| Tata Projects Limited | ||
| Rating reaffirmed at 'CRISIL A1+' | ||
| Rating Action | ||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||
| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL A1+' rating on the commercial paper issuance of Tata Projects Ltd (TPL).
The rating centrally factors in the strong managerial and financial support available to TPL from Tata Sons Pvt Ltd (Tata Sons; CRISIL AAA/Stable/CRISIL A1+) which holds 44.5% equity in TPL. The established market position, large scale operations with diversified order book having complex projects also support the business risk profile of the company. These strengths are partially offset by large working capital requirement and modest financial risk profile.
Revenues grew around 24% on-year in fiscal 2023 and around 12% quarter-on-quarter in the first quarter of fiscal 2024, driven by strong order execution. However, the company incurred operating loss both in fiscal 2023 and the first quarter of fiscal 2024, because of provisions for doubtful debts and additional costs due to scope and rate variations.
Order inflows were at about Rs 9,300 crore in fiscal 2023 (as against about Rs 14,800 crore in fiscal 2022), which provide healthy revenue visibility over the medium term. CRISIL Ratings understands that no further material provisions are expected going forward and therefore profitability too is expected to improve sequentially from current quarter. Moreover, TPL has a sizeable claim book, part of which is recognised in the balance sheet. It is expected that a significant portion of these claims should get recovered gradually, thereby improving the cash flows.
In March 2023, the company received equity of Rs 1,500 crore from Tata Sons, which helped improve its capital structure - the total outside liabilities to tangible networth (TOL/TNW) ratio improved to 6.2 times as on March 31, 2023, from 7.9 times a year earlier. However, gross current assets (GCAs), excluding cash, remained sizeable, though they declined to 374 days as of March 2023 from around 398 days as of March 2022. The GCAs are expected to moderate on higher execution and better collection of receivables.
Along with claim realisation, the overall indebtedness of the company should moderate gradually and will remain a key monitorable. Moreover, weakening of the payment track record of central and state government entities, resulting in sustained pressure on the GCAs and the overall indebtedness of TPL will bear watching too. |
Analytical Approach CRISIL Ratings has applied its parent notch-up framework to factor in the extent of support available from Tata Sons. CRISIL Ratings has combined the financials of TPL's subsidiaries to reflect the operational and financial linkages with these entities
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Established pan-India position and growing global footprint with a strong, diversified order book TPL is a large and diversified player in the engineering, procurement and construction (EPC) space, with presence across urban built form, metros and tunnels, bridges, airports and ports, environment, power and metals, transportation, oil and gas hydrocarbon, transmission and distribution and international business.
Strong order inflows in urban built form, metros, and airport projects have led to a well-diversified order pipeline. Order book of over Rs 46,000 crore (as of June 2023), well-diversified across different segments, and the growing share of urban infrastructure orders offers strong revenue visibility for the next 3-4 years.
TPL has executed complex projects such as the freight corridor, metros, and heavy civil projects through joint venture route with strong partners, aiming to build execution capability in new segments. The company has undertaken more independent projects in the last 2-3 years and bagged several large such projects in the refinery, industrial, and power segments. The company maintains its prudent bidding strategy and has improved its pre-bid risk management practices with a focus on cash flow management, execution and profitability. The large share of independent projects, along with focus on high-margin projects, should improve profitability over the medium term.
Strong management and financial support from Tata Sons, lending substantial financial flexibility TPL, a part of the infrastructure vertical of the Tata group, has gained prominence due to its increasing scale of operations, execution of complex and prestigious projects, size of the addressable market in the EPC industry and ability to generate healthy returns over the long term. TPL is jointly held by several Tata group companies, with Tata Sons being its largest shareholder with 44.5% shareholding and has senior Tata group executives on its board of directors. Being part of the Tata group, TPL derives significant financial flexibility and access to low-cost funds from banks and capital markets. Sustenance of support from Tata Sons and its ownership share in TPL are key rating sensitivity factors.
Weaknesses: Working capital-intensive operations TPL has sizeable retention money blocked in completed as well as ongoing projects. Total receivables (including retention money) remained high at Rs 6,781 crore as on March 31, 2023. Moreover, substantial claims related to change in scope and price variations continue to constrain the working capital cycle. Thus, the GCAs excluding cash remained sizeable at 374 days as on March 31, 2023, though they have moderated from nearly 398 days a year earlier, mainly due to gradual progress of realisation of past dues. The risk of bad debt is largely mitigated as over 60% of the orders are for government bodies and public sector enterprises. Moreover, arrangements with sub-contractors in sync with milestone payments, claims, and retention money help ease the pressure. The management’s intent to focus on collection, liquidation of claims and judicious bidding for new projects with lower working capital intensity should keep the overall working capital requirement in check.
Modest financial risk profile Large working capital intensity and low capitalisation led to high TOL/TNW ratio of over 6.2 times as on March 31, 2023, though the ratio has improved from around 7.9 times a year earlier. Higher debt of ~Rs 4,512 crore (as on June 30, 2023) amidst slow collection and operating losses strained the interest coverage ratio. However, the expectation of improvement in profitability and capital structure changes should help the level of indebtedness and debt protection metrics to improve over the near term. |
Liquidity: Strong Unencumbered cash balance of over Rs 689 crore, along with unutilized bank limits of around Rs 850 crore as on June 30, 2023, should be adequate to cover debt obligation of around Rs 553 crore for the remaining part of fiscal 2024. Liquidity is also supported by moderate utilisation of the fund-based bank limits at around 49% on average in the 12 months through July 2023 and the financial flexibility derived as part of the Tata group. |
Rating Sensitivity factors Downward factors
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About the Company TPL, incorporated in 1979, is one of India's leading EPC companies. It operates through three strategic business groups: energy and industrial infrastructure, urban infrastructure, and services. A brief profile of TPL’s business segments:
TPL is held by several Tata group companies. The largest shareholder is Tata Sons, which holds 44.49% of the subscribed equity shares of TPL. Other stakeholders include The Tata Power Company Ltd ('CRISIL AA/Stable/CRISIL A1+'; 30.81%), Tata Chemicals Ltd ('CRISIL A1+'; 6.16%), Voltas Ltd (4.3%), Tata Capital Ltd ('CRISIL AAA/Stable/CRISIL A1+'; 1.43%), Tata Industries Ltd ('CRISIL AAA/Stable/CRISIL A1+'; 1.42%) and Omega TC Holdings Pte Ltd (OTCHPL; 11.39%). OTCHPL is an investment holding company of the Tata Opportunities Fund, which is one of the private equity funds sponsored by Tata Capital Pte Ltd, Singapore.
The Tata group is a global enterprise, headquartered in India, comprising over 100 independent operating companies. |
Key Financial Indicators
NM: Not meaningful |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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Criteria Details
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