April 05, 2024

Sudhakara Infratech 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/CC 80.0 80.0 [ICRA]BBB+ (Stable); reaffirmed
Long-term/Short-term:
320.0 320.0 [ICRA]BBB+ (Stable)/[ICRA]A2; reaffirmed
Non-fund based
Total 400.0 400.0

*Instrument details are provided in Annexure I

Rationale
The ratings reaffirmation favourably factors in Sudhakara Infratech Private Limited’s (SIPL) healthy scale of operations with
revenues improving to Rs. 953.48 crore in 10M FY2024 from Rs. 402.04 crore in 10M FY2023, on the back of improved order
execution. ICRA expects the revenue growth to sustain in the medium term, on the back of healthy order book of Rs. 2,881.64
crore as on January 31, 2024. The ratings consider the improved order book profile with 62% of orders from Jal Jeevan Mission
projects and Central Government agencies with the balance from various state governments, which reduces the counterparty
risk to an extent. The ratings also factor in SIPL’s adequate debt coverage metrics with estimated interest coverage ratio of
above 6 times for FY2024 and geographically diversified order book, with projects spread across more than 10 states.

The ratings are, however, constrained by the high project concentration risk, with top-five orders accounting for 56% of the
total order book as on January 31, 2024. Further, SIPL is exposed to execution risk, as 32% of the order book is in the nascent
stages of execution (<10% executed as on January 31, 2024). However, most of these works are newly awarded and the
company’s ability to significantly ramp-up its operations to complete its projects in a timely manner will be a key rating
monitorable. The ratings are also constrained by SIPL’s modest profitability margins and high overall indebtedness with
TOL/TNW of 1.43 times as on December 31, 2023. Given a substantial increase in scale of operations, the company has funded
a large portion of its incremental working capital requirement through extended credit period from its vendors/suppliers,
resulting in leveraged capital structure (high TOL/TNW) which is likely to continue over the medium term. The company has
price-escalation clauses in its contracts; however, the company’s profitability remains exposed to the heightened competition
in the Central Government-funded contracts and the sharp rise in key input materials (viz., steel, cement, etc.), as price
escalations are passed to customer with a lag. The ratings also note the stiff competition in the construction sector, which
could put pressure on the new order inflows and its exposure to sizeable contingent liabilities in the form of bank guarantees,
mainly for contractual performance and material advances. Nonetheless, ICRA draws comfort from its execution track record
and absence of invocation of guarantees in the past.

The Stable outlook reflects ICRA’s opinion that SIPL will be able to sustain its scale of operations, supported by healthy order
book position and timely receipt of payments from its key customers.

Key rating drivers and their description

Credit strengths

Healthy order book provides medium-term revenue visibility - The company’s order book remained strong at Rs. 2,881.64
crore as on January 31, 2024, driven by healthy order addition of Rs. 1,851.02 crore in 10M FY2024. With these new orders,
the order book stood at 4.6 times of FY2023 revenue operating income, providing medium-term revenue visibility. Further,
the revenues have improved substantially to Rs. 953.48 crore in 10M FY2024 from Rs. 402.04 crore in 10M FY2023, on the

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 back of healthy order execution. The growth is expected to sustain in the near term driven by improved order book and
execution.

Geographically diversified order book - The order book is geographically diversified as it is spread across more than 10 states.
The company has major works in Jharkhand, Uttar Pradesh, and Andhra Pradesh, which together account for ~70% of the order
book. Further, the order book is significantly concentrated on water-supply works, which account for 73% of the outstanding
orders as on January 31, 2024. Majority of these projects are under Jal Jeevan Mission and timely payment realisation is
expected to support its execution in the near term.

Reputed client profile - The company is majorly executing the projects under Jal Jeevan Mission, which are 50% funded by the
Central Government. Apart from those, the company has National Highways and Infrastructure Development Corporation
Limited, Greater Hyderabad Municipal Corporation, and various state governments and Central Government departments as
its key customers. This reduces the counterparty risk to a large extent. Further, the projects from state governments are funded
by multilateral agencies reducing the risk of payment delays, to an extent, and thereby supporting its liquidity position.

Credit challenges

Modest operating margins and high leverage levels - SIPL’s operating margins remained modest at 8.09% in FY2023 and 10M
FY2024 and are expected to be at 8-9% levels owing to high sub-contracting expenses. The TOL/TNW stood high at 1.43 times
as on December 31, 2023, owing to high sub-contracting and creditor payables and are expected to remain high at above 1.6
times in the near term.

Moderate project concentration risk - The company has moderate project concentration risk with top-five projects accounting
for 56% of the total order book as on January 31, 2024. Any delays in execution or receipt of payments can affect its revenues
and liquidity position. Further, 32% of the order book is in the nascent stages of execution (<10% executed as of March 2023).
However, most of these works are newly awarded orders and the company’s ability to significantly ramp-up its operations to
complete its projects in a timely manner will be a key rating monitorable.

Competitive business environment to keep margins under check - The civil construction segment is characterised by stiff
competition on account of the low complexity of work involved and minimal entry barriers in terms of qualifications required
for the tenders floated. This results in the presence of a large number of contractors in this segment, leading to intensely
competitive bids, putting pressure on margins. Further, the margin is exposed to volatility in raw material prices. However, the
built-in price-variation clause in the contracts mitigates the risk to an extent.

Liquidity position: Adequate

The liquidity position remains adequate, with free cash of ~Rs. 15 crore as on January 31, 2024 and a cushion of ~Rs. 13 crore
in fund-based limits as on February 29, 2024. The average fund-based utilisation was moderate at 27% between April 2023
and February 2024 and the recent enhancements in working capital limits is expected to support its liquidity position and order
inflow in the near term. Further, the company has moderate capex plans of ~Rs. 7.5 crore (through external debt) and
repayments of ~Rs. 20 crore in FY2025, which can be comfortably met from the estimated cash flows. The company has
sizeable retention money from the authorities and timely receipt of these payments is crucial to improvement in the liquidity
position.

Rating sensitivities

Positive factors: ICRA could upgrade the ratings, if the company demonstrates a sustained and significant improvement in its
scale of operations and profitability margins, resulting in an improvement in debt coverage and leverage metrics and liquidity
position.

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 Negative factors: Pressure on SIPL’s ratings could arise, if any slowdown in order execution or decrease in profitability margin
results in a material decline in cash flows. Moreover, any stretch in the working capital cycle, which could weaken the liquidity
position, would also be a negative trigger. Specific credit metrics that may lead to a downgrade of SIPL’s ratings include interest
coverage ratio lower than 3.5 times and/or TOL/TNW of more than 2 times, on a sustained basis.

Analytical approach

Analytical Approach Comments

Corporate Credit Rating Methodology
Applicable rating methodologies
Rating methodology - Construction
Parent/Group support Not Applicable
Consolidation/Standalone The ratings are based on the company’s standalone financial statements

About the company

Sudhakara Infratech Private Limited was established by Mr. A. Sudhakara Reddy and his family members in 2010 and is engaged
in civil construction and related works. The company executes a diverse range of civil works including water-supply works,
drainage pipeline works, building, irrigation, and road works. SIPL has a team of qualified engineers and supervisors for timely
execution of the projects.

Key financial indicators

FY2022 FY2023 9M FY2024*

Operating income 484.64 630.06 836.70
PAT 19.52 25.81 34.64
OPBDIT/OI 7.52% 8.09% 8.03%
PAT/OI 4.01% 4.10% 4.14%
Total outside liabilities/Tangible net worth (times) 2.28 1.87 1.43
Total debt/OPBDIT (times) 0.86 1.02 0.50
Interest coverage (times) 4.47 5.04 6.17

PAT: Profit after tax; OPBDIT: Operating profit before depreciation, interest, taxes and amortisation; Amounts in Rs. crore; *provisional

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for past three years

Chronology of Rating History
Current Rating (FY2025)
for the Past 3 Years
Date & Rating Date & Rating in FY2024 Date & Rating Date & Rating in
Instrument Amount Amount in FY2025 in FY2023 FY2022
Type Rated Outstanding
December 29,
(Rs. crore) (Rs. crore) April 05, 2024 June 16, 2023 June 17, 2022 Aug 12, 2021
2023
Fund- [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB
1 Long-term 80.00 -
based/CC (Stable) (Stable) (Stable) (Stable) (Positive)
Long- [ICRA]BBB+ [ICRA]BBB+
Non-fund
2 term/Short 320.00 - (Stable) / (Stable) / - - -
Based
term [ICRA]A2 [ICRA]A2
Non-fund [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB
3 Long-term - - - -
Based (Stable) (Stable) (Positive)

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 Long- [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB
Unallocated
4 term/Short - - - - (Stable) / (Stable) / (Positive)/
Limits
term [ICRA]A2 [ICRA]A2 [ICRA]A3+

Complexity level of the rated instrument

Instrument Complexity Indicator

Long-term - fund based/CC Simple

Long-term – non-fund-based Very Simple

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
Date of Issuance / Maturity Amount Rated
ISIN Instrument Name Coupon Rate Current Rating and Outlook
Sanction Date (Rs. crore)
NA Fund-based/CC - - - 80.00 [ICRA]BBB+ (Stable)
NA Non-fund Based - - - 320.00 [ICRA]BBB+ (Stable)/[ICRA]A2

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 6939 6443 +91 20 6606 9912
[email protected] [email protected]

Vinay G Vamshi Kinnera

+91 40 6939 6424 +91 40 6939 6420
[email protected] [email protected]

RELATIONSHIP CONTACT
L Shiva Kumar
+91 22 6169 3304
[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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