Rationale

 The revision in outlook to Positive reflects ICRA’s expectation of a sustained improvement in E to E Transportation Infrastructure Private Limited’s (ETIPL) credit profile in the near to medium term, supported by ramp-up in execution and consequent impact on scale of operations, coupled with improvement in its working capital intensity and liquidity position. The ratings continue to derive comfort from the company’s strong and reputed clientele (which lowers the counterparty credit risk) and decade long track record in the railway infrastructure segment. ETIPL’s performance has recovered notably over the last two fiscals with an operating income (OI) and operating profit margin of Rs. 170.2 crore and 11.4%, respectively, in FY2024, compared to an OI of Rs. 78.5 crore and 9.0% OPM in FY2022 (OI and OPM were Rs. 134.6 crore and 10.8%, respectively, in FY2023). It had an order book (OB) of ~Rs. 325 crore as on March 31, 2024 (against ~Rs. 135 crore as of March 2023), which provides healthy revenue visibility, given the project tenor of 12-18 months. ETIPL saw an improvement in working capital intensity as reflected in NWC/OI at 42% in FY2024 Vs. 48% in FY2023 and 66% in FY2022, though the overall working capital cycle continues to remain stretched. Moreover, significant billings done in March 2024 (Rs. 84 crore viz. 50% of annual revenues) resulted in inflated debtor and payable days. The company has increased the share of orders directly from Indian Railways and B2B clients, whose favourable credit terms (e.g., fast payment cycle, interest-free mobilisation advance provisions in B2B projects, etc) augur well for its working capital cycle going forward. ETIPL was able to secure enhancement in working capital lines during the past year at 25-30% margin and collateral requirement (previously as high as 47%), which will reduce the incremental margin money needs and support liquidity position. Though the operating margins are expected to remain rangebound (9-11%) over medium term, with scheduled repayment of debt and no major capex plans, debt coverage and leverage metrics are likely to improve over the medium term. The ratings remain constrained by the company’s modest scale of operations, highly working capital-intensive operations and execution risks associated with contracts (with nearly 50% of the orders in the nascent stages with less than 10% execution). It is vulnerable to intense competition in the segment, which constrains its pricing flexibility and profitability. It also has sizeable contingent liabilities (~Rs. 33 crore o/s as of May 2024 Vs. net worth of Rs. 67 crore as on March 31, 2024) in the form of bank guarantees, mainly for contractual performance and earnest money and security deposit. Nonetheless, ICRA draws comfort from ETIPL’s established relationship with clients and no invocation of guarantees in the past. Even as the working capital intensity, as reflected in NWC/OI, improved YoY in FY2024, given the increasing scale of operations, the company’s ability to judiciously manage its working capital and maintain adequate cushion remains important from the credit perspective. Its ability to further improve the cash conversion cycle and improve its liquidity position remains crucial to support its growth plans, and hence remains a key monitorable.