October 23, 2020

Iron Triangle Limited: Rating reaffirmed at [ICRA]A(Stable)/A1; rated amount reduced

Summary of rating action

Instrument* Previous Rated Amount Current Rated Amount Rating Action
(Rs. crore) (Rs. crore)
73.22 [ICRA]A(Stable); reaffirmed
Fund-based-Term Loan 68.69
Fund-based- Working 107.00 [ICRA]A(Stable); reaffirmed
112.00
Capital Facilities
Non-fund Based-Bank 607.50 [ICRA]A1; reaffirmed
622.50
Guarantee
34.09 -
Unallocated Limits 0.00
Total 821.81 803.19
* - Instrument details are provided in Annexure-1

Rationale
The reaffirmation of ratings takes into account the established track record of Iron Triangle Limited’s (ITL’s) promoters
spanning about three decades in the civil construction business, the company’s AA class contractor registration with the
Government of Gujarat, and its diversified geographical presence across various states. The ratings favourably consider
ITL’s Special Category-1 registration, status as Super Class Contractor with the Public Works Department (PWD) of Odisha
and A-class contractor certification with the PWDs of Madhya Pradesh and Chhattisgarh. ICRA notes ITL’s healthy
outstanding order book of Rs. 2,223 crore (2.8 times of provisional operating income (OI) for FY2020) as on March 31,
2020 providing medium-term revenue visibility. The ratings remain supported by the reputed and diversified client
portfolio consisting mainly of Government and semi-Government agencies, such as the National Highways Authority of
India (NHAI), roads and buildings (R&B) divisions, municipal corporations of various cities, irrigation departments, the
Ministry of Road Transport and Highways (MORTH), etc. The ratings factor in ITL’s healthy financial risk profile
characterised by low gearing, moderate coverage indicators and comfortable liquidity position.

The ratings are, however, constrained by ITL’s high dependence on the road construction segment, which contributed to
over 70% to the total revenue in FY2020. ICRA notes the intense competition in the road construction space and the
project order-based nature of the business, with the risk of reduction in work flow in case of any prolonged downcycle in
the sector as witnessed in H1 FY2021. Further, the ratings note the moderate execution risks associated with the projects
in the nascent stages that account for about 23% of the outstanding order book. The ratings also consider the
vulnerability of the company’s profitability to fluctuations in input prices of raw materials in some projects, which do not
have the price escalation clause and the criticality of timely completion as well as delivery as per contract terms in order
to avoid liquidated damages (LD) claims. ICRA notes the high off-balance sheet exposure due to submission of bid-bond,
performance and other guarantees and the high reliance on mobilisation advances as well as security deposits from
subcontractors to fund the working capital requirements. Any slowdown in such receipts may increase ITL’s reliance on
bank borrowings. ITL has been actively looking at potential monetisation of investments in solar assets, which can reduce
the debt levels and support growth in its core construction business. However, the same has not materialised yet and

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will remain a rating sensitivity. Any significant delays in the receipt of annuity for these solar projects or any incremental
advances given to Group/associate companies will remain a rating sensitivity.
The Stable outlook reflects ICRA’s expectations that ITL should continue to benefit from its strong execution capabilities
and the extensive experience of its promoters in the construction industry. While ITL might not achieve the desired
revenue growth in FY2021 due to adverse external factors, it should report a steady growth during the next few years,
supported by a strong order book position and gradual expansion of execution capabilities.

Key rating drivers and their description

Credit strengths
Extensive track record of promoters in civil construction; status of AA class contractor – ITL’s promoters have an
established experience in the civil construction segment spanning more than three decades. ITL’s long track record and
adequate infrastructure (equipment and skilled manpower), along with AA class registration and Special Category-I
certification, ensure that it meets the financial and technical criteria for most of the tenders floated. The company has a
track record of executing projects within the scheduled completion period, with no LD claims in the past.

Strong order book with healthy revenue visibility – Execution of progressively sizeable orders over time has made ITL
eligible to bid for higher-value orders by meeting the stipulated technical and financial eligibility criteria. It had an
unexecuted order book of Rs. 2,223 crore as on June 30, 2020. The ratio of outstanding order book to provisional OI of
FY2020 was healthy at 2.8 times, indicating revenue visibility for the next two-three years. While the new order flow has
been restrained over H1 FY2021 due to the Covid-19 pandemic, the company regularly keeps bidding for new projects to
boost its order book position.

Reputed and diversified customer profile – ITL’sclient base comprises Government and semi-Government authorities,
such as the NHAI, the MORTH, state R&B divisions, PWD, Rail Vikas Nigam Limited (RVNL), state housing boards, etc, in
various states including Gujarat, Maharashtra, Odisha, Jharkhand. Thus, the company’s counterparty credit risk is low.
Comfortable capital structure and improved coverage indicators – ITL’s overall debt reduced as on March 31, 2020
(compared to that as on March 31, 2019) due to lower working capital requirement, given the lower-than-expected
execution and the timely payment received from some of its client during March-end in spite of the pandemic.
Considering the lower debt, the company’s gearing improved to 0.3 times as on March 31, 2020, supported by healthy
internal accruals. The interest coverage indicator (OPBDIT/I&F) remained comfortable at 4.0 times in FY2020 on the back
of lower interest cost, even though the operating profit reduced during the year.

Credit challenges
Moderate execution risk – The execution risk for ITL remains moderate, particularly for the projects where less than 10%
of the work is completed (which accounted for about 23% of the outstanding order book as on March 31, 2020), wherein
securing all the necessary approvals and completion of work, in a timely manner, will be the keys to achieve growth in
the near to medium term. With the available machinery/equipment and the planned moderate capex towards enhancing
execution capabilities, the company has adequate resources to execute the orders in a timely manner.

Project portfolio skewed towards road projects – Road projects accounted for over 70% of ITL’s total revenue in FY2020
(down from ~81% in FY2019). Over the past few years, the company has been focussing on diversifying its operations in

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other segments. It secured two railway projects from RVNL in Odisha in FY2018 with a total contract value of ~Rs. 640
crore. ITL also bagged three building construction projects in H2 FY2020 with a total contract value of ~Rs. 445 crore.
With the execution of these projects, the contribution of road projects to the company’s total revenue is expected to
reduce, but the same will continue to remain high at ~65% over the next two years.
Intense competition and vulnerability to price fluctuations – ITL’s growth prospects remain constrained by the intense
competition in the civil construction space and the project order-based nature of the business, given the risk of reduction
in work flow in case of any prolonged downcycle in the road construction sector, which is the major revenue contributor.
Besides this, the overall profitability remains vulnerable to fluctuations in input prices, though the presence of price
escalation clause in most of the contracts for major components mitigates the risk to a large extent.
High off-balance sheet exposure and investment in non-core assets – ITL has a high off-balance sheet exposure (bank
guarantees of ~Rs. 409 crore as on March 31, 2020) due to submission of bid-bond, performance and other guarantees,
high reliance on mobilisation advances and security deposits from subcontractors to fund the working capital
requirements. Any slowdown in such receipts may increase ITL’s reliance on bank borrowings. While the company is
primarily involved in infrastructure development mainly in the road sector, it also owns and operates two solar plants
with a total power generation capacity of 15 MW. ICRA notes that while ITL has been actively looking at potential
monetisation of investments in solar assets, the same has not materialised yet. Any significant delays in the receipt of
annuity for these solar projects or any incremental advances given to Group/associate companies will remain a rating
sensitivity.

Liquidity position: Adequate

ITL’s liquidity position remains adequate with annual fund flow from operations of Rs. 45 crore in FY2020 and free cash
and bank balance of about Rs. 31 crore as on March 31, 2020. The company had a sanctioned fund-based working
capital facility of Rs. 112.0 crore as on June 30, 2020, the average utilisation of which remained moderate at less than
25% over the past 12 months. It opted for moratorium on its payments to banks for a portion of its long-term debt
pertaining to the solar assets as per the RBI’s COVID-19 Regulatory Package, which provided liquidity cushion over H1
FY2020. Its liquidity position is affected to some extent by the moderate scheduled repayments over the next three
years.

Rating sensitivities
Positive triggers – ICRA could upgrade the rating if there is a significant increase in the scale of operations, coupled with
sustenance of healthy operating margin, resulting in improvement in its credit metrics.

Negative triggers – Negative pressure on the ratings can arise if there is any material delay in project execution resulting
in weaker-than-expected financial profile or if there is any higher-than-expected debt-funded capex or any large LD
claims.

Analytical approach
Analytical Approach
Applicable Rating Methodologies
Parent/Group Support
Consolidation/Standalone
Comments
Corporate Credit Rating Methodology
Rating Methodology for Construction Entities
Not applicable
The ratings are based on the standalone financial profile of the company
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About the company
Iron Triangle Limited was established in 1991 as a partnership firm named Backbone Enterprise by Mr. Kishore
Viramgama, Mr. Bhupendrakumar Panchani and Mr. Bhovan Rangani in Rajkot (Gujarat). It was reconstituted as a public
limited company in July 2002 and Backbone Enterprise Limited (BEL) was renamed as Iron Triangle Limited in January
2017. ITL primarily executes projects involving roads and highways, buildings, railway, etc, in Gujarat, Maharashtra,
Jharkhand, Odisha, Chhattisgarh, among others. Additionally, ITL has an operational capacity of 15-MW solar power.
In FY2020, as per the provisional financials, ITL reported a net profit of Rs. 33.3 crore on an OI of Rs. 780.3 crore
compared to a net profit of Rs. 43.6 crore on an OI of Rs. 889.3 crore in the audited financials of FY2019.

Key financial indicators (provisional)

FY2019 FY2020
Operating Income (Rs. crore) 889.3 780.3
PAT (Rs. crore) 43.6 33.3
OPBDIT/OI (%) 10.9% 9.6%
RoCE (%) 18.8% 12.7%

Total Outside Liabilities/TNW (times) 1.2 0.8

Total Debt/OPBDIT (times) 1.8 1.7
Interest coverage (times) 4.0 4.0
DSCR (times) 2.2 2.1

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

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Rating history for last three years
Chronology of Rating History for the
Current Rating (FY2021)
Past 3 Years
Date & Date & Date &
Instrument Date &
Amount Amount Rating in Rating in Rating in
Rating
Type Rated Outstanding FY2020 FY2019 FY2018
(Rs. crore) (Rs. crore) 23-Oct- 29-Aug- 06-Jul- 28-Jun-
2020 2019 2018 2017
Fund-based- [ICRA]A [ICRA]A [ICRA]A [ICRA]A-
1 Long Term 68.69 68.69
Term Loan (Stable) (Stable) (Stable) (Stable)
Fund-based-
[ICRA]A [ICRA]A [ICRA]A [ICRA]A-
2 Working Capital Long Term 112.00 14.70
(Stable) (Stable) (Stable) (Stable)
Facilities
Non-fund Based-
3 Short Term 622.50 376.80 [ICRA]A1 [ICRA]A1 [ICRA]A1 [ICRA]A2+
Bank Guarantee
Long [ICRA]A
Unallocated
4 Term/Short 0.00 - - (Stable)/ - -
Limits
Term [ICRA]A1

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
ISIN No. Instrument Name Date of Coupon Maturity Amount Current Rating and
Issuance / Rate Date Rated Outlook
Sanction (Rs. crore)
NA Fund-based - Term Loan 1 Mar-2019 NA Sept-2024 25.86 [ICRA]A(Stable)
NA Fund-based - Term Loan 2 Sep-2014 NA Jun-2029 31.75 [ICRA]A(Stable)
NA Fund-based - Term Loan 3 Mar-2016 NA Apr-2029 11.08 [ICRA]A(Stable)
NA Fund-based - Working NA NA NA 112.00 [ICRA]A(Stable)
Capital Facilities
NA Non-fund Based - Bank NA NA NA 622.50 [ICRA]A1
Guarantee
Source: Iron Triangle Limited

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

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Analyst Contacts
K. Ravichandran Ankit Patel
+91 44 4596 4301 +91 79 4027 1509
ravichandran@icraindia.com ankit.patel@icraindia.com

Parth Shah
+91 79 4027 1527
parth.shah@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

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