March 27, 2024

Afcons Infrastructure Limited: Ratings reaffirmed for CP and Bank Facilities; Rated
amount enhanced; Ratings reaffirmed and withdrawn for NCD
Summary of rating action

Previous Rated Amount Current Rated Amount

Instrument* Rating Action
(Rs. crore) (Rs. crore)
[ICRA]A+(Stable); reaffirmed and
Non-convertible debenture programme 300.0 300.0
withdrawn
Long Term - Fund-Based – Term Loan 1,200.0 970.0 [ICRA]A+(Stable); reaffirmed
[ICRA]A+(Stable); reaffirmed and
Long-Term – Fund-Based Facilities 1,400.0 1,900.0
assigned for enhanced amount
[ICRA]A+(Stable); reaffirmed and
Long-Term – Non-Fund Based Facilities 13,250.0 17,490.0
assigned for enhanced amount
Short-term – Fund-based term loans 712.0 0.0 -
[ICRA]A1; reaffirmed and assigned
Short-term – Non-fund based facilities 1,238.0 1,600.0
for enhanced amount
Commercial paper 900.0 900.0 [ICRA]A1; reaffirmed

Total 19,000.0 23,160.0

*Instrument details are provided in Annexure-I

Rationale

ICRA has withdrawn the outstanding rating of Rs 300 crore of Afcons Infrastructure Limited (AIL) as there is no amount
outstanding against the same. This is in accordance with ICRA’s policy on withdrawal.

The ratings for Afcons Infrastructure Limited (AIL) continues to favourably factor in the longstanding track record of its
operations in executing complex infrastructure projects, its large scale of operations, diversified order book across segments,
clientele and geographies. It had a healthy order book position of ~Rs. 32,556 crore (excluding L1) as on December 31, 2023
(2.6 times of FY2023 revenues) providing strong medium-term revenue visibility. The operating income (OI) recorded a
compounded annual growth rate (CAGR) of 14.04% over the last five years ending FY2023, with a year-on-year (YoY) growth
of 10.6% in H1 FY2024 to Rs. 6,509.7 crore, backed by healthy pick up in execution. ICRA expects the growth momentum in OI
to continue with expected annual revenue growth of 13%-15% and operating margins to remain stable at ~10% over the
medium term. AIL has a diversified order book across segments (metro and urban infrastructure works, tunnelling and hydro
projects, surface transport, marine and oil and gas), geographies (domestic orders spread across 15 states, accounting for 74%
and international orders spread across five countries, constituting 26%) and reputed clientele.

The ratings, however, are constrained by the moderately leveraged capital structure and moderate coverage indicators,
although the same has substantially improved from FY2020 levels. High creditors (which funded part of the current assets viz.
contractual variations and high amount of arbitration receivables) along with sizeable mobilisation advances resulted in
adjusted1 TOL/TNW of 3.4 times and 3.7 times and moderate interest cover of 3.0 times and 2.4 times as on March 31, 2023
and September 30, 2023, respectively. Around 26% of AIL’s total receivables as on September 30, 2023, included arbitration
receivables2 (which have been awarded but yet to be received), while ~23% of unbilled revenue is towards contractual
variations. Timely realisation of unbilled revenue and arbitration receivables would be crucial. Notwithstanding the

1 Adjusted for arbitration receivables realised against submission of bank guarantees which the company has classified as ‘advances due to customers’ pending
final settlement of the claim. Reported TOL/TNW stands at 3.5 times as on March 31, 2023 and 3.8 times as on September 30, 2023.

2 The company has however realised Rs.323 Crores under the NITI Aayog circular for release of 75% against submission of Bank Guarantee.

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 contingencies built-in, the fixed-price nature of contracts for international orders exposes AIL’s profitability to any sharp
movement in input prices. Its ability to execute the projects within the budgeted costs would remain important to maintain its
profitability. Although AIL’s order book comprises technically complex projects, the operating margins remained over 9%
during the five years ending FY2023; the same stood at 10.7% in FY2023 and 9.9% in H1 FY2024 and are expected to sustain at
similar levels going forward. Going forward, the improvement in profitability margins, leverage and coverage indicators
remains a key rating sensitivity.

ICRA takes note of AIL’s plan to undertake capital expenditure of Rs. 1,900 crore - Rs. 2,000 crore in the next two years (FY2024
and FY2025), mainly towards buying tunnel boring machines for its recently awarded high speed rail project and the same is
likely to be funded via foreign currency loan. ICRA also notes that AIL has outstanding advances to the parent company,
Shapoorji Pallonji and Company Private Limited (SPCPL), of ~Rs. 270 crore as on September 30, 2023, which were given for
station development works for its metro projects. However, AIL completed these works on its own due to delay in execution
from SPCPL. The management has guided that the said advances are expected to be recovered from SPCPL by June 2024 end
and there will not be any incremental support/advances to any of the SP Group entities.

The ratings factor in the stiff competition in the construction sector and the inherent exposure to sizeable contingent liabilities
in the form of bank guarantees (BG), mainly for contractual performance, mobilisation advance and security deposits. While
39% of the order book as on December 31, 2023 is in early stages of execution (with less than 15% progress) and 31% of
projects are yet to commence construction, most of these have been awarded recently. Given AIL’s strong execution
capabilities, the projects are expected to be completed on time and the risk of BG invocation is low.

ICRA notes the change in shareholding of AIL, post conversion of cumulative convertible preference shares (CCPS), resulting in
majority (72.35%) shareholding being held by Goswami Infratech Private Limited (GIPL) (nil as on March 2023) and 16.64%
being held by SPCPL (March 2023: 68.23%) as on date. That said, at group level, AIL remains majority owned by SP Group
(holding 99.48%).

The Stable outlook on the long-term rating reflects ICRA’s expectations that the company would continue to benefit from
healthy and well diversified order book position, strong execution capabilities and established relationship with reputed
clientele.

Key rating drivers and their description

Credit strengths

Healthy order book position providing medium-term revenue visibility – The company has a healthy order book position of
~Rs. 32,556 crore (excluding L1) as on December 31, 2023 (2.6 times of FY2023 revenues) providing strong medium-term
revenue visibility. Its OI witnessed a CAGR of 14.04% over the last five years ending FY2023, with a year-on-year (YoY) growth
of 10.6% in H1 FY2024 to Rs. 6,509.7 crore, backed by healthy pick up in execution.

Diversified order book – The order book is well diversified across segments – metro and urban infrastructure works (39%),
tunnelling and hydro projects (25%), Special projects (11%), surface transport (rail, road, and bridges –10%), marine and
industrial (9%), as well as oil and gas (6%) as on December 31, 2023. Further, the order book is geographically diversified with
domestic orders (spread across fifteen states) constituting 74% and international order (spread across five countries)
contributing to 26% of the unexecuted order book as on December 31, 2023. The order book is fairly diversified in terms of
projects and clients, with the top three clients contributing 33% to the total unexecuted order book and the top 10 orders
accounting for 55% of the unexecuted order book as on December 31, 2023.

Established track record and strong execution capabilities – AIL has a long track record of operations spanning over six
decades, driven by an experienced management and demonstrated capabilities in executing complex infrastructure projects.
The ratings derive strength from the expertise of its managerial and technical personnel heading the key business verticals
supporting its order execution.

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 Credit challenges

Moderately leveraged capital structure and moderate coverage indicators – High creditors (which funded part of the current
assets viz. contractual variations and high amount of arbitration receivables) along with sizeable mobilisation advances
resulted in adjusted TOL/TNW of 3.4 times and 3.7 times and moderate interest cover of 3.0 times and 2.4 times as on March
31, 2023 and September 30, 2023, respectively. Around ~26% of AIL’s total receivables as on September 30, 2023, included
arbitration receivables (which have been awarded but yet to be received), while 23% of unbilled revenue is towards contractual
variations. Timely realisation of unbilled revenue and arbitration receivables would be crucial.

About 39% of order book is in early stages of execution – AIL’s revenue remains exposed to inherent time and cost overrun
risks, given the complex nature of the projects being executed. While 39% of the order book as on December 31, 2023 is in
early stages of execution (with less than 15% progress) and 31% of projects are yet to commence construction, most of these
have been awarded recently. Given AIL’s strong execution capabilities, the projects are expected to be completed on time and
the risk of BG invocation is low.
Profitability susceptible to variation in input prices, as overseas contracts are on fixed-price basis – Notwithstanding the
contingencies built-in, the fixed-price international contracts expose AIL’s profitability to any sharp movement in input prices.
Its ability to execute the projects within the budgeted costs would remain important to maintain its profitability. Although
AIL’s order book comprises technically complex projects, the operating margins remained over 9% during the five years ending
FY2023; the same stood at 10.7% in FY2023 and 9.9% in H1FY2024 and are expected to sustain at similar levels going forward.
Going forward, the improvement in profitability margins, leverage and coverage indicators remains a key rating sensitivity.

Liquidity position: Adequate

AIL’s liquidity profile remains adequate, with unencumbered cash and bank balance of ~Rs. 660 crore as on September 30,
2023. The average fund-based utilisation for the past twelve months ending on September 30, 2023 stood at 77% with cushion
of ~Rs. 400 crore in working capital limits. The company has also secured enhancement in working capital limits, further
supporting the liquidity profile. The company has debt repayment of Rs. 214crore in FY2025, which can be serviced comfortably
from its estimated cash flow from operations.

Rating sensitivities

Positive factors – ICRA could upgrade the ratings if there is a sustained improvement in profitability margins, along with
reduction in working capital intensity, thereby resulting in material improvement in leverage and coverage metrics.

Negative factors – Negative pressure on AIL’s ratings could emerge if the cash accruals materially decline or deterioration in
working capital intensity adversely impacts its liquidity position or debt protection metrics. The ratings may be downgraded if
there is a material increase in financial support extended to the SP Group (including significantly higher-than-anticipated
dividend payouts).

Analytical approach

Analytical Approach Comments

Corporate Credit Rating Methodology
Applicable rating methodologies Rating Methodology - Construction
Policy on Withdrawal of Credit Ratings
Parent/Group support Not Applicable
For arriving at the ratings, ICRA has considered consolidated financials of AIL. The list of
Consolidation/Standalone
companies that are consolidated to arrive at the ratings are given in Annexure II.

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 About the company

AIL, incorporated in 1976 as Asia Foundations and Constructions Limited, is a reputed construction entity and is a part of the
SP Group, which holds majority stake of 99.48%% in the company. It operates in diverse segments such as marine works
(including construction of jetties and dry docks), offshore oil and gas, bridges and flyovers, road construction, hydro and
tunnelling, pipe laying and general civil engineering works. AIL commenced operations as a civil construction firm in 1959 and
was initially involved in constructing specialised foundation activities, such as pile foundations, diaphragm walls, geotechnical
investigations, drilling and grouting. It entered the marine segment in 1963 and subsequently undertook design and build
contracts. Over the years, AIL has increased its presence geographically and has executed projects across fifteen Indian states,
in addition to overseas projects in 14 countries. ICRA notes the change in shareholding of AIL, post conversion of cumulative
convertible preference shares (CCPS) held by Goswami Infratech Private Limited (GIPL), resulting in majority (72.35%)
shareholding being held by GIPL (nil as on March 2023) and 16.64% being held by SPCPL (March 2023: 68.23%) as on date. That
said, at group level, AIL remains majority owned by SP Group.

Key financial indicators (audited)

AIL – Consolidated FY2022 FY2023 H1 FY2024*

Operating income 11,048.6 12,654.8 6,509.7
PAT 357.6 410.9 195.1
OPBDIT/OI 8.8% 10.7% 9.9%
PAT/OI 3.2% 3.2% 3.0%
Total outside liabilities/Tangible net worth (times) 3.8 3.5 3.8
Total debt/OPBDIT (times) 1.7 1.2 2.2
Interest coverage (times) 2.3 3.0 2.4
Source: Company, ICRA Research; * Provisional numbers; All ratios as per ICRA’s calculations; Amount in Rs. crore
PAT: Profit after tax; OPBDIT: Operating profit before depreciation, interest, taxes and amortisation

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for past three years

Chronology of rating history

Current rating (FY2024)
for the past 3 years
Amount Date &
Amount Date & rating Date & rating
Instrument outstanding as Date & rating in FY2024 rating in
rated in FY2022 in FY2021
Type on March FY2023
(Rs.
31,2023
crore) Mar 27, 2024 Sep 29 2023 Sep 1, 2022 Oct 29, 2021 Oct 26, 2020
(Rs. crore)
[ICRA]A+
Long (Stable); [ICRA]A+ [ICRA]A+ [ICRA]A+ [ICRA]A+
1 NCD 300.0 0.0
Term reaffirmed and (Stable) (Stable) (Negative) (Negative)
withdrawn
Long [ICRA]A+ [ICRA]A+ [ICRA]A+ [ICRA]A+ [ICRA]A+
2 Term loan 970.0 672.0
Term Stable) Stable) (Stable) (Negative) (Negative)
Long [ICRA]A+ [ICRA]A+ [ICRA]A+ [ICRA]A+ [ICRA]A+
3 Cash credit 1,900 -
Term (Stable) (Stable) (Stable) (Negative) (Negative)
Non-fund Long [ICRA]A+ [ICRA]A+ [ICRA]A+ [ICRA]A+ [ICRA]A+
4 17,490.0 -
based (BG/LC) Term (Stable) (Stable) (Stable) (Negative) (Negative)
Short-term Short
5 0.0 - - [ICRA]A1 [ICRA]A1 [ICRA]A1 [ICRA]A1
loans Term

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 Non-fund Short
6 1,600.0 - [ICRA]A1 [ICRA]A1 [ICRA]A1 [ICRA]A1 [ICRA]A1
based (BG/LC) Term
Commercial Short
7 900.0 0.0 [ICRA]A1 [ICRA]A1 [ICRA]A1 [ICRA]A1 [ICRA]A1
paper Term

Complexity level of the rated instruments

Instrument Complexity Indicator

Non-convertible debenture programme Simple
Long term - Fund-based – Term loan Simple
Long-term – Fund-based facilities Simple
Long-term – Non-fund based facilities Very Simple
Short-term – Non-fund based facilities Very Simple
Commercial paper Simple

The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated.
It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument's
credit rating. It also does not indicate the complexity associated with analysing an entity's financial, business, industry risks or
complexity related to the structural, transactional or legal aspects. Details on the complexity levels of the instruments are
available on ICRA’s website: Click Here

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 Annexure I: Instrument details

Date of Coupon Amount Rated Current Rating and

ISIN Instrument Name Maturity
Issuance Rate (Rs. crore) Outlook
Non-convertible [ICRA]A+ (Stable);
NA Yet to be placed NA NA 300.0
debenture programme reaffirmed and withdrawn
NA Fund-based – Term loan February 2017 NA April 2029 970.0 [ICRA]A+ (Stable)
Long-term – Fund-based
NA NA NA NA 1,900.0 [ICRA]A+ (Stable)
facilities
Long-term – Non-fund-
NA NA NA NA 17,490.0 [ICRA]A+ (Stable)
based facilities
Short-term – Non-fund-
NA NA NA NA 1,600.0 [ICRA]A1
based facilities
NA Commercial paper Yet to be placed NA NA 900.0 [ICRA]A1
Source: Company

Please click here to view details of lender-wise facilities rated by ICRA

Annexure II: List of entities considered for consolidated analysis

Company Name Ownership Consolidation Approach

Hazarat and Company Private Limited 100% Full consolidation
Afcons Corrorsion Protection Private Limited 100% Full consolidation
Afcons Hydrocarbons Engineering Private Limited 100% Full consolidation
Afcons Oil & Gas Services Private Limited 74% Full consolidation
Afcons Infrastructures Kuwait for Building, Road and Marine Contracting WLL 49% Full consolidation
Afcons Construction Mideast LLC 100% Full consolidation
Afcons Gulf International Projects Services FZE 100% Full consolidation
Afcons Mauritius Infrastructure Limited 100% Full consolidation
Afcons Overseas Singapore Pte Limited 100% Full consolidation
Afcons Infra Projects Kazakhstan LLP (Step Down Subsidiary) 100% Full consolidation
Afcons Saudi Constructions LLC 100% Full consolidation
Afcons Overseas Project Gabon SARL (Step Down Subsidiary) 100% Full consolidation
Source: Company

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 ANALYST CONTACTS
Rajeshwar Burla Ashish Modani
+91 40 6939 6443 +91 20 6606 9912
[email protected] [email protected]

Chintan Dilip Lakhani Rohit Agarwal

+91 22 6169 3345 +91 22 6169 3329
[email protected] [email protected]

RELATIONSHIP CONTACT
L. Shivakumar
+91 22 6114 3406
[email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
[email protected]

Helpline for business queries

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)

[email protected]

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
companies as an independent and professional investment Information and Credit Rating Agency.

Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company,
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For more information, visit www.icra.in

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