Rationale

The reaffirmation of ratings for Aarvee Associates Architects Engineers & Consultants Pvt. Ltd. (AAPL) factors in the healthy growth in operating income (OI) of 15.9% in FY2024, supported by healthy order execution, coupled with expectation of sustenance of the same in the near term on the back of a strong order book (OB) position of Rs. 1,800 crore as on August 31, 2024, which translates to an (OB/OI) of 3.1 times. The financial risk profile remains healthy with TOL/TNW of 0.4 times as on March 31, 2024, and interest cover of 8.2 times in FY2024. The same is expected to remain strong due to healthy operating margins and low leverage levels. The ratings note AAPL’s strong operational track record in providing consultancy services across diverse sectorsincluding highways, railways, water supply, irrigation and urban infrastructure, among others, diversified order book profile and reputed client profile comprising the National High Speed Rail Corporation Limited (NHSRCL), Chennai Metro Rail Limited (CMRL), Rail Vikas Nigam Limited (RVNL), National Highway Authorities of India (NHAI), Ministry of Road Transport and Highways (MoRTH), and Dedicated Freight Corridor Corporation of India (DFCCIL), etc. The ratings are, however, constrained by the company’s high working capital intensive nature of business owing to elongated receivable cycle with sizeable debtors at Rs. 67.2 crore (46% of total debtors) over six months as on March 31, 2024. Although it declined to Rs. 48.7 crore as on October 31, 2024, Rs. 26.21 crore is likely to be written off in FY2025, due to non-payment by an export client based out of Africa. Therefore, any material write-offs/provisioning towards debtors impacting the financial profile materially on an ongoing basis remains a key monitorable. The ratings are constrained by the intense competition prevailing in the domestic engineering consultancy business, as characterised by the presence of several large and established consulting players, leading international consultants and numerous boutique firms, which limits the pricing flexibility. ICRA notes the employee-intensive nature of the consulting business, and the challenges associated with the retention of key personnel, mainly in times of business buoyancy. The Stable outlook on the company’s long-term rating reflects ICRA’s opinion that AAPL would benefit from its strong order book position, healthy execution capability and comfortable leverage and coverage metrics in absence of any debt-funded capex plans.