Short-term bank loans / facilities Long-term bank loans / facilities PR 3 CARE BBB
Ratings CARE has assigned ‘CARE BBB’ (Triple B) rating to long-term bank facilities and PR3 (PR Three) rating to short-term bank facilities of Ketan Construction Limited (KCL) for an aggregate amount of Rs.174.81 crore, including outstanding working capital demand loan as on May 15, 2009 of Rs.11.81 crore, sanctioned fund based working capital limits of Rs.23.00 crore and sanctioned non fund based working capital limits of Rs.140 crore. Facilities with ‘CARE BBB’ rating are considered to offer moderate safety for timely servicing of debt obligations. Such facilities carry moderate credit risk. Facilities with ‘PR3’ rating would have moderate capacity for timely payment of short-term debt obligations and carry higher credit risk as compared to instruments rated higher. Ratings take into account established track record of KCL in the construction sector with good presence in irrigation segment, presence of price escalation clause in majority of projects in order book which protect margins to a certain extent and good order book position with sector & geographical diversity. Ratings are constrained by delay in execution of some of projects resulting in low efficiency & modest growth in revenue, moderate financial risk profile and fragmented nature of industry with many players competing for infrastructure and urban development projects. Improvement in efficiency and coverage ratios with timely execution of orders are the key rating sensitivity. Maintaining current financial flexibility and growth in income would also be crucial. Background Founded in 1981& incorporated in 1999, KCL is a closely held public limited company promoted by Barad family. Shri Vijay Barad (Chairman& Managing Director) and
Shri Ramesh Barad (Joint Managing Director) have wide experience in the construction industry. Board of directors is also supported by team of experienced professionals. Operations of the Company KCL operates in three distinct area of construction of infrastructure projects viz. irrigation, roads & highways and mining. During FY08, these segments contributed 67%, 26% and 7% respectively. KCL has track record of executing more than 45 infrastructure projects in various sectors since inception with good presence in irrigation sector. Brief of projects executed in the past is tabulated below. Segment Roads & Highways Irrigation Mining Building No. of projects 13 28 1 4 46 Amount Rs. crore 432.89 402.00 64.58 2.14 901.61
KCL prefers self execution of projects to job work basis. Subcontracting expenses remained between 13-22% of contract receipt during FY06 to FY08 which help in maintain good profit margins. KCL's road construction project includes construction of Ahmedabad Vaodara expressway for a stretch of 43.4 km. (Contract value: Rs.192 cr). During FY09, KCL has almost completed most of work for Sarangkheda barrage and Khadakpurna dam projects which required hydro mechanical work of erection and installation of radial gate including other work. Most of the projects of the company under execution have built-in price variation clause. This largely mitigates the risk arising out of adverse movement in raw material prices, in absence of any annual price/volume contracts with any of its raw material suppliers. Price escalation clause is available
CREDIT ANALYSIS & RESEARCH LIMITED
for movement in diesel prices in the mining projects. However, it does not protect KCL from overhead costs in case of delay in projects for more than stipulated time frame. As on Dec.31, 2008, KCL has healthy order book of Rs. 783 crore considering share of KCL in JV. Proportion of mining, irrigation and road segment in order book is 48%, 47% and 5% respectively. Orders are geographically diversified including Gujarat (57%), Maharastrsa (25%), Andhra Pradesh (13%), Madhya Pradesh (4%) and Goa (1%). Order book in Gujarat is mainly...