It undertakes tender-based
works for construction of buildings, roads, bridges, primarily in the States of Assam and Meghalaya. The Public Works
Department (PWD) of Assam is one of the key clients of the company.
In FY2020, the company reported a net profit of Rs. 52.9 crore on an OI of Rs. 623.0 crore compared to a net profit of Rs. 26.8
crore on an OI of Rs. 531.8 crore in the previous year.

Key financial indicators (audited)

KRCL Standalone FY2019 FY2020

Operating Income (Rs. crore) 531.8 623.0
PAT (Rs. crore) 26.8 52.9
OPBDIT/OI (%) 11.1% 13.8%
PAT/OI (%) 5.0% 8.5%
Total Outside Liabilities/Tangible Net Worth (times) 1.4 0.9
Total Debt/OPBDIT (times) 1.2 0.4
Interest Coverage (times) 5.8 9.3
PAT: Profit after Tax; OPBDIT: Operating Profit before Depreciation, Interest, Taxes and Amortisation

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

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 Rating history for past three years
Instrument Current Rating (FY2021) Chronology of Rating History
for the past 3 years
Type Amount Amount Date & Date & Rating in Date & Date &
Rated Outstanding as of Rating in FY2020 Rating in Rating in
(Rs. crore) Feb 29, 2021 FY2019 FY2018
(Rs. crore)
31-Mar-21 - - -
Fund based- Working [ICRA]A-
1 Long-term 30.00 - - - -
Capital Facilities (Stable)

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 click here

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 Annexure-1: Instrument details
Date of Issuance / Coupon Amount Rated Current Rating and
ISIN No Instrument Name Maturity Date
Sanction Rate (Rs. crore) Outlook
Fund based- Working
NA NA NA NA 30.00 [ICRA]A-(Stable)
Capital Facilities
Source: Company data

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

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 ANALYST CONTACTS
Shubham Jain Rajeshwar Burla
+91 124 4545 306 +91 40 4067 6527
shubhamj@icraindia.com rajeshwar.burla@icraindia.com

Mahi Agarwal Nitin Kumar

+91 33 7150 1100 +91 124 4545 845
mahi.agarwal@icraindia.com nitin.kumar2@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

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Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company,
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