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Malhotra Constructions Private Limited February 28, 2019 Ratings Amount Facilities Rating1 Rating Action (Rs. crore) CARE B+; Stable Long-term Bank Facilities 3.00 Reaffirmed (Single B Plus; Outlook: Stable) CARE A4 Short-term Bank Facilities 11.00 Reaffirmed (A Four) 14.00 Total Facilities (Rupees Fourteen crore only) Details of instruments/facilities in Annexure-1

Detailed Rationale & Key Rating Drivers The ratings assigned to the bank facilities of Malhotra Constructions Private Limited (MCP) continued to be constrained by its small scale of operations, leveraged capital structure and working capital intensive nature of operations. The ratings are further constrained by fragmented nature of the construction sector. The ratings, however, derive strength from experienced promoters in the construction industry, moderate order book position, moderate profitability margins and positive outlook for construction industry. Going forward, the ability of the company to successfully execute projects in time and recover contract proceeds and scale up its operations while maintaining its profitability margins would remain the key rating sensitivities.

Detailed description of the key rating drivers Key Rating Weaknesses Small scale of operations The total operating income of the company decreased from Rs. 14.13 crore in FY17 to 10.58 crore in FY18 (refers to period from April 1 to March 31) due decline in orders received from customers and the same stood small. The small scale limits the company’s financial flexibility in times of stress and deprives it of scale benefits. Furthermore, the company has reported total operating income of Rs. 6.00 crore in 10FY19 (Provisional).

Leveraged capital structure and weak total debt to GCA ratio The capital structure of the company stood moderately leveraged marked by overall gearing ratio of 1.41x as on March 31, 2018. The same improved from 1.93x as on March 31, 2018 mainly due to gradual repayment of term loans and unsecured loans coupled with lower utilization of the working capital limits as on last balance sheet as compared to previous year. Furthermore, the interest coverage ratio remained moderate at 1.56x in FY18 as compared to 1.58x in FY17. However, the total debt to GCA ratio stood weak at 13.35x for FY18. The total debt to GCA ratio marginally improved from 13.60x for FY17 due to decrease in debt levels of the company in FY18.

Working capital intensive nature of operations The average operating cycle of the company stood elongated at 166 days for FY17 (PY: 135 days) mainly due to high inventory period. The company receives payment from the client on percentage of completion basis. Nearly 90% of the bill amount raised by the company is received within 1-1.5 months while the remaining amount is received after competition of the contract resulting in average collection period of 29 days for FY18 (PY: 26 days). The company receives average credit period of around three months from its suppliers of raw materials, however, payment period stood high for FY18 due to higher stock of raw material purchased in March, 2018 for orders to be executed going ahead resulting in average creditor period of 104 days for FY18 (PY: 81 days). Consequently and due to high work in progress inventory, the average inventory period stood high at 241 days for FY18 (PY: 190 days). The working capital limit stood fully utilized and bank guarantee utilization remained ~75% for the last 12 months period ended January, 2019. The liquidity position of the company stood moderate marked by current ratio of 1.65x and quick ratio of 0.77x as on March 31, 2018. The company had free cash and bank balance of Rs.0.16 crore as on March 31, 2018.

Fragmented nature of the construction sector albeit improving growth prospects The construction sector in India is highly fragmented with a large number of small and mid-sized players. This coupled with tendering process in order procurement results into intense competition within the industry. Additionally, continued increase in execution challenges including regulatory clearances and elongated working capital cycle due to longer gestation period of the projects collectively put pressure on the credit profile of the players. Despite these road blocks faced by the industry, the sector is expected to grow, given huge economic significance associated with it and rising investor interest.

1Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications. 1 CARE Ratings Limited

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Also, the outlook for Indian construction sector continues to be stable in the medium to long-term on account of increased thrust of Government on development of infrastructure to support economic growth.

Key Rating Strengths Experienced promoters in the construction industry MCP is engaged in the civil construction work and is managed by Mr. Rajesh Malhotra, Mr. Vinay Malhotra and Mrs. Manisha Malhotra. Mr. Rajesh Malhotra has around three and a half decades of experience in construction industry gained through his association with MCP and Malhotra Constructions (operations discontinued). Whereas, Mrs. Manisha Malhotra and Mr. Kusum Vinay Malhotra have 10 years and 9 years of experience respectively in the construction industry gained through their alliance with MCP only. Apart from this, the promoters are engaged in another group concern namely, Kay Vee Infra Projects Private Limited (KVI), incorporated in 2010 and engaged in similar business. Additionally, the promoters are supported by a team of experienced and qualified professionals having varied experience in the technical, finance and marketing fields.

Moderate order book position The company has a comfortable order book position with outstanding order book of Rs. 33.00 crore as on February 20, 2019, to be executed by September, 2019. The current order book of the company is ~3.30x times of the revenue for FY18. The order book of the company comprises orders in relatively early stages of execution, which provides sufficient visibility on the revenue stream. The order book of the company is also well diversified.

Moderate profitability margins The profitability margins marked by PBILDT margin and PAT margin of the company stood moderate at 14.16% and 2.42%, respectively, in FY18. The PBILDT margin improved from 13.20% in FY17 mainly due to execution of contracts having better margins. Consequently, the PAT margin also improved from 2.25% in FY17 to 2.42% in FY18.

Analytical approach: Standalone

Applicable Criteria CARE’s Criteria on assigning Outlook to Credit Ratings CARE’s Policy on Default Recognition CARE’s methodology for manufacturing companies Financial ratios –Non-Financial Sector Criteria for Short Term Instruments

About the Company Malhotra Constructions Private Limited (MCP) was incorporated in 1989 as a private limited company and is currently being managed by Mr. Rajesh Malhotra, Mr. Vinay Malhotra and Mrs. Manisha Malotra. MCP is engaged in civil construction work for public sector undertakings, central government and state government departments in Uttar Pradesh and Haryana which includes construction of buildings like hospitals, educational institutes, bus terminals, housing board flats, mini secretariats etc. The company is registered as a Class ‘A’ civil contractor with Public Works Department (PWD) of Haryana, U.P. State Construction and Infrastructure Development Corporation Limited (UPSCIDC) and Defence Research and Development Organisation (DRDO).

Brief Financials (Rs. crore) FY17 (A) FY18(A) Total operating income 14.43 10.58 PBILDT 1.90 1.50 PAT 0.32 0.26 Overall gearing (times) 1.17 1.41 Interest coverage (times) 1.58 1.56 A: Audited

Status of non-cooperation with previous CRA: Not Applicable

Any other information: Not Applicable

Rating History for last three years: Please refer Annexure-2 Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications.

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Analyst Contact: Name: Mr Achin Nirwani Tel: 01145-333228 Email: [email protected]

About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices.

Disclaimer CARE’s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors.

Annexure-1: Details of Instruments/Facilities

Name of the Date of Coupon Maturity Size of the Issue Rating assigned along Instrument Issuance Rate Date (Rs. crore) with Rating Outlook Fund-based - LT-Cash - - - 3.00 CARE B+; Stable Credit Non-fund-based - ST-Bank - - - 11.00 CARE A4 Guarantees

Annexure-2: Rating History of last three years

Sr. No. Name of the Current Ratings Rating history Instrument/Bank Type Amount Rating Date(s) & Date(s) & Date(s) & Date(s) & Facilities Outstanding Rating(s) Rating(s) Rating(s) Rating(s) (Rs. crore) assigned assigned in assigned in assigned in in 2018- 2017-2018 2016-2017 2015-2016 2019 1. Fund-based - LT- LT 3.00 CARE B+; - 1)CARE B+; - - Cash Credit Stable Stable (05-Feb-18)

2. Non-fund-based - ST 11.00 CARE A4 - 1)CARE A4 - - ST-Bank (05-Feb-18) Guarantees

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CONTACT Head Office Ms. Meenal Sikchi Mr. Ankur Sachdeva Cell: + 91 98190 09839 Cell: + 91 98196 98985 E-mail: [email protected] E-mail: [email protected]

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AHMEDABAD HYDERABAD Mr. Deepak Prajapati Mr. Ramesh Bob 32, Titanium, Prahaladnagar Corporate Road, 401, Ashoka Scintilla, 3-6-502, Himayat Nagar, Satellite, Ahmedabad - 380 015 Hyderabad - 500 029. Cell: +91-9099028864 Cell : + 91 90520 00521 Tel: +91-79-4026 5656 Tel: +91-40-4010 2030 E-mail: [email protected] E-mail: [email protected]

BENGALURU Mr. V Pradeep Kumar Mr. Nikhil Soni Unit No. 1101-1102, 11th Floor, Prestige Meridian II, 304, Pashupati Akshat Heights, Plot No. D-91, No. 30, M.G. Road, Bangalore - 560 001. Madho Singh Road, Near Collectorate Circle, Cell: +91 98407 54521 Bani Park, Jaipur - 302 016. Tel: +91-80-4115 0445, 4165 4529 Cell: +91 – 95490 33222 Email: [email protected] Tel: +91-141-402 0213 / 14 E-mail: [email protected] Mr. Anand Jha KOLKATA SCF No. 54-55, Ms. Priti Agarwal First Floor, Phase 11, 3rd Floor, Prasad Chambers, (Shagun Mall Bldg.) Sector 65, Mohali - 160062 10A, Shakespeare Sarani, Kolkata - 700 071. Chandigarh Cell: +91-98319 67110 Cell: +91 85111-53511/99251-42264 Tel: +91-33- 4018 1600 Tel: +91- 0172-490-4000/01 E-mail: [email protected] Email: [email protected] NEW CHENNAI Ms. Swati Agrawal Mr. V Pradeep Kumar 13th Floor, E-1 Block, Videocon Tower, Unit No. O-509/C, Spencer Plaza, 5th Floor, Jhandewalan Extension, New Delhi - 110 055. No. 769, Anna Salai, Chennai - 600 002. Cell: +91-98117 45677 Cell: +91 98407 54521 Tel: +91-11-4533 3200 Tel: +91-44-2849 7812 / 0811 E-mail: [email protected] Email: [email protected] PUNE COIMBATORE Mr.Pratim Banerjee Mr. V Pradeep Kumar 9th Floor, Pride Kumar Senate, T-3, 3rd Floor, Manchester Square Plot No. 970, Bhamburda, Senapati Bapat Road, Puliakulam Road, Coimbatore - 641 037. Shivaji Nagar, Pune - 411 015. Tel: +91-422-4332399 / 4502399 Cell: +91-98361 07331 Tel: +91-20- 4000 9000 Email: [email protected] E-mail: [email protected]

CIN - L67190MH1993PLC071691

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