DHARTI DREDGING AND INFRASTRUCTURE LIMITED

Long-term Bank Facilities CARE BBB-

Rating
CARE has assigned a ‘CARE BBB-’ (Triple B Minus) rating to the Long-term Bank
Facilities of Dharti Dredging and Infrastructure Limited (DDIL). This rating is applicable
for facilities having tenure of over one year. Facilities with this rating are considered to
offer moderate safety for timely servicing of debt obligations. Such facilities carry
moderate credit risk. CARE assigns ‘+’ or ‘-’ signs to be shown after the assigned rating
(wherever necessary) to indicate the relative position within the band covered by the
rating symbol. These ratings are assigned to the long-term bank facilities aggregating
Rs.42 crore.
The rating factors in the company’s experience in the capital dredging, healthy order
book position, diversification into allied activities, improved profitability margins and
lower gearing ratios. The rating is, however, constrained by devolvement of Letter of
Credit (LCs) in the recent past, stressed liquidity scenario of the company, increasing
debtors position and high fixed costs towards dredgers.
The ability of the company to successfully bid and carry out capital dredging projects in
the future, uncertainties in infrastructure projects and improvement in its liquidity
scenario are the key rating sensitivities.

Background
Dharti Dredging and Infrastructure Ltd. (DDIL), the second-largest dredging company in
India, after Dredging Corporation of India (DCI), is engaged in capital dredging
activities. DDIL commenced its operations with one dredging unit at Paradeep
Fishing Harbor in 1993. Over the years, the company has diversified into trenching
and back filling works for the oil and gas industry for domestic as well as international
clients.
The company experienced a slowdown in its operations during the years FY2003-04 and
FY2004-05 due to inadequate capital dredging projects in India. In March 2005, Tebma
Shipyard Ltd., which owned over 83% of the share capital, disinvested its entire share
holding in favor of SKH Impex Ltd., promoted by Mr. A. Rajendra, a technocrat. Further,
in FY06, Mr. Rajesh Jhunjhunwala and associates invested Rs.50 crore in the company,
making available the much-needed own capital to ease the pressure on the capital
structure of the company. Mr. A Rajendra has worked with Punj Lloyd for about 15 years
in different areas including dredging-related work.

CREDIT ANALYSIS & RESEARCH LIMITED

The Managing Director looks after the day-to-day operations of the company and is ably
assisted by the qualified professionals heading different departments. Although most of
the senior management team has joined the company in recent times, the average
industry experience of the management in dredging and oil exploration is about 28
years. As on March 31, 2008, the company had two subsidiaries, PT Dharti Offshore,
Indonesia (PTDO) (WOS) and Dharti Dredging and Construction Partners LLC, Oman
(DDCP) (70% holding). DDIL has taken a dredger on hire from PTDO. DDCP, at present,
does not have any operations.
Operations
DIL executes various types of projects like, capital dredging, trenching and back filling
works related to offshore pipeline installation, road embankment projects, de-weeding of
lakes, land reclamation, flood control and various other civil projects. However, revenue
from the dredging activity comprises the major portion (around 84% in FY08) of the
total revenue of the company.
The company secures orders by way of tenders invited by Government
Companies/Agencies as well as from the private companies. The company undertakes
pre-bidding survey of the site to determine the complexities involved in the capital
dredging activity. Most of the orders of the company are fixed-price contracts wherein
any adverse impact of the cost of the project directly affects the profitability of the
company. However, the company also receives about 10% of the contract value as
advance for the mobilisation of all the necessary equipment to undertake the project.
The company has a fleet of ten owned and six hired dredgers. Most of the dredgers are
cutter suction dredgers. The company hires the required dredgers on a case-by-case
basis for a particular project.
The company had taken two dredgers - Ta-Lung and Ta-Hsing with an annual dredging
capacity of 62.55 lakh cubic meter, on hire from Hung Hua Construction Co. Ltd.
(Taiwan) in October 2007 at USD7.9 lakh per month per dredger on yearly contract.
However, due to shortage of such large-sized dredgers, the company purchased the
same on a suppliers’ credit basis. The company took a supplier’s credit of Rs.346.41
crore from Hung Hua Construction Ltd., for a 14-year period with monthly repayment
installment equaling the monthly hire charges. However, in FY09 the company reversed
the purchase transaction for these two dredgers and took them on hire till October 2009
with the same terms and conditions. This contract would be renewed every year for a
period of one year.
As on March 31, 2008, the company had un-executed orders of Rs.535 crore which is
about 2.44 times of the total income achieved in FY08. The order book is to be
completed by October 2009.

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Financial Results
(Rs. crore)
For the year / As on March 31, June-05 June-06 Mar-07 Mar-08
Working Results
Total Income 22.90 83.93 105.43 219.21
PBILDT 4.91 10.72 12.90 60.98
Interest and Finance Charges 1.66 3.48 2.78 13.81
Depreciation 2.52 2.49 2.51 32.18
PAT (After Deferred Tax) 0.77 5.20 7.26 14.73
Net Cash Accruals 3.29 7.69 9.77 46.92

Financial Position
Share Capital 6.55 14.84 19.68 20.04
Net worth 9.70 30.82 87.80 103.17
Total Capital Employed 32.03 55.58 104.04 566.84
Net Fixed Assets 14.53 12.46 35.30 520.70
Net Working Capital 12.39 28.73 37.36 13.92

Ratios
Profitability (%)
PBILDT / Total Income 21.46 12.77 12.23 27.82
PAT / Total Income 3.36 6.16 6.84 6.67
ROCE (Average Total Capital
- 20.06 18.56 9.10
Employed)
Solvency (times)
Long Term Debt Equity Ratio 2.10 0.60 0.01 4.13
Overall Gearing Ratio 2.30 0.80 0.19 4.49
Interest Coverage 1.44 2.37 3.73 2.08
Total Debt / Net Cash Accruals 6.78 3.22 1.66 9.88
Liquidity
Current Ratio 1.78 1.08 1.35 0.82
Quick Ratio 1.67 0.70 0.88 0.64
Turnover
Average Collection Period (Days) - 85 75 93
Average Creditors (Days) - 70 86 105
Average Inventory (Days) - 61 76 73
Total income for DDIL had shown a Compounded Annual Growth Rate (CAGR) of
112.33% over the past four years on the back of new orders, mainly for capital
dredging, trenching and back filling. For FY08, total income stood at Rs.219.21 crore, a
y-o-y growth of 56%. In line with the growing revenue, PBILDT also showed a consistent
increase from FY05 to FY08. However, the PBILDT margin had been volatile over the
period, mainly due to company’s strategy of taking dredgers on hire, as and when

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required. The company had taken dredgers on hire during FY06 and FY07 which resulted
in dip in the PBILDT margin, due to fixed operating lease charges. However, as a result
of dip in the hire charges during FY08, the PBILDT margin improved to 27.82%
compared to 12.23% in FY07. The addition of five dredgers and the loan taken for the
same, resulted in significant increase in the interest and depreciation cost for the
company in FY08, which kept the PAT margin low at 6.67%, despite improvement in the
PBILDT margin. Although, the interest coverage has shown an improvement over the
period from FY05 to FY08, in line with increase in revenues, on y-o-y basis the same
declined to 2.08x in FY08 from 3.73x in FY07, on account of increase in interest
expenses. The company’s net fixed assets have shown a steady increase from FY06 to
FY08, on the back of augmentation of new dredgers over the years, to cater to the
increasing order book of the company. The company’s net fixed assets have shown a
sudden increase as on March 31, 2008 to Rs.521 crore from Rs.35 crore on March 31,
2007 mainly due to procurement of five dredgers and procurement of various other
equipment, including floating crafts.
Infusion of equity in FY06 and FY07 enabled the company improve its debt-equity ratio
from 2.10x as on June 30, 2005 to 0.60x and 0.01x as on June 30, 2006 and March 31,
2007, respectively. However, the additional debt of Rs.426 crore, mainly due to long-
term supplier’s credit, during FY08 resulted in drastic increase in the long-term debt-
equity and the overall gearing ratio to 4.13x and 4.49x, respectively, as on March 31,
2008, compared to 0.01x and 0.19x, respectively, as on March 31, 2007. Additional
debt, combined with increased interest expenses resulted in an increase in total debt to
net cash accruals to 9.88x in FY08.
The current ratio of the company was fairly comfortable till FY07; however, as on March
31, 2008 the same had shown a decline to 0.82x on account of increase in working
capital borrowings to fund the increased debtors due to non-payment of dues by various
parties as a result of technical differences on the amount of work done and increase in
the current portion of the long-term debt. The liquidity situation further deteriorated in
April 2009, with devolvement of part amount of two L/Cs (for 2-3 days) due to late
payments received from parties. Thus, the liquidity scenario of the company appears to
be stressed.
As per the audited results for 9MFY09, DDIL had outperformed its previous full year
results of FY08. The company reported a turnover of Rs.224.69 crore in 9MFY09 as
against a turnover of Rs.219.21 crore in FY08. The increased turnover was on account of
improved execution capability of the company backed by increased dredging orders.
PBILDT margin in 9MFY09 increased to 30.42% as against 27.82% in FY08 on account of
reduced operational expenditure, related to equipment hire and mobilisation expenses.
There was a decline in the PAT margin for 9MFY09, on account of increased depreciation
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cost, related to purchase of dredgers and other equipment. However, interest coverage
improved marginally to 2.13x for 9MFY09 compared to 2.08x for FY08, due to improved
PBILDT margin. Further, there was a major decline in the debt to equity and overall
gearing ratios as on December 31, 2008 to 0.61x and 1.07x, respectively, on account of
reduction of suppliers’ credit of Rs.346.41 crore due to cancellation of orders for two new
dredgers.
Industry
The main objective of capital dredging is the creation of deeper and/or wider waterways
to improve navigation of ships. Capital dredging is a sub-activity to the main civil
construction work in developing new ports and harbors and is often subcontracted to a
specialist dredging contractor. Maintenance dredging is the process of excavating or
removing soil from below water using dredgers. Capital dredging project involves
thorough analysis of the soil conditions before the bidding. The dredging activity is
largely dependent on port development, maintenance and expansion programme. The
growth in the dredging market is largely affected by the growth in world trade, deeper
draught requirements of ports, land reclamation and environmental aspects and
regulations.
As per industry sources, India offers huge market potential for dredging companies,
estimated at 1 billion cubic meters in the next five years. Large capital dredging projects
include those being finalised at Nhava Sheva (estimated at USD177.77 million),
Tuticorin, Paradeep, (USD55.55 million) and Ennore (USD31.77 million), as well as the
projects under way at Haldia, Mangalore and Kochi. Dredging activity in India is
expected to grow by two to three times in the next few years as the existing main ports
are expanded and new private ports and additional terminals are built to service larger
and more vessels. The next couple of years are expected to see implementation of
dredging projects worth USD444.44 million at various ports across India.
In India, the domestic dredging companies enjoy preference over foreign competition, if
they meet the technical requirement. This is designed to protect domestic players from
foreign dredging competition. Under this policy, if a foreign company emerges as the
lowest bidder, the Indian company is given a chance to match the bid, given that Indian
player’s bid is within the 10% of lowest bid.

April 2009
Disclaimer
CARE’s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall
the concerned bank facilities. CARE has based its ratings 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 are rated by CARE have paid a credit rating fee, based on the
amount and type of bank facilities.

CREDIT ANALYSIS & RESEARCH LIMITED 5

CARE is headquartered in Mumbai, with Offices all over India. The office addresses and
contact numbers are given below:

HEAD OFFICE: MUMBAI

Mr. D.R. Dogra Mr. Rajesh Mokashi

Managing Director Dy. Managing Director
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Mr. Ankur Sachdeva

Head - Business Development
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