CRISIL reaffirms rating of Kalpataru Projects; maintains 'stable' outlook

CRISIL Ratings stated that the ratings continue to be driven by the strong business risk profile of KPIL on the back of its established market position in the Transmission and Distribution (T&D) segment, diversification into other engineering, procurement and construction (EPC) segments and strong growth in order book. Outstanding consolidated orders worth Rs 57,195 crore as on 30 June 2024 provide a strong revenue visibility over the medium term.

During the first quarter of fiscal 2025, standalone revenues saw a modest growth of 3% on-year owing to slower execution activity, while the reported standalone operating margins moderated from 8.7% to 8.4%, due to variation in project mix executed during the quarter and some additional one-off provisions towards project warranty. Further growth in operating level during the rest of fiscal 2025 and synergy benefits being realised from the amalgamation of JMC Projects (India) Ltd (JMC Projects) should help improve the margin further over the medium term.

Financial risk profile is characterised by a rise in gross debt during fiscal 2024 to fund the high capital expenditure (capex) and increasing working capital requirement, while gearing (CRISIL Ratings -adjusted) improved slightly from 0.55 times as on 31 March 2023 to 0.53 times as on 31 March 2024.

While gross debt temporarily increased further during the first quarter of fiscal 2025 given lower collections and delay in budgetary approvals due to the General Elections, steady leverage levels, coupled with improved profitability and cash accrual, should improve debt protection metrics over the medium term.

Also, liquidity remains robust, supported by unencumbered cash and equivalent of more than Rs 600 crore and an undrawn bank limit of around Rs 500 crore as on June 30, 2024.

The ratings continue to reflect the strong track record of KPIL in the transmission line tower (TLT) business, diversified revenue streams and healthy financial risk profile.

These strengths are partially offset by large working capital requirement given the inherent nature of the EPC business, and exposure to subsidiaries and road SPVs (special-purpose vehicles).

KPIL plans to divest few non-core assets including road projects, real estate project in Indore (Madhya Pradesh) and logistics business over near to medium term. Additionally, the company plans to expedite legacy project closures to improve its working capital cycle.

Kalpataru Projects International is a leading player in the domestic T&D sector. The company undertakes turnkey contracts for setting up transmission lines and substations for extra-high-voltage power transmission. Over the years, it has diversified into civil contracts, railways, water, oil and gas and urban infrastructure projects.

The scrip rose 0.74% to currently trade at Rs 1340.25 on the BSE.