March 17, 2023

Onshore Construction Company Private Limited: Ratings reaffirmed

Summary of rating action

Previous Rated Amount Current Rated Amount

Instrument Rating Action
(Rs. crore) (Rs. crore)
Long-term – Fund-based 1.70 - -

Short-term – Non-fund Based 200.0 200.00 [ICRA]A2+; reaffirmed

Short-term – Unallocated limits 18.30 20.00 [ICRA]A2+; reaffirmed

Long-term/Short-term [ICRA]A- (Stable)/[ICRA]A2+;
(25.00) (25.00)
Interchangeable^ reaffirmed
Total 220.00 220.00
^Long-term / Short-term – Interchangeable is a sublimit of Non-fund Based Limit

Rationale
The reaffirmation of the ratings favourably factors in Onshore Construction Company Private Limited’s (OCCPL) comfortable
financial profile marked by low leverage (TOL/TNW at 0.8 times as on March 31, 2022), low working capital intensity and
adequate liquidity cushion. The ratings continue to draw comfort from the extensive experience of OCCPL’s promoters and
their execution capabilities in the piping and tankage construction industry, and its reputed clientele. The company has
significantly scaled down its low margin trading business, which along with the relatively better share of higher margin projects
resulted in substantial improvement in operating margins. Improved operating profitability and low leverage resulted in better
coverage metrics. OCCPL’s ability to sustain margins remain important from credit perspective. The ratings note the healthy
order inflows of Rs. 421 crore in 10M FY2023, which has led to a moderate unexecuted order book position of Rs. 577.6 crore
as on January 31, 2023. The OB/OI ratio remains satisfactory at 1.65 times of the standalone operating income (construction)
of FY2022, providing near-term revenue visibility, as most of these orders will be executed within 12-18 months. Timely
execution of orders and ramp-up in order book position will be critical to sustain revenue growth going forward.
The ratings are, however, constrained by OCCPL’s modest scale of operations and high order book concentration. While it has
a pan-India presence and operations in a few foreign countries viz. Nigeria and Jordan, a large portion of the order book is
concentrated on Jharkhand and Gujarat. Moreover, out of the unexecuted order book, the refinery segment accounted for
~59% and power segment constituted ~16%. The top 10 orders made up for 89% of the unexecuted order book and the top
three clients contributed 65% to the unexecuted order book as on January 31, 2023 thus reflecting the high concentration risk.
ICRA notes that the company has overseas operations through various subsidiaries/associates, wherein it has bagged a large
order. However, the management has guided that there would not be any direct or indirect financial support from its Indian
operations to execute the overseas orders. Any incremental support from OCCPL to its subsidiaries, which could have a
material impact on its own liquidity position will be a credit negative. ICRA notes the stiff competition in the construction
sector and the company’s exposure to sizeable contingent liabilities in the form of bank guarantees, mainly for contractual
performance, mobilisation advance and security deposits. Nonetheless, ICRA draws comfort from OCCPL’s execution track
record, relatively strong credit profile of most of its counterparties and absence of invocation of guarantees in the past.
The Stable outlook reflects ICRA’s expectation that the company would maintain a healthy financial profile, characterised by
adequate profitability, a comfortable capital structure and healthy debt coverage indicators because of its low reliance on
external borrowings and healthy cash accruals.

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 Key rating drivers and their description
Credit strengths
Extensive experience of promoters; strong execution capabilities; reputed clientele – The company is promoted by Mr. Belle
Seetharam Hariyanna Shetty and his family, who have an experience of over three decades in the piping and tankage
construction industry. The company has completed over 250 projects and has strong execution capabilities, evident from the
repeat business from its customers. Its clientele includes large and reputed players in a diverse range of industries including
refinery, power, oil and gas, fertilisers and chemicals.

Comfortable leverage and debt coverage metrics – The company reported a comfortable capital structure, with TOL/TNW of
0.8 times as on March 31, 2022 because of its low dependence on external borrowings, aided by a healthy working capital
cycle. Additionally, mobilisation advances from customers support the working capital funding requirements. The debt
coverage indicators remained comfortable with interest cover of 6.7 times and DSCR of 6.4 times in FY2022. In absence of any
major capex/investment plans, the coverage indicators are expected to remain robust in the medium term.

Moderate order book provides near-term revenue visibility – The order inflows in 10M FY2023 improved to ~Rs. 421 crore
and the domestic order book stood at Rs. 577.6 crore as on January 31, 2023. The OB/OI ratio remained satisfactory at 1.65
times of the standalone operating income (construction) in FY2022, providing near-term revenue visibility, as most of these
orders will be executed within 12-18 months. Timely execution of these orders and ramp-up in order book position will be
critical to sustain revenue growth going forward.

Credit challenges
Modest scale of operations – The company’s scale of operations continues to be moderate, with the operating income
marginally declining to Rs. 372.9 crore in FY2022 from Rs. 381.5 crore in FY2021. Given the stiff competition in the industry, its
ability to regularly get orders and improve its scale of operations while sustaining the profitability remains a key monitorable.

Order book concentration in certain segment and geography; moderate execution risk as sizeable projects are in nascent
stages of execution – The company has a pan-India presence, with operations in a few foreign countries viz. Nigeria and Jordan.
However, Jharkhand contributed 41% to the unexecuted order book as on January 31, 2023, resulting in high geographical
concentration risk. Further, segment, project and client concentration (albeit with reputed clientele) remain high. The top 10
orders accounted for 89% of the unexecuted order book and the top three clients contributed 65% to the unexecuted order
book as on January 31, 2023.

The company is exposed to moderate execution risk as 74% of the order book as on January 31, 2023 remained in the nascent
stages of execution (less than 25% executed). ICRA notes that the requisite approvals are in place for all the major orders,
which mitigates the execution risk to an extent. Going forward, timely completion of large orders that are in nascent stages
and maintenance of a healthy working capital intensity would be a key monitorable. OCCPL is exposed to the inherent
cyclicality in the construction industry and intense competition in the tender-based contract award system, resulting in a
volatility in revenues and pressure on margins. It is vulnerable to sizeable contingent liabilities in the form of bank guarantees
(~Rs. 150 crore as on December 31, 2022), mainly towards performance guarantee, mobilisation advance and security deposits.
Nonetheless, ICRA draws comfort from OCCPL’s healthy execution track record and no invocation of guarantees in the past.

Liquidity position: Adequate

The company has adequate liquidity with unencumbered cash and bank balance of ~Rs. 20 crore and undrawn fund-based
lines of Rs. 25 crore as of February 2023. It also has an OD against FD facility of Rs. 75 crore, which is utilised only to the extent
of ~Rs. 24 crore in FY2023, and interchangeable CC facility of Rs. 25 crore, which is sparingly utilised. OCCPL has scheduled
debt repayment obligation of Rs. 2.21 crore in FY2024, which should be adequately serviced from its operating cash flows.

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 Rating sensitivities
Positive factors – The ratings might be upgraded if the company is able to significantly improve its revenues while maintaining
its profitability levels and low leverage.

Negative factors – Negative pressure on the ratings may arise if lower-than-anticipated billing or sustained pressure on
operating profitability results in weak coverage metrics. The ratings could also come under pressure if an elongation in the
working capital cycle and/or support to other group entities depletes the company’s liquidity cushion. Credit metrics that could
lead to a downgrade include the interest coverage decreasing to less than 5 times on a consistent basis.

Analytical approach
Analytical Approach Comments

Corporate Credit Rating Methodology

Applicable rating methodologies
Construction Entitles Methodology

Parent/Group support Not Applicable

Standalone; For arriving at the ratings, ICRA has considered the standalone financials of
Consolidation/Standalone
Onshore Construction Company Private Limited

About the company

OCCPL, incorporated in 1995, is a closely-held private limited company managed by the Shetty family. The company executes
mechanical construction works for a diverse range of industries such as petrochemicals, fertilisers, paints, refineries, vegetable
oils, food processing and pharmaceuticals. The scope of work includes fabrication of underground and overhead pipes for
entire plants, fabrication; erection and installation of storage tanks; equipment erection and installation, besides fabrication
and installation of fire-fighting systems. It also undertakes revamp orders involving the dismantling, fabrication and re-erection
of the existing plants/equipment. The company has operations in India, Jordan and Nigeria (operating through opening a
branch), Dubai and Malaysia (operating through several associate companies). It is also into the trading (majorly exports) of
engineering goods such as cranes, safety gloves, etc.

OCCPL has shifted its erstwhile trading activities (primarily exports of engineering goods such as cranes, safety gloves, etc) to
an associate company, Onshore Infrastructure Projects Development Private Limited, resulting in significant reduction in
trading income to 6% FY2022 from an average 26% during FY2018-FY2021.

Key financial indicators (audited)

OCCPL Standalone FY2021 FY2022 H1 FY2023*

Operating income (Rs. crore) 381.5 372.9 139.3
PAT (Rs. crore) 8.1 22.4 11.5
OPBDIT/OI 4.7% 11.2% 12.0%
PAT/OI 2.1% 6.0% 8.3%
Total outside liabilities/Tangible net worth (times) 1.0 0.8 -
Total debt/OPBDIT (times) 2.2 1.2 -
Interest coverage (times) 2.5 6.7 9.1
PAT: Profit after tax; OPBDIT: Operating profit before depreciation, interest, taxes and amortisation; Amount in Rs. crore, * Unaudited

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

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 Rating history for past three years
Chronology of rating history
Current rating (FY2023)
for the past 3 years
Amount
Amount Date & rating Date & rating in Date & rating in Date & rating in
Instrument outstanding
rated in FY2023 FY2022 FY2021 FY2020
Type as on Feb
(Rs.
28, 2023
crore) Mar 17, 2023 Dec 31,2021 Oct 23, 2020 Jul 01, 2019
(Rs. crore)
[ICRA]A-
1 Fund-based Limits Long term 0.0 - [ICRA]A-(Stable) [ICRA]A-(Stable) [ICRA]A-(Stable)
(Stable)
Non-fund Based
2 Short term 200.0 [ICRA]A2+ [ICRA]A2+ [ICRA]A2+ [ICRA]A2+
Limits
Short-term
3 Short term 20.0 [ICRA]A2+ [ICRA]A2+ [ICRA]A2+ [ICRA]A2+
Unallocated limit
Long-term/Short- Long [ICRA]A- [ICRA]A- [ICRA]A- [ICRA]A-
4 term term/short (25.0) - (Stable)/[ICR (Stable)/[ICRA]A (Stable)/[ICRA]A2 (Stable)/[ICRA]A2
Interchangeable ^ term A]A2+ 2+ + +
Source: Company; Amount in Rs. crore: ^- Long-term / Short-term – Interchangeable is a sublimit of Non-fund Based Limits

Complexity level of the rated instrument

Instrument Complexity Indicator

Long-term Fund-based Simple

Short-term - Non-fund Based Very Simple
Long-term/Short-term Interchangeable^ Not Applicable
Short-term - Unallocated limits Not Applicable
^Long-term / Short-term – Interchangeable is a sublimit of Non-fund Based Limits

The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated.
It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument's
credit rating. It also does not indicate the complexity associated with analysing an entity's financial, business, industry risks or
complexity related to the structural, transactional or legal aspects. Details on the complexity levels of the instruments are
available on ICRA’s website: Click Here

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 Annexure I: Instrument details

Instrument Coupon Amount Rated Current Rating and

ISIN Date of Issuance Maturity
Name Rate (Rs. crore) Outlook
Non-fund Based
NA Limits NA NA NA 200.0 [ICRA]A2+
(BG/LC)
Short-term
NA Unallocated NA NA NA 20.0 [ICRA]A2+
limits
Long-
NA term/Short-term NA NA NA (25.0) [ICRA]A- (Stable)/[ICRA]A2+
Interchangeable^
Source: Company, ^- Long-term / Short-term – Interchangeable is a sublimit of Non-fund Based Limits

Please click here to view details of lender-wise facilities rated by ICRA

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

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 ANALYST CONTACTS
Rajeshwar Burla Ashish Modani
+91 40 4547 4829 +91 20 6606 9912
[email protected] [email protected]

Chintan Dilip Lakhani Shanttanu Phulzade

+91 22 6169 3345 +91 20 6606 9910
[email protected] [email protected]

RELATIONSHIP CONTACT
Jayanta Chatterjee
+91 80 4332 6401
[email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
[email protected]

Helpline for business queries

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)

[email protected]

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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