Press Release

C5 Engineering Private Limited

August 24, 2023

Facilities/Instruments Amount (₹ crore) Rating1 Rating Action

Long Term Bank Facilities 75.00 CARE BB; Stable Assigned
Long Term / Short Term Bank Facilities 45.00 CARE BB; Stable / CARE A4 Assigned
Details of instruments/facilities in Annexure-1.

Rationale and key rating drivers

The rating assigned to the bank facilities of C5 Engineering Private Limited (C5) is constrained by geographical and segmental
concentration of orderbook, reliance on sub-contracting for orders due to nascent stage of operation, leveraged capital structure
and debt coverage metrics due to availing vehicle loans to cater new projects and because of fragmented nature of construction
sector with tender-based nature of operations and execution challenges.
However, the rating derives strength from the vast experience of promoters, moderate scale of operation with satisfactory
profitability, satisfactory orderbook position with inbuild escalation clause in all the outstanding orders, comfortable operating
cycle with stable industry outlook and adequate liquidity position.

Rating sensitivities: Factors likely to lead to rating actions

Positive factors

• Improvement in overall gearing to below 1.50x

• Achieving operating income of Rs. 450 crore with operating margin of 12%
• Ability to effectively manage working capital utilisation.

Negative factors

• Significant elongation in working capital cycle resulting into high working capital utilization and thereby exerting pressure
on the liquidity
• Decline in operating margin below 12%

Analytical approach: Standalone

Outlook: Stable
CARE Ratings believes that the entity will continue to benefit from the extensive experience of the promoters and management
in the industry and that the entity will continue to benefit from its established relationship with the customers/suppliers.

Detailed description of the key rating drivers:

Key weaknesses
Geographic and segmental concentration risk: Majority of the outstanding orders are geographically concentrated towards
Telangana (~80%) and Maharashtra (~20%). Hence, any decrease in infrastructure spending, slowdown in growth could
adversely affect the company. Furthermore, the outstanding orders are concentrated towards OB removal work (41.87%) followed
by irrigation (33.93%) and roads & bridges (24.19%) segment.

Reliance on sub-contracting for orders: C5 was incorporated in July 2021. Hence, about 88% of the total orders are received
through back-to-back sub-contracting from Kaveri Engineering Projects Private Limited, KNR Constructions Limited, C5 Infra
Private Limited and Laurus Infra Projects Private Limited. The balance orders have been awarded directly to the company, which
was bagged through JV with SUSHEE Hitech Projects Private Limited (SUSHEE), where in the company had borrowed pre-
qualification of SUSHEE for bidding for the work, though the awarded works are executed by C5.

Leveraged capital structure and debt coverage metrics: Debt profile of C5 consists of Term loan, cash credit and unsecured
loans form promoters. Leveraged capital structure is characterised by overall gearing of 3.56x as on June 30,2023 primarily on
account of increase in term loan to cater new projects and increase in utilisation of cash credit on account of increase in scale of
operation. Going forward, capital structure is expected to be moderated due to accretion of profit and equity infusion to the extent
of Rs. 20 crore. The debt coverage indicators remain leveraged with Total Debt to GCA stands at 4.02x in FY23 (P.Y. 3.43x) and
satisfactory PBILDT interest coverage ratio stood at 4.18x in FY23 (P.Y. 13.88x).

Fragmented nature of construction sector with tender-based nature of operations and execution challenges: The
infrastructure sector in India is highly fragmented and competitive with many small and mid-sized players. This coupled with

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Complete definition of the ratings assigned are available at www.careedge.in and other CARE Ratings Ltd.’s publications

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tendering process in order procurement results in intense competition within the industry, fluctuating revenues, and restrictions
in profitability. Additionally, continued increase in execution challenges including delays in land acquisition, regulatory clearances,
aggressive bidding, interest rate risk and delays in project due to environmental clearance are other external factors that affect
the credit profile of industry players. All these are tender- based and the revenues are dependent on the ability of the company
to bid successfully for these tenders. Profitability margins come under pressure because of competitive nature of the industry.
However, the promoter’s long industry experience of nearly five decades mitigates this risk to some extent.

Key strengths
Experienced Promoters: C5 is promoted by Sushanth Chennadi (Son) and Veena Chennadi (Wife) under the guidance of
Sudhakar Rao Chennadi (Husband) and his family. C5 is closely held by the family of Sri Sudhakar Rao Chennadi, ex-MLC, Andhra
Pradesh. His family has rich experience in handling infrastructure projects in the past 4 decades under the name of Vensa
Infrastructure Limited (formerly known as CMR Projects Limited). CMR Projects Limited was established in 1970 which received
its current nomenclature in May 2015 i.e., Vensa Infrastructure Limited. It is the class 1 contractor and engaged in irrigation,
roads and buildings works.

Moderate scale of operation with satisfactory profitability: C5 was incorporated in July 2021. Hence, FY23 is the full year
of operation wherein it has achieved total operating income (TOI) of Rs. 231.52 crore as against Rs. 136.29 crore in FY22 (A) for
8-9 months of operation. In FY23 (UA), operating profit was Rs. 33.85 crore with operating margin of 14.62% and in FY22 (A),
the company booked operating profit of Rs. 12.63 crore with operating margin of 9.26%. Profit After Tax (PAT) for FY22 (A) and
FY23 (UA) stands at Rs. 7.95 crore and Rs. 15.64 crore respectively with PAT margin of around 6-7%.
C5 is venturing into over burden (OB) removal work and has bagged orders for the same. Hence, for FY24, the operating income
is expected to reach around Rs. 450 crore with an expected operating margin of 12% and PAT margin of around 6%.

Satisfactory orderbook albeit client concentration: As on June 15,2023, C5 has an outstanding order book of Rs. 1,607.29
crores which translates to 6.96x gross billing of FY23 (UA), which further indicates medium to long term revenue visibility.
Outstanding orders are majorly awarded from Kaveri Engineering Projects Private Limited of Rs. 820.32 crore (51.04%), C5-
SUSHEE Joint Venture of Rs. 352.72 crore (21.95%), KNR Construction Limited of Rs. 244.92 crore (15.24%) and balance orders
worth of 147.56 crore (9.18%) are from multiple client of which major orders are from related company i.e., C5 Infra Private
Limited. C5 to SUSHEE JV is in the ratio of 3:1. However, entire work will be carried out by C5 and BG is given by C5. C5 will pay
Rs. 4.25 crore to SUSHEE as a part of this JV. This apart, all the outstanding orders are funded through state government or
central government undertakings which mitigates counterparty credit risk.

Escalation clause for input prices in contracts: Steel, cement, concrete, diesel, bitumen, etc, are the major inputs for any
construction entity, the prices of which are volatile. However, C5 has a price escalation clause in all civil construction projects,
wherein, the burden of price increase is marked-up in the billing to the client.

Comfortable operating cycle: Company had comfortable operating cycle in FY23 with average receivables days of 26 days (42
days including retention money), inventory days of 69 days (63 days of WIP) which was offset by better credit terms with its
vendors of 106 days which resulted in negative operating cycle.

Stable demand outlook due to the thrust of the government on infrastructure development: Growth in infrastructure
is critical for the development of the economy and hence, the construction sector assumes a significant role. The sector was
marred by varied challenges during the last few years on account of economic slowdown, regulatory changes and policy paralysis
which had adversely impacted the financial and liquidity profile of players in the industry coupled with the Covid-19 pandemic.
The Government of India has been undertaking several steps for boosting infrastructure development and reviving the investment
cycle in the segment, which was facing a slowdown for the past couple of years. The same is expected to drive growth
opportunities, subject to the availability of adequate working capital. Thrust of the government on infrastructure development is
expected to augur well for construction players with low leverage and demonstrated execution capabilities, in the medium term.
The government initiatives in road construction such as a build-up of new rural roads and gradation of existing rural roads,
broadening of national highways and providing connectivity to tribal areas, has offered various opportunities for construction
companies. The India Infrastructure Sector Market is anticipated to register a CAGR of more than 8.2% over the next five years.
Further, as per the budget for 2023-24, there has been an increase in capital expenditure on infrastructure investment by Rs.33
crore i.e., Rs.10 lakh crore for 2023-24, which is 3.3% of GDP.

Liquidity: Adequate
Adequate liquidity is marked by generation of gross cash accruals of Rs. 20.49 crore as against repayment of Rs. 16.05 crore in
FY24. However, working capital utilisation is higher at about 100% of the drawing power for month ended March 2023 as the
company is not taken any mobilisation advances for execution of projects. This, apart C5 has cash and bank balances to the tune
of Rs. 3.81 crore.
Assumptions/Covenants: Not Applicable

Environment, social, and governance (ESG) risks : Not Applicable

Applicable criteria

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Policy on default recognition

Financial Ratios – Non financial Sector
Liquidity Analysis of Non-financial sector entities
Rating Outlook and Credit Watch
Short Term Instruments
Construction
Policy on Withdrawal of Ratings

About the company and industry

Industry classification
Macro Economic Indicator Sector Industry Basic Industry
Industrials Construction Construction Civil Construction

C5 Engineering Private Limited (C5), incorporated on July 02,2021 with registered office at Hyderabad, Telangana. C5 is promoted
by Sushant Chennadi and Veena Chennadi. C5 undertakes civil, infrastructure and irrigation projects. The company is eligible for
special class contractor registration, and it had applied for the same.
Brief Financials (₹ crore) March 31, 2022 (A) March 31, 2023 (UA) Q1FY24 (UA)
Total operating income 136.29 231.52 40.64
PBILDT 12.63 33.85 8.94
PAT 7.95 15.64 2.59
Overall gearing (times) 3.86 2.88 3.56
Interest coverage (times) 13.88 4.18 NA
A: Audited UA: Unaudited NA: Not Available; Note: ‘the above results are latest financial results available’

Status of non-cooperation with previous CRA: Not Applicable

Any other information: Not Applicable

Rating history for last three years: Please refer Annexure-2

Covenants of rated instrument / facility: Detailed explanation of covenants of the rated instruments/facilities is given in
Annexure-3

Complexity level of various instruments rated: Annexure-4

Lender details: Annexure-5

Annexure-1: Details of instruments/facilities

Maturity Size of the Rating Assigned

Name of the Date of Issuance Coupon
ISIN Date (DD-MM- Issue along with Rating
Instrument (DD-MM-YYYY) Rate (%)
YYYY) (₹ crore) Outlook
Fund-based -
- - - 30.00 CARE BB; Stable
LT-Cash Credit
Fund-based -
- - 31-03-2026 45.00 CARE BB; Stable
LT-Term Loan
Non-fund-
based - LT/ CARE BB; Stable /
- - - 45.00
ST-Bank CARE A4
Guarantee

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Annexure-2: Rating history for the last three years

Current Ratings Rating History
Date(s) Date(s) Date(s) Date(s)
Name of the and and and and
Amount
Sr. No. Instrument/Bank Rating(s) Rating(s) Rating(s) Rating(s)
Type Outstanding Rating
Facilities assigned assigned assigned assigned
(₹ crore)
in 2023- in 2022- in 2021- in 2020-
2024 2023 2022 2021
CARE
Fund-based - LT-
1 LT 30.00 BB;
Cash Credit
Stable
CARE
Non-fund-based -
BB;
2 LT/ ST-Bank LT/ST* 45.00
Stable /
Guarantee
CARE A4
CARE
Fund-based - LT-
3 LT 45.00 BB;
Term Loan
Stable
*Long term/Short term.

Annexure-3: Detailed explanation of covenants of the rated instruments/facilities : Not Applicable

Annexure-4: Complexity level of the various instruments rated

Sr. No. Name of the Instrument Complexity Level
1 Fund-based - LT-Cash Credit Simple
2 Fund-based - LT-Term Loan Simple
3 Non-fund-based - LT/ ST-Bank Guarantee Simple

Annexure-5: Lender details

To view the lender wise details of bank facilities please click here

Note on the complexity levels of the rated instruments: CARE Ratings has classified instruments rated by it on the basis
of complexity. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any
clarifications.

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Contact us

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Phone: +91-22-6754 3596 Phone: +91-80- 46625555
E-mail: [email protected] E-mail: [email protected]

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Assistant Director
Ramesh Bob A CARE Ratings Limited
Director Phone: +91-040 40102030
CARE Ratings Limited E-mail: [email protected]
Phone: +91 90520 00521
E-mail: [email protected] Parth Mehta
Analyst
CARE Ratings Limited
E-mail: [email protected]

About us:
Established in 1993, CARE Ratings is one of the leading credit rating agencies in India. Registered under the Securities and
Exchange Board of India, it has been acknowledged as an External Credit Assessment Institution by the RBI. With an equitable
position in the Indian capital market, CARE Ratings provides a wide array of credit rating services that help corporates raise capital
and enable investors to make informed decisions. With an established track record of rating companies over almost three decades,
CARE Ratings follows a robust and transparent rating process that leverages its domain and analytical expertise, backed by the
methodologies congruent with the international best practices. CARE Ratings has played a pivotal role in developing bank debt
and capital market instruments, including commercial papers, corporate bonds and debentures, and structured credit.

Disclaimer:
The ratings issued by CARE Ratings are opinions on the likelihood of timely payment of the obligations under the rated instrument and are not recommendations to
sanction, renew, disburse, or recall the concerned bank facilities or to buy, sell, or hold any security. These ratings do not convey suitability or price for the investor.
The agency does not constitute an audit on the rated entity. CARE Ratings has based its ratings/outlook based on information obtained from reliable and credible
sources. CARE Ratings does not, however, guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions
and the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE Ratings have paid a credit rating fee,
based on the amount and type of bank facilities/instruments. CARE Ratings or its subsidiaries/associates may also be involved with other commercial transactions with
the entity. In case of partnership/proprietary concerns, the rating/outlook assigned by CARE Ratings is, inter-alia, based on the capital deployed by the
partners/proprietors and the current financial strength of the firm. The ratings/outlook may change in case of withdrawal of capital, or the unsecured loans brought
in by the partners/proprietors in addition to the financial performance and other relevant factors. CARE Ratings is not responsible for any errors and states that it has
no financial liability whatsoever to the users of the ratings of CARE Ratings. The ratings of CARE Ratings do not factor in any rating-related trigger clauses as per the
terms of the facilities/instruments, which may involve acceleration of payments in case of rating downgrades. However, if any such clauses are introduced and
triggered, the ratings may see volatility and sharp downgrades.

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