BSCPL Infrastructure Limited: Analysts Contact Ratings

ICRA Credit Perspective
BSCPL INFRASTRUCTURE LIMITED

Analysts Contact
Shubham Jain
shubhamj@icraindia.com +91-124-4545306
Ratings
ICRA has reaffirmed the long-term ratings of LA (pronounced L A) assigned to the Rs. 390.82 crore term loans (enhanced from Rs. 188.0 crore), the Rs. 600.0 crore fund based limits (enhanced from Rs. 350.0 crore), the Rs. 2000.0 crore non-fund based limits (enhanced from Rs. 1910.25 crore) and the Rs. 100.0 crore Non-Convertible Debenture (NCD) programme of BSCPL Infrastructure Limited (BSCPL). ICRA has also assigned a stable outlook to these long term ratings. Further, ICRA has reaffirmed the short-term ratings of A1 (pronounced A one) assigned earlier to the Rs. 142.0 crore commercial paper programme and Rs. 43.25 crore non-fund based limits of BSCPL. (Refer Annexure for Rating History)
Abhishek Gupta
abhishek.gupta@icraindia.com +91-124-4545863
Rohit Inamdar
rohit.inamdar@icraindia.com +91-124-4545847
Relationship Contact
Jayanta Chatterjee
jayantac@icraindia.com +91-9845022459
Key Financial Indicators

31/03/08 Operating Income OPBDIT Profit after Tax Tangible Net Worth Total Debt OPBDIT/ Operating Income Profit after Tax/ Operating Income Return on Capital Employed Return on Net Worth Net Cash Accruals/Debt OPBDIT/ Interest Total Debt/ (Net Worth + Minority Interest) Net Working Capital/ Operating Income Operating Income/ Gross Block Total Debt/ OPBDITA Rs. crore Rs. crore Rs. crore Rs. crore Rs. crore % % % % % Times Times % % Times 757.0 113.4 42.8 480.9 401.5 15.0% 5.7% 14.5% 8.9% 20.1% 2.50 0.79 49.8% 168% 3.5 31/03/09 1031.5 166.7 46.4 527.2 686.7 16.2% 4.5% 13.6% 8.8% 14.2% 2.60 1.21 49.0% 166% 4.1 31/03/10 1448.7 286.2
April 2011
80.7 622.6 946.6 19.8% 5.6% 19.5% 13.0% 15.1% 2.64 1.40 53.3% 204% 3.3
Website: www.icra.in
OPBDIT: Operating Profit before Depreciation, Interest and Tax Source: Company Data
100 lakh = 1 crore = 10 million For complete rating scale and definitions, please refer ICRAs website www.icra.in or other ICRA Rating Publications
ICRA Rating Services
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BSCPL Infrastructure Limited
Key Rating Considerations Credit Strengths

Strong operating capabilities in the road construction business Healthy growth in operating income and improvement in operating margins in FY2010 Sizeable order book which provides revenue visibility over the medium term; though progress in many of the fresh projects has remained slow due to delays in land acquisition Healthy bookings and customer advances in its Chennai real-estate project reduces the funding burden on the companys balance sheet Increased working capital requirement, and capital expenditure to support high growth have resulted in relatively high gearing3 (1.40 times as on March 31, 2010) Higher exposure to Build-Operate-Transfer (BOT) segment necessitates higher capital requirement as well as results in raw-material price risk as BSCPL will be executing the contract for these BOT projects on fixed-cost, fixed-time basis. Further, the increased portfolio of BOT based projects also exposes the company to funding, execution and traffic risks. Delay in project execution due to issues in land acquisition, prolonged monsoon etc have impacted revenues in H1-FY2011, and can impact the revenue growth going forward. High competitive intensity in the industry along with rising raw-material costs and higher interest rates can put pressure on the profitability
Credit Challenges

Rating Rationale
The reaffirmation of the ratings derive comfort from BSCPLs operating strengths in the road construction segment which have helped it in registering healthy operating performance in FY2010; its sizeable order book position which provides visibility for its revenues and profits over the medium term, and improvement in bookings and collections in its real-estate project in Chennai. The ratings are, however, constrained by the competitive nature of the construction industry; anticipated pressure on the profitability margins of industry players owing to rising raw-material cost and interest rates; and BSCPLs relatively high gearing levels which stood at 1.40 times as on March 31, 2010. The ratings also take into account BSCPLs increased exposure to the BOT segment thus exposing the company to higher funding, execution, and traffic risks associated with such projects. Going forward, ICRA expects an increase in BSCPLs funding requirement, both on account of higher investments in BOT projects and the capital expenditure it would have to incur to execute its sizeable order-book. Thus the companys ability to generate sufficient cash accruals from operations will be critical in maintaining its debt coverage indicators at adequate levels.
Company Profile
Incorporated in 1981 as a partnership company, and subsequently converted into a closely held public limited company in March 1998, BSCPL is primarily engaged in the road construction business. BSCPL has attracted two rounds of Private equity investment. In FY2006, BSCPL issued fresh equity (1.19 million shares) at a premium of Rs. 695 per share to the foreign investors New Vernon and Tigerveda. In FY2008, BSCPL issued fresh equity (1.09 million shares) at a premium of Rs. 1,136 per share to Lehman Brothers, Amansa Capital, L&T group and IDFC. Post-dilution promoters stake has come down to 72%. Over the past few years, the company has completed a number of road construction contracts. BSCPL has also successfully completed projects in Afghanistan where competitive pressures are relatively lower. Over the years, BSCPL has also diversified its order-book by taking up projects in irrigation and other infrastructure sectors. Over the last one year, BSCPL has taken five more BOT road projects thus totaling its BOT portfolio to six road projects with a total cost of Rs. 5611 crore. Out of these, five projects are being developed in Joint Ventures in which BSCPL has about 50% stake whereas one project is being developed by BSCPL solely. One of the project (Kuarli-Kiratpur toll road project) is in advanced stages (COD expected in May 2011) while the remaining five projects are in initial stages with land acquisition yet to be completed. For the FY2010, BSCPL on consolidated basis registered net operating income of Rs. 1448.7 crore on which it earned a profit after tax (PAT) of Rs. 80.7 crore. As per the provisional financials, the company recorded a turnover of Rs. 585.8 crore in H1-FY2011 with a PAT of Rs. 32.4 crore.
3
Gearing = Total Debt / (Total Net-worth+ Minority Interest)
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Business and Competitive Position

Strong operating capabilities in the road construction; a sector which has significant opportunities though the competitive intensity remains high BSCPL is a strong player in the road construction sector in India a sector that has seen significant development in the last few years. BSCPL has executed a number of road construction projects across different parts of the country which has helped the company in strengthening its position in the road construction industry in India. Further, BSCPL has also executed road projects in Afghanistan which has provided it with the experience of working under a challenging situation. Over the years BSCPL has developed adequate equipment base and a high level of mechanisation which has helped it to execute many large sized road projects. Further, the companys size as measured by its balance sheet has shown considerable improvement over the past few years which has strengthened its capacity to bid for new orders and enabled it to sustain a healthy order-book position. The potential for road construction in India is high as the Government has significant infrastructure development plans. However, the industry is highly competitive with many contractors and developers engaged in the business. This results in aggressive bidding and impacts the profitability of the players.
Higher exposure to BOT segment necessitates higher capital requirement as well as results in rawmaterial price risk as BSCPL will be executing the contract for these BOT projects on fixed-cost, fixed-time basis. Further, the BOT based projects are also exposed to funding, execution and traffic (in case of toll-based projects) risks. Over the years, BSCPL has transformed from being a pure EPC (Engineering, Procurement and Construction) contractor to a mix of contractor and infrastructure developer. The shift has been more pronounced in the recent years as the company has secured four new BOT based road projects; it has been an industry-wide phenomenon as majority of the new projects by NHAI are awarded under the BOT model. The risks associated with a BOT project are higher compared to an EPC project due to funding, execution, operational, and revenue (toll) risk. In order to lower the risks, developers generally take the project financing route and promote special purpose vehicles (SPVs) to develop these projects. While this de-risks the parent to a certain extent, the investment risk remains with the parent company. Further, as the parent has to make upfront investments towards these projects whereas the returns are spread out over a longer duration, the funding requirement of a company promoting multiple BOT projects increases significantly and in the absence of sufficient equity infusion/internal accruals, the financial risk profile of the company could be adversely impacted. BSCPL currently has a portfolio of six BOT projects (Table 1) out of which the financial closure has been achieved for five projects and construction work has started at only two projects (Kurali-Kiratpur toll road project, and Godhra-MP Border toll project) primarily due to delays in land acquisition and clearances/approvals. One of the project - Kurali-Kiratpur toll road project is in advanced stages with COD expected shortly.
Table 1: Overview of BSCPLs BOT project portfolio Project Type Scope JV partner BSCPLs stake Project Size (Rs. crore) Total Equity Req. (Rs. crore) Financial Closure
Kurali Kiratpur Godhra - MP Border Mokama - Munger Muzzaffarpur - Sonbarsa Nellore - Chilakaluripet Patna - Bakthiyarpur
Toll Toll Annuity Annuity Toll Toll
4-laning 4-laning 2-laning 2-laning 6-laning 4-laning
C&C C&C C&C KMC C&C
50% 100% 50% 50% 49% 50%
408 750 444 656 2550 803
104 225 89 181 153 128
Achieved Achieved Achieved Achieved Achieved Not yet
Sources: Company Data, ICRA Research
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Each of these projects is developed under a separate SPV and the EPC work is to be executed by BSCPL (either alone or in JV). The EPC contracts for these projects are on fixed-cost, fixed-time basis which exposes BSCPL to the adverse movement in the raw-material prices. Further, about half of BSCPLs pending order-book is contributed by these BOT projects (Figure 1) which results in increased client and sectoral concentration. However, the geographical concentration of the order-book is moderate with projects located in 10 Indian states and Afghanistan.
Figure 1a, 1b, 1c: Order-book distribution by segment, project location, and client Figure 1a: Order-book by segment Figure 1b: Order-book by client Figure 1c: Order-book by state
Sizeable order-book provides revenue visibility in medium term; however, many projects in the order book are in initial stages with construction work yet to start. Delay in project execution due to issues in land acquisition, prolonged monsoon etc have impacted revenues in H1-FY2011, and can impact the revenue growth going forward BSCPLs order-book growth has picked up since FY2009 as the pending order-book has increased from Rs. 3235 crore as on March 31, 2009 to Rs. 5219 crore as on September 30, 2010. The robust growth in the order-book during this period has been aided in large measure by the higher road construction projects awarded by National Highway Authority of India (NHAI), BSCPLs operating capabilities, and strong execution track record in the road construction sector. Further, given the Governments objective of upgradation of the existing highway infrastructure in the country, significant new orders are likely to be awarded in the coming years.
Figure 2: Growth in order-book Figure 3: Projects awarded by NHAI
Sources: NHAI Data, ICRA Research
While the order-book as on September 2010 is 3.6 times the FY2010 revenues and provides revenue visibility in medium term (1-3 years), the pending order-book has many projects which have been awarded recently as a result of which significant revenue is not expected from these projects in the short term. This along with delays in land acquisition and approvals in some projects and extended monsoons in H1FY2011 (which impacted the progress in some projects) are likely to result in muted revenue growth in FY2011.
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Majority of the projects continue to be executed in joint ventures In the past BSCPL had executed many projects in joint venture (JV) with other construction companies. Majority of the work continues to be through the JV mode with the share of projects executed under this mode being 72% of BSCPLs order book as on October 31, 2010 (Figure 4). The combined expertise and resources enables the JV to secure larger projects. Moreover, this also limits the exposure to a single large project and harnesses the skills of the JV partner. However, in case of a JV, ability to maintain strong working relationships with the other JV partners is critical for the efficient completion of the project. In the current order Figure 4a, 4b: Order-book distribution by joint-venture partner book (as on Figure 4a: Order-book as on October 31, 2009 Figure 4b: Order-book as on October 31, 2010 October 31, 2010), C&C Constructions Limited (C&C) continues to be BSCPLs major JV partner with 45% of the order-book executed by BSCPL-C&C JV. BSCPL has recently entered into JV with Hyderabad based Sources: Company Data, ICRA Research KMC Constructions Ltd (KMC) for executing Chilkaluripet-Nellore Highway project. For irrigation projects, BSCPL has formed JV with Chinese company CR18G (formely China Railway 18th Bureau Co. Ltd.) and SCL (SCL Infratech Limited, formerly Srinivasa Constructions Limited). While BSCPL-C&C JV has long execution track record having worked together in many road projects in the past including projects in Afghanistan, the JV with KMC is new and the working relationships remain to be established.
Exposure to real estate; healthy bookings and customer advances in the Chennai real estate project provides comfort BSCPL on its own and through its subsidiaries is involved in multiple real estate projects in India and U.A.E. The largest real estate project is the Rs. 2000 crore integrated township project to be developed over 92 acres of land in Old Mahabalipuram Road (OMR) of Chennai. The project is being developed in two phases: Phase I (~2 million sq ft) and Phase II (~4 million sq ft). The construction for the first phase of the project started in June 2007 and is about 60% complete with about Rs. 262 crore costs incurred till September 2010. Around Rs. 360 crore of Phase I out of estimated total value of Rs. 700 crore has been booked and the company has received Rs. 172 crore of advances from customers till September 2010. The bookings and customer advances in the project have been healthy and the Phase I of the project has reached the stage from where no additional support from BSCPL is envisaged. Nevertheless, the company is exposed to market risk with respect to the un-booked space and needs to maintain healthy collection efficiency levels in the booked space. The Phase II of the project is yet to be launched. Bollineni Developers (Dubai), a Joint Venture (70:30) between BSCPL International FZE (a wholly owned subsidiary of BSCPL) and Al Gaith Building Construction LLC, Dubai, is developing residential flats under the name of Arena Apartments. The project is delayed due to weak real estate demand in Dubai.
Page 5
Financial Position
Robust growth in operating income in last five years which continued in FY2010; however, slowdown in execution due to land acquisition delays and extended monsoons expected to result in low growth in FY2011 The operating Income grew by 40.4% in FY2010 over the previous financial year, and at a CAGR of 40.8% in the last four financial years (FY2006-FY2010). The growth in revenues during the last few years has been driven by the increased expenditure of government on road and infrastructure development coupled with BSCPLs diversification into irrigation and urban infrastructure development projects. The growth in FY2010 was led by robust execution of projects in the road segment.
Figure 5: Growth in Operating Income
However, the execution in the first half of FY2011 has been impacted by prolonged monsoons and delays in land acquisition. Land acquisition continues to remain a key Sources: Company Data, ICRA Research concern in the smooth execution of orderbook and many projects in the current order book are yet to start or are progressing at a slower pace due to which the revenue growth in FY2011 is expected to be impacted.
Healthy improvement in operating margins The OPBDIT has grown at a CAGR of 37.6 % during the FY2006-FY2010 period. The growth in operating profits has been lower than the growth in operating income due to delays in some projects, competitive pressures and declining proportion of revenues from high margin Afghanistan projects. Over the years, the operating profit margins of BSCPL have been declining due to high competition in bidding and delays in projects which locks up the capital. However, the operating margins improved in FY2010 as the company mobilized resources and executed larger sized projects. The improvement in operating profitability can also be partly attributed to the completion of some projects which were delayed earlier and were blocking resources. The OPBDIT witnessed a sharp jump by 72% in FY2010, the operating margins (OPBDIT margins) of the company improved from 16.2% in FY2009 to 19.8% in FY2010, due to execution of larger sized projects during the year as well as lower raw-material costs. The net profit has grown at a slower CAGR of 29% during the FY2006-FY2010 period due to higher interest and depreciation cost. BSCPL has invested heavily in order to build capacity to enable it to bid for bigger projects. This investment has increased the debt and gross block of the company significantly leading to higher interest cost and depreciation. However, commensurate with the increase in the operating profit, the net profit also witnessed sharp growth of 74% in FY2010, though the net profit margins remain moderate at 5.6%. Going forward in the increasing interest rate scenario, the interest burden will increase and impact the net profitability.
Increased working capital intensity putting pressure on liquidity BSCPLs inventory levels have remained high as this includes real estate inventory. Excluding the real estate inventory, the inventory days were around 144 days in FY2010. The inventory days have remained high for the company because of delays in some projects thus resulting in increase in work in progress (WIP) inventory. BSCPLs net working capital / operating income (NWC/OI) remains high at 53% in FY2010 (37% excluding real estate inventory). The higher working capital intensity could put pressure on the liquidity of the company. However some comfort can be derived from the progress in the Chennai real estate project, the completion of which will release substantial funds for the company.
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Increase in gearing although coverage indicators remain comfortable BSCPLs consolidated debt increased during the year from Rs. 687 crore as on March 31, 2009 to Rs. 947 crore as on March 31, 2010. The gearing [total debt/ (tangible net worth + minority interest)] for the company stood at 1.40 times as on March 31, 2010 as compared to 1.21 times as on March 31, 2009. The consolidated financials include the toll road SPVs, the debt for which is on non-recourse basis. Excluding the SPVs, the gearing of the company increased marginally from 1.12 times as on March 31, 2009 to 1.18 times as on March 31, 2010. However, despite the increase in the gearing, ICRA takes comfort from the coverage indicators which remain adequate as reflected by the interest coverage ratio of 2.6 times and Net Cash Accruals / Debt of 20% in FY2010 (excluding SPVs). Going forward, the funding requirements of the company are set to increase considerably partly due to the investment in BOT projects and partly due to increasing capital expenditure and working capital requirements to support the growing order-book. Due to the above mentioned factors, the companys gearing can increase, thus the companys ability to generate sufficient cash accruals from operations and raise fresh equity will be critical to maintain its debt coverage indicators at adequate levels.
April 2011
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Annexure 1: Rating History

Instrument Ratings Outstanding Apr 2011 LA (stable) LA (stable) LA (stable) LA (stable) A1 A1 Previous Ratings Mar 2010 LA LA LA LA A1 A1 Dec 2009 LA LA LA LA A1 A1
Term Loans - Rs. 390.82 crore (enhanced from Rs. 188.0 crore) Fund based limits - Rs. 600.0 crore Non-fund based Limits (Long Term) - Rs. 2000.0 crore (enhanced from Rs. 1910.25 crore) Non-Convertible Debenture - Rs. 100.0 crore Commercial Paper - Rs. 142.0 crore Non-fund based Limits (Short Term) - Rs. 43.25 crore
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ICRA Limited
An Associate of Moody's Investors Service
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Copyright, 2011 ICRA Limited. All Rights Reserved. Contents may be used freely with due acknowledgement to ICRA. ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to a process of surveillance, which may lead to revision in ratings. Please visit our website (www.icra.in/www.icraratings.com) or contact any ICRA office for the latest information on ICRA ratings outstanding. All information contained herein has been obtained by ICRA from sources believed by it to be accurate and reliable. Although reasonable care has been taken to ensure that the information herein is true, such information is provided 'as is' without any warranty of any kind, and ICRA in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. All information contained herein must be construed solely as statements of opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication or its contents.
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BSCPL Infrastructure Limited: Analysts Contact Ratings

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