Rationale

 The ratings have been removed from the Issuer Not Cooperating category and the long-term rating has been upgraded and short-term rating has been reaffirmed upon co-operation from the rated entity. The ratings factor in the established track record of SCR Nirman Private Limited (SCR) in execution of railway works and moderate order book position of Rs. 120.3 crore as on June 26, 2024, translating to 1.6 times of FY2024 revenues, which provides adequate medium-term revenue visibility. The ratings note the satisfactory financial risk profile with TOL/TNW of 0.4 times as on March 31, 2024 and interest cover at 6.0 times in FY2024. ICRA expects the coverage metrics to remain comfortable in the medium term. The ratings also consider the reputed client profile including South Central Railway (SCR) and Rail India Technical and Economic Service (RITES) resulting in low counterparty credit risk. The ratings are, however, constrained by SCR’s small scale of operations with an operating income of Rs. 76.2 crore in FY2024, which improved from Rs. 58.5 crore in FY2023. The ratings are also constrained by the moderate working capital intensity of 20.8% in FY2024 on account of higher supplier advances and low creditor days. The company has high customer concentration risk with top two customers contributing to 100% of the order book and geographical concentration risk with the entire order book confined to Andhra Pradesh, Telangana and Orissa. ICRA also notes the significant competition from other established players in the construction industry, which restricts growth in revenues and profitability. SCR also has sizeable contingent liabilities in the form of bank guarantees (BG), mainly for contractual performance and raw materials. Any penalty or invocation of BGs on projects could have a bearing on its liquidity position. Nonetheless, ICRA draws comfort from SCR’s long presence in the industry, healthy execution track record and the fact that no guarantees have been invoked in the past. The Stable outlook on SCR’s rating reflects ICRA’s opinion that the company will benefit from healthy order book position and it will maintain its execution momentum, along with timely receipt of payments from its key customers.