July 20, 2017 Gina Engineering Company Private Limited Instruments* Amount Rated Rating Action (Rs. crore) Long-term Fund-based Facilities 25.00 [ICRA]BBB- (Stable) reaffirmed (revised from 14.00) Long-term Term Loan Nil (revised from 1.60) Short-term Non-fund Based Facilities 20.00 [ICRA]A3 reaffirmed Total 45.00 *Instrument details are provided in Annexure-1 Rating action ICRA has reaffirmed the long-term rating of [ICRA]BBB- (pronounced ICRA triple B minus) 1 assigned to the Rs.25.00-crore (revised from Rs14.00 crore) fund-based facilities of Gina Engineering Company Private Limited (GECPL). ICRA has also reaffirmed the short-term rating of [ICRA]A3 (pronounced ICRA A three) assigned to the Rs.20.00-crore short-term non-fund-based facilities of GECPL. The outlook on the long-term rating is ‘Stable’. Rationale The reaffirmation of ratings considers the established presence of the company of over 50 years in the construction business with expertise in executing industrial, commercial and residential projects as well as the reputed client profile of the company. The ratings also take into account the improvement in the order- book position with unexecuted orders of Rs. 236.62 crore as on April 01, 2017 (1.5 times the operating income for FY2017) which provides revenue visibility in the near to medium term. The ratings also consider the improvement in operating margins over the last two fiscals owing to the company increasing its exposure to industrial projects which are of smaller duration and render better margins. The financial profile of the company remains comfortable characterised by moderate gearing and healthy coverage indicators. The ratings are, however, constrained by the moderate scale of operations, restricting operational and financial flexibility to some extent and the high competitive intensity in the construction space which limits price flexibility. The ratings also factor in the high working capital requirements on account of elongated receivable cycle, with debtors outstanding for more than six months from group company being ~38% of the total receivables as on March 31, 2017. The order book and execution pace continues to remain vulnerable to cyclicality in project launches/expansion plans of customers in industrial and real estate segments. The ratings also take into consideration the concentration risks arising out of limited geographical presence with operations centred in Karnataka and with the top three clients contributing to ~42% of the outstanding order book. Going forward, the ability of the company to secure new orders and execute the orders in hand in a timely manner while maintaining the profitability and efficiently managing its working capital requirements would be the key rating sensitivities. Key rating drivers Credit strengths Established presence in the Bangalore construction space with an experience of over 50 years 1 For complete rating scale and definitions, please refer to ICRA’s website www.icra.in or other ICRA Rating Publications Comfortable financial risk profile characterised improving margins, moderate gearing and healthy coverage indicators Reputed private sector client base across industries, including Shahi Exports Pvt. Ltd., TVS Motor Company Pvt. Ltd., Anthem Biosciences Pvt. Ltd., Britannia Industries Ltd., Biocon Ltd. etc. Improvement in order-book position with unexecuted orders of Rs. 236.62 crore as on April 01, 2017 (1.5 times of operating income for FY2017) Sectoral diversification with the order book consisting of industrial, commercial, institutional and residential projects Credit weaknesses Moderate scale of operations limiting operational and financial flexibility to some extent; decline in revenues witnessed in FY2017 owing to limited orders High working capital requirements due to elongated receivable cycle Majority of the projects executed in the past and orders in hand pertain to Karnataka region which exposes the firm to economic and political risks to a single region, with top three customers contributing to ~42% of the unexecuted order book High competitive intensity in the construction segment given the moderate complexity of work involved Order booking and execution is vulnerable to cyclicality in project launches/expansion plans of customers in industrial and real estate segments Description of key rating drivers: Gina Engineering Company was established in 1964 and was later incorporated as Gina Engineering Company Private Limited (GECPL). The promoters have an experience of more than 50 years in the construction business with expertise in executing industrial, commercial and residential projects. The operating income of the company increased from Rs.128.51 crore in FY2015 to Rs. 205.14 crore in FY2016 due to higher amount of orders secured and executed during the period. However, with slowdown in order procurement and execution, GECPL’s revenues declined ~23% to Rs 157.22 crore in FY2017. The operating margin of the company improved from 6.06% in FY2015 to 7.05% in FY2016 owing to better absorption of costs, which further strengthened to 8.25% in FY2017 with better cost control and lower sub-contracting. Additionally, the company increased exposure towards industrial projects which are of shorter duration and render better margins. The company has earned revenue of Rs. 45.93 crore during April-June 2017, and has an outstanding order book of Rs. 236 crore as on April 1, 2017 which provides revenue visibility in the medium term. The working capital requirements of the company are quite high mainly due to the elongated receivables cycle. GECPL has executed the construction for the real-estate project, ‘Gina Shalom’, developed by Gina Developers Private Limited (GDPL), in Bangalore, for which a significant amount of receivables are outstanding. Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below. Links to applicable criteria Corporate Credit Ratings: A Note on Methodology Rating Methodology for Construction Entities About the company: Gina Engineering Company Private Limited (GECPL), a construction company, is the flagship company of the Gina Group. It was incorporated by Mr. T J Thomas as Gina Engineering Company, a partnership firm, in 1964. The promoters of the company have been in the construction business for past 50 years. The company primarily undertakes civil-construction projects comprising industrial, commercial, institutional and residential projects. The company has executed most of its projects in Karnataka, with some projects in Andhra Pradesh and Tamil Nadu; and has catered reputed clients such as Britannia Industries Ltd., Shahi Exports Pvt. Ltd., TVS Motor Company Pvt. Ltd., Anthem Biosciences Pvt. Ltd., Biocon Ltd., Centum Electronics Ltd., Bangalore International Exhibition Centre etc. Particulars FY2016 FY2017 Operating income (crore) 205.14 157.22 PAT (crore) 7.56 8.88 OPBDIT/ OI (%) 7.05% 8.25% RoCE (%) 29.28% 19.15% Total Debt/ TNW (times) 0.57 0.62 Total Debt/ OPBDIT (times) 1.39 2.13 Interest coverage (times) 5.59 4.30 NWC/ OI (%) 14.4% 21.6% OPBDITA: Operating Profit before Depreciation, Interest, Taxes and Amortisation; PAT: Profit after Tax; NWC: Net Working Capital; Source: Financial statements of GECPL and ICRA research *Provisional financials Status of non-cooperation with previous CRA: Not Applicable. Any other information: Not Applicable. Rating History for last three years: Table: Name of Current Rating (FY2018) Chronology of Rating History for the past 3 years Instrument S. Type Rated Month - Month - year & Rating No. amount year & (Rs. rating in FY2017 FY2016 FY2015 Crore) FY2018 February December November July 2017 - Fund Based Long 25.00 2016 2015 2014 1 Facilities Term [ICRA]BBB- [ICRA]BBB- [ICRA]BBB- [ICRA]BB+ - (Stable) (Stable) (Stable) (Stable) Non Fund Short 4 Based 20.00 [ICRA]A3 - [ICRA]A3 [ICRA]A3 [ICRA]A4+ Term Facilities 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 Annexure-1 Instrument Details Name of the Date of Coupon Maturity Size of the Current Rating and instrument Issuance / rate issue (Rs. Outlook Sanction crore) Long-Term- Fund- - - - 25.00 [ICRA]BBB-(Stable) Based Facilities Short-Term- Non- - - - 20.00 [ICRA]A3 Fund-Based Facilities Source: GECPL Name and Contact Details of the Rating Analyst(s): Analyst Contacts Mr. K Ravichandran Ms. Ritika Periwal +91-44-4596 4301 91-80-4922 5562 [email protected] [email protected] Mr. R Srinivasan Ms. Ankita Sheth +91-44-4596 4315 91-80-4922 5513 [email protected] [email protected] Name and Contact Details of Relationship Contacts: Mr. Jayanta Chatterjee +91 80 43326401 [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 © Copyright, 2017, ICRA Limited. All Rights Reserved Contents may be used freely with due acknowledgement to ICRA ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to a process of surveillance, which may lead to revision in ratings. An ICRA rating is a symbolic indicator of ICRA’s current opinion on the relative capability of the issuer concerned to timely service debts and obligations, with reference to the instrument rated. Please visit our website www.icra.in or contact any ICRA office for the latest information on ICRA ratings outstanding. All information contained herein has been obtained by ICRA from sources believed by it to be accurate and reliable, including the rated issuer.