IVRCL Ltd is an EPC and infrastructure company established in 1987 that has become a major player in water, transportation, and power projects. However, it is facing challenges due to sluggish economic growth, high interest rates, and a debt of over Rs. 2500 crore. While the 12th Five Year Plan aims to boost infrastructure spending, IVRCL's earnings and cash flows are expected to remain weak in the short-term due to high leverage, working capital requirements, and delays in project execution. Multiple resignations from its board of directors and an instance of abandoning an incomplete project also raise concerns about management and transparency.

1. IVRCL Ltd
Business/Credit Profile
-Akhil Pawar

2. • Premier EPCC & LSTK service provider
• Est. in 1987 in Hyderabad
• Operational sectors include
– Water & Irrigation | Transportation | Buildings | Power
• Has become a major player in water transmission, waste water
management and desalination projects
• Projects also in Kuwait, Nepal, Kenya and Sri Lanka
• Listed on BSE and NSE
• Ranked #4 by sales, #5 by assets, #10 by Mkt Cap in the country

3. Operating Environment
• Sluggish economic growth (FY12/13/14/15e : 6.6%/4.5%/4.8%/6%)
• Construction has always been a major contributor (2nd largest) to India’s GDP (~11% in ‘12)
• Industry highly correlated with macro-economic conditions, hence facing challenges given the current
economic situation
• Weaker than projected performance of many PPPs and aggressive bidding undertaken for them is affecting
margins
• Given the inflationary state of the economy, interest rates have remained high, thereby increasing
financing costs
• Funding sources have dried up due to increased due diligence by lenders; Companies in this sector
account for 20% of the Corp. Debt Restructuring portfolio.
• Many big players facing issues with working capital as order book is not getting converted into turnover
• Hence WC requirements have shot up resulting in negative operational cash flows in some cases
• Compounding this is the delay in statutory clearances which impede timely completion of projects
• Restrictions on sanction and roll-overs of ST loans by RBI (May’13) further hurting liquidity of
construction companies
Construction & EPC

4. SWOT Analysis
IVRCL Ltd
Strengths Weaknesses
OpportunitiesThreats
• Sectorial Diversity of Order Book
• Market Position (#4 sales)
• Successful YTD with orders worth
Rs 3658cr bagged since Jan
• Able to divest stake in
projects and monetizing
assets
• Primarily limited to India
• Difficulty in managing WC
requirements
• More than Rs 2500cr locked in BOT
projects
• Multiple BoD resignations, including
influential personnel
• Wafer-thin margins, which
are further hampered due
to rising debt (>Rs 2500cr)
• Unfavourable directives by RBI
• Waiting for CDR of Rs 2750 to
be processed
• 12th Five Year Plan aims to invest $ 1
trillion in infra (2.3x of 11th plan)
• 48% of this spending to come from
private sector
• New central govt. is expected to
actively follow through on
investment commitments

5. Performance Trends 2011-13 (All figures in Rs crores)
5656.52
6177.96
3759.09
681.90 670.72
342.73
157.90 18.08
-101.66
10.7%
8.9%
7.4%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
-1000.00
0.00
1000.00
2000.00
3000.00
4000.00
5000.00
6000.00
7000.00
2011 2012
(15 months)
2013
(9 months)
Financial Year
Financial Performance
Revenue EBITDA Net Income EBIT Margin Peer* EBIT Margins
*Peers: Ashoka Buildcon, Gammon India, HCC, Ramky Infra, Simplex Infra (All figures for 12 month period ending Mar’31)

6. Earnings and Cash Generation
*Changes in Reporting period from 15 months in FY12 to 9 months in FY 13, hence % of revenue is used as a comparison tool.
FY13(12)
• Reported Revenues declined by -40% to Rs 3759cr (Stable on an annualized basis*)
• Construction expenses increased +2.67%
• Declining trend of EBIT margin continued, sliding to 7.4% (8.9%, peers 8.4%)
• The significantly higher debt lead to an increase in finance costs (9% of revenue vs. 7.9%)
• This impacted the already strained operating margin, with the firm reporting net loss of Rs -101cr for the
period (+18cr in FY12); margin of -2.7% (0.3%)
• Its peers (average) also posted a net loss of Rs 28cr for the 12 months till Mar’13
• Order Book for IVRCL stands at Rs 27444cr (Rs 27131cr)
• Lower EBITDA Rs 342cr with margin of 9.1% (10.9% , peers 10.8%) coupled with delays in execution & client
payments resulted in NOCF for the period being Rs 361cr (9% revenue, FY12 6.6%)
• Substantially higher working capital requirements: Net WC/Revenue 62.8% (40%)
• IVRCL also had capex of Rs 48cr in the period leading to FCF of Rs 313cr (Dividends for the year will be
discussed in the shareholders meeting on 30th May)
• The company has historically been comfortable in raising debt from external sources, though given the current
environment and the existing high financing expenses the BoD is considering a rights issue.
• Earnings and NOCF both are likely to continue on the downward trend in the ST; improvements in the macro-
economic environment over the MT/LT will have direct positive impact.

7. Debt Metrics 2011-13
3.07
3.68
7.31
105.46% 108.79% 115.47%
162.4% 109.1% 80.1%
3.96
4.84
5.52
135.1%
165.2%
191.9%
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
2011 2012
(15 months)
2013
(9 months)
Financial Year
Leverage Parameters
IBD/EBITDA Debt/Capital Interest Cover Peer IBD/EBITDA Peer Debt/Capital Peer Interest Cover

8. Leverage Analysis
*Changes in Reporting period from 15 months in FY12 to 9 months in FY 13, hence the approximation.
FY13(12)
• Debt Rs 2504cr/+1% (Rs 2470cr)
• The reduced EBITDA of the period led to a sharp rise in the leverage: Gross IBD/EBITDA 7.3x (3.7x, peers
5.5x), Net IBD/EBITDA 7x (3.5x, peers 5.3x)
• Approximating for a 12 month period in both years*, Gross IBD/EBITDA ~5.5x (4.6x), which is comparable
with the peer group avg.
• The firm is highly leveraged with a debt/cap of 115.5% (108.8%, peers 192%). Historically the firm has been
able to maintain a satisfactory balance between the two, but recent increases in debt has lead to
worsening of its capital structure.
• If the trend follows, IVRCL may hold close to Rs 3000cr of debt (on a standalone basis) by the next fiscal
year end. Given that the board is considering a rights issue in its next shareholder meeting, the debt/cap is
expected to be maintained at similar levels in the near term.
• Earnings will have to show a positive change in trend to create any meaningful impact on the IBD/EBITDA;
Highly unlikely in the ST given the prevailing high interest rates.

9. Issues to consider
Non-exec directors resign
• Mr Ella Reddy & Mr Sunil Reddy – Jan’14
• Db. L Srinivas Reddy – Sep’13
Financial stress may have caused the
company to trim down it’s board size
Incomplete projects
• BITS, Pilani – Hyderabad Campus
– Project left midway as company could
not meet the labour/material required
to meet the time period mentioned in
the contract
– Remainder of project was then awarded
to a rival firm

10. Conclusion
- Given the current macro-economic scenario, sustained positive earnings are unlikely to be seen in the
construction sector. The Operating environment section will have a modest rating standalone rating.
- For firms working with such high working capital requirements, their earnings/cash flows will mostly remain
in the low-to-negative levels.
- Policies and actions taken by the new central government will need to be closely monitored; in respect of
that, the Full Budget 2014-15 likely to be presented in July will have a lot of bearing on how and when large
infra firms like IVRCL come out of the slump.
- Inflation and therefore the interest rates are expected to moderate over the MT thus keeping the
finance/interest costs high for the current period.
- Business and Earnings section of the ratings would be modest to low as a turnaround is likely only over a
longer period of time.
- Taking into consideration the multiple and unplanned changes in the Board and previous instances where it
failed to meet the commitments, the soft parameters of Management & Transparency will also have a lower
section rating
- Overall rating assigned to IVRCL will be with a negative outlook.