Crisil Ratings stated that the ratings reflect the strong business profile of Afcons (part of Shapoorji Pallonji Group), demonstrated by its established track record and ability to execute complex infrastructure engineering projects in India and overseas.
Aided by robust order inflow of Rs 12,677 crore in the first half of fiscal 2025, the company had an order book of Rs 34,152 crore as of September 2024 across the urban infrastructure, hydro and underground including water and irrigation projects, surface transport, marine, and oil and gas segments.
Around 83% of the order book is domestic, while around 17% is overseas and involves varied counterparties. This level of diversification shall reduce risk associated with a particular segment, geography or counterparty.
As of September 2024, around 50% of the order book was in early stages of execution with less than 10% completion, on account of the recent order inflow. However, given the company’s track record of timely project execution, the risk of delays in these projects is expected to be low.
The company exhibits healthy operating efficiency, as reflected in the double-digit operating margin on a sustained basis and strong return on capital employed (RoCE) of more than 17% in the past five years.
However, the company has sizeable receivables under arbitration and contract assets, pertaining to uncertified work in four projects. While this is owing to the nature of engineering, procurement and construction (EPC) business and is typical for players across the industry, it will be monitorable from a credit risk standpoint.
The company has maintained average cash and equivalent of more than Rs 600 crore from fiscal 2020 onwards, which supports its financial flexibility. The company has access to fund-based working capital limits with average utilisation of 75% over the past 12 months, providing an additional cushion of around Rs 630 crore.
Financial flexibility is also aided by available lines of interest-free mobilisation advances of Rs 500 crore not yet tapped by the company.
These rating strengths are partially offset by large working capital requirement in the EPC business, moderate leverage indicators, delays in realisation of arbitration receivables and pending certification of bills in a few projects.
Afcons Infrastructure construction and engineering company involved in infrastructure projects across elevated and underground metro, bridges, roads, tunnels, ports and marine works, and oil and gas. Shapoorji Pallonji Group holds 50.17% in Afcons, with Goswami Infratech Pvt Ltd holding 25.03%, Shapoorji Pallonji and Company Pvt Ltd (SPCPL) holding 15.41% and the remaining held by other promoter entities.
For the first half of fiscal 2025, the company reported revenue of Rs 6,114 crore and profit after tax of Rs 227 crore against Rs 6,505 crore and Rs 195 crore, respectively, for the corresponding period of last fiscal.
The scrip fell 2% to currently trade at Rs 451.05 on the BSE.