CARE Ratings reaffirms NCC's 'AA-' rating with 'stable' outlook

The agency has also affirmed the company's short term rating at 'CARE A1+'.

CARE Ratings stated that the reaffirmation in ratings assigned to bank facilities and short-term instrument of NCC Limited (NCCL) factors the company's long and established track record in the construction industry in the last four decades, strong orderbook position backed by sizable order additions resulting in consequential growth in the scale of operations.

The order book is diversified with presence across buildings, water pipelines, irrigation, transmission, mining, transportation and urban infra, among others. The company continues to have projects across pan India. The company ventured in smart metering projects, where it had undertaken three projects aggregating Rs 4,456 crore for which the investment commitment is Rs 528 crore over the next three years. NCCL group is comfortably placed to meet this equity commitment.

Apart from this, CARE Ratings Limited (CARE Ratings) understands there is no other investment requirement in other verticals operated under the group and corporate guarantee (CG) shall not be extended in smart metering special purpose vehicles (SPVs). One of the projects has already achieved financial closure, where no CG has been extended by NCCL.

Driven by a robust order book position, revenue growth continues to be robust at 37% for FY24. Ratings are also backed by moderate profitability metrics with profit before interest, lease rentals, depreciation and taxes (PBILDT) margin range bound between 10-12% of the revenue.

Adequate cash generation from business operation resulted in lower dependence on external borrowings with total debt (including mobilization advance)/PBILDT consistently improving in the last six years and stands at 2.61x for FY24 (PY: 3.48x).

However, above ratings' strengths are tempered by elevated working capital intensity due to sizable unbilled revenue with gross current asset days (GCA days) at 272 days for FY24.

The company has been making consistent efforts to reduce working capital intensity which are also bearing results indicated by reduction from the past GCA days of 335 days in FY23 and 391 days in FY22.

Improvement has been supported by management's focus on bidding for projects having strong counter parties with visible funding avenues and restricting exposure to a single state and single counterparty in the orderbook.

Susceptibility of profitability due to volatility in commodity prices, legacy arbitrations and exposure to state government projects are some other credit deterrents.

NCC is a construction and infrastructure sector company. Over the years, it has evolved from a mere contractor to a full-fledged infrastructure solutions provider. The company's construction endeavours span across the nation and encompass buildings, transportation, water and environment, electrical transmission and distribution, irrigation, mining, and railways projects.

The scrip shed 0.94% to end at Rs 312.25 on the BSE today.