Rationale

 The rating assigned to SMS Construction (SMS) reflects the significant experience of its partners in executing electrical infrastructure projects, its established track record with over a decade of expertise in executing orders and its long-standing relationship with Karnataka Power Transmission Corporation Limited (KPTCL), which has resulted in repeat orders. The entity’s gradual diversification, including recent engagements with private-sector clients, has supported an improvement in scale, achieving a revenue compound annual growth rate (CAGR) of about 23% over the past five years, increasing to Rs. 42.1 crore in FY2025 from Rs. 18.7 crore in FY2021. Furthermore, the rating takes comfort from the adequate pending order book of approximately Rs. 164.7 crore as on December 31, 2025, which provides healthy near‑to-medium term revenue visibility. However, execution risks persist, as around 73% of the order book is in the nascent stages of execution, which is expected to be completed by FY2027. The rating is, however, constrained by SMS’ modest net worth and its vulnerability to margin pressures, given the competitive, tender-driven business model susceptible to cost fluctuations. While the revenue growth is encouraging, the scale of operations remains moderate. SMS also continues to be exposed to sectoral risks, including intense competition and the possibility of cost and time overruns. Further, the entity faces elevated geographical concentration risk, with all operations currently confined to the state of Karnataka. Moreover, the partnership constitution exposes the firm to risks such as potential capital withdrawals by partners, which could affect its capital structure and liquidity position