Rating Rationale

December 14, 2017 | Mumbai

EKK Infrastructure Private Limited

'CRISIL BBB+/Stable/CRISIL A2' assigned to bank debt

Rating Action
Total Bank Loan Facilities Rated Rs.265 Crore
Long Term Rating CRISIL BBB+/Stable (Assigned)
Short Term Rating CRISIL A2 (Assigned)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities

Detailed Rationale
CRISIL has assigned its 'CRISIL BBB+/Stable/CRISIL A2' ratings to the bank facilities of EKK Infrastructure Private
Limited (EIPL). The ratings reflect CRISIL's belief that EIPL will sustain its robust business risk profile and above-average
financial risk profile, supported by its prudent selection of projects, strong market position in Kerala, and the extensive
experience of its promoters. These strengths are partially offset by susceptibility to cyclicality inherent in the civil
construction industry, and large working capital requirement.
Key Rating Drivers & Detailed Description
Strengths
* Prudent project selection:
The management consciously avoids bidding for Kerala government projects marked by delayed payments, which hits the
working capital management of civil contractors. Instead, EIPL prefers central government projects with financial backing of
international institutions such as World Bank and Asian Development Bank, which have fewer bottlenecks in funding and
execution, facilitating timely project completion, thereby enabling contractors to better manage working capital cycle and
operating performance. This strategic policy should help the company sustain its large working capital cycle and maintain
operating efficiency.

* Association with fellow civil players and recognition as 'Class A' contractor:
The management has been open to explore business tie-ups with high-profile industry players such as GHV (India) Private
Limited ('CRISIL A/Stable/CRISIL A1'), with which it has a 50% joint venture, and Inkel Ltd, with which it has formed a
special purpose vehicle wherein EIPL has 49% stake. The association with leading names in the sector enables the
company to bid for, and execute, bigger projects and gives it a strong standing in the industry. EIPL is recognized as a
'Class A' contractor by Kerala Public Works Department, which enables it to bid for projects without a ceiling limit, resulting
in strong orders of over Rs 1400 crore as at September 30, 2017, enhancing its bargaining power with all stakeholders in
the industry.

* Extensive experience of promoters:

Mr E K K Muhammed, the family patriarch, started EKK & Co in 1972, to undertake civil work for the Kerala government.
Over time, he developed a deep understanding of the nuances of the civil construction sector and established strong
working relations with key stakeholders in the industry. Mr Sanju Muhammed and Mr Sachin Muhammad, the second
generation of the promoter family, were groomed to take over the management of the company and ramped up operations
backed by their sound technical background. The company will benefit from the industry experience and technical expertise
of the promoter family.

Weakness
* Large working capital requirement:
Large working capital requirement is inherent in the construction industry. EIPL had gross current assets of 210 days as on
March 31, 2017, because of receivables of 110 days due to amount retained by counterparties during the defect liability
period. Also, the company requires inventory of about 90 days to ensure uninterrupted supply of materials to facilitate timely
completion of projects. The working capital requirement is partly funded through credit of 90 days from suppliers. Operations
will remain working capital intensive over the medium term.

* Susceptibility to cyclicality inherent in the construction industry:

The construction industry is cyclical and its fortunes are acutely sensitive to key macroeconomic factors and the overall
economic health.
Outlook: Stable
CRISIL believes EIPL will benefit from its promoters' extensive experience in the civil construction industry and its healthy
order book, ensuring revenue visibility. The outlook may be revised to 'Positive' if the company continues to grow at a
healthy rate while maintaining its financial risk profile. The outlook may be revised to 'Negative' if there is any major cost or
time overrun in projects, or if it undertakes large, debt-funded capital expenditure, leading to deterioration in its financial risk
profile.
About the Company
EIPL was incorporated in 2015 to take over the business of EKK & Co, a sole proprietorship firm set up in 1972. The
company constructs major roads and bridges, and executes irrigation projects, with the former accounting for 80% of
revenue. The company, based in Ernakulam, is managed by Mr Sanju Muhammed.
Key Financial Indicators
Particulars Unit 2017 2016
Revenue Rs cr 292.81 291.61
Profit After Tax (PAT) Rs Cr 10.67 6.41
PAT Margins % 3.80 3.93
Adjusted debt/adjusted networth Times 1.36 1.36
Interest coverage Times 3.40 3.05
Any other information: Not applicable
Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available
on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for
investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
Issue
Name of Date of Coupon Maturity Rating assigned
size (Rs
ISIN instrument allotment rate (%) date with outlook
cr)
CRISIL
NA Cash credit NA NA NA 65
BBB+/Stable

NA Bank guarantee NA NA NA 200 CRISIL A2

Annexure - Rating History for last 3 Years

Start of
Current 2017 (History) 2016 2015 2014
2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank
LT/ST 65 CRISIL BBB+/Stable -- -- -- -- --
Facilities
Non Fund-based
LT/ST 200 CRISIL A2 -- -- -- -- --
Bank Facilities
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Amount Amount
Facility Rating Facility Rating
(Rs.Crore) (Rs.Crore)
Bank Guarantee 200 CRISIL A2 -- 0 --
CRISIL
Cash Credit 65 -- 0 --
BBB+/Stable
Total 265 -- Total 0 --