Rationale

 The rating factors in the established track record of KP Green Engineering Limited (KPGEL) in designing, manufacturing and fabrication of products mainly for the renewable energy, transmission and telecom verticals. The company is a part of the KP Group, which has an established track record in the renewable energy sector. The rating also considers the company’s comfortable credit profile driven by healthy revenue growth, low long-term debt and strong debt coverage metrics. The company’s revenue increased at a healthy CAGR of ~63% to Rs. 351.33 crore in FY2024 from Rs. 49.36 crore in FY2020, driven by the increase in demand for the company’s products mainly from the power sector. The order book position remains healthy at ~Rs. 403 crore as on January 01, 2025 with an execution timeline of approximately six months, indicating healthy revenue growth in the near term. Moreover, its strong association with the customers and the diversified product offerings, ensure repeat orders. ICRA notes that at present, the company is undertaking capacity expansion for the existing line of products, along with adding new products to the portfolio through the manufacturing facility being set up at Matar, Bharuch, Gujarat. The new facility will have a capacity of 2,94,000 MTPA, which is a substantial increase from the existing capacity of 53,000 MTPA. The facility is expected to be fully operational from April 2025. Most of the funding for this plant will be done from the proceeds of the Initial Public Offering (IPO) of Rs. 189.50 crore, which concluded in March 2024. The rating is, however, constrained by the company’s high client concentration risk with ~48% of the order book from the Group companies, which makes it susceptible to the overall Group performance and demand outlook, along with the transfer pricing policy amongst the Group entities. The revenue also remains dependent on the capital investments undertaken by the end-user industries and, thus, makes it susceptible to cyclicality. Further, the company’s profitability remains exposed to the adverse fluctuations in raw material prices. However, the price-variation clause in some of the contracts mitigates this risk to an extent. The rating also remains constrained by a highly fragmented and competitive industry, driven by the low capitalintensive nature of the business and limited technical knowledge required to manufacture fabricated products. The Stable outlook on the rating reflects ICRA’s opinion that KPGEL’s revenues and accruals will be supported by its healthy order book. Also, the company will continue to benefit from its established track record in the manufacturing/fabrication industry.