ArMee plans ₹155 crore deposits as guarantee limits near exhaustion

ArMee plans to use ₹155 crore of net issue proceeds for fixed deposits that support performance bank guarantees, or PBGs, after utilizing ₹124.3747 crore of its ₹125.40 crore sanctioned non-fund-based limits at March 31, 2026. The plan addresses the upfront collateral required to execute government-linked, IT infrastructure and renewable-energy contracts.

Why does ArMee plan ₹155 crore of deposits for performance guarantees?

ArMee plans ₹155 crore of fixed deposits because PBGs are required at the beginning of many contracts and are secured by deposits held as bank collateral. A PBG is a bank-backed commitment that a contractor will perform its contractual obligations, while an earnest money deposit, or EMD, supports a bid. ArMee says PBGs typically range from 3% to 10% of project value, with most current projects requiring 5% of the order value, including goods and services tax.

ArMee proposes to deploy ₹90 crore for this purpose in Fiscal 2027 and ₹65 crore in Fiscal 2028. The proposal is the largest identified allocation from net proceeds, ahead of ₹60 crore for working-capital requirements and ₹6.50 crore for prepayment or repayment of borrowings. The amount for general corporate purposes will not exceed 25% of the amount raised and will be finalised after the issue price is determined.

The need for deposits arises from the timing of project execution. ArMee says PBGs may remain valid beyond project completion because of warranty obligations and are valid for an average of close to five years. Revenue accrues over a project’s life, but the related PBG and its underlying fixed deposit must be arranged when the contract is awarded, creating an upfront liquid-funds requirement.

How close is ArMee to its available guarantee capacity?

ArMee had utilized 99.18% of its sanctioned non-fund-based limits at March 31, 2026. The company had ₹125.40 crore of sanctioned facilities for PBGs and EMDs, of which ₹124.3747 crore had been used, leaving ₹1.0253 crore unutilised. These facilities are particularly relevant to contracts involving government and public-sector undertaking, or PSU, clients.

Once available limits are exhausted, ArMee says it must provide 100% security coverage through fixed deposits to obtain further PBGs or EMDs. The proposed deposits are therefore intended to provide collateral against which banks may issue guarantees. This mechanism means the company’s ability to bid for or service larger projects depends on both contract awards and the availability of banking facilities or liquid deposits.

Fixed deposits tied to bank guarantees rose to ₹38.0516 crore at March 31, 2026 from ₹27.3059 crore at March 31, 2025 and ₹25.4118 crore at March 31, 2024. Outstanding PBGs rose to ₹74.5338 crore at March 31, 2026, compared with ₹54.3955 crore a year earlier, while the stated holding period was 10 days in Fiscal 2026, against eight days in Fiscal 2025.

What project pipeline is behind ArMee’s projected PBG needs?

ArMee projects PBG requirements of ₹373.6767 crore across Fiscal 2027 and Fiscal 2028, based on expected orders worth ₹7,243.1702 crore where PBGs may be required. The projected guarantees equal 5.16% of the expected order value, including goods and services tax, matching ArMee’s stated historic average PBG rate.

For Fiscal 2027, ArMee expects ₹5,270.475 crore of orders requiring PBGs and estimates PBGs of ₹264.7257 crore, or 5.02% of order value. For Fiscal 2028, it expects ₹1,972.6952 crore of such orders and ₹108.951 crore of PBGs, or 5.52%. The ₹155 crore fixed-deposit allocation is intended as collateral support for this requirement, rather than a statement that deposits equal the face value of guarantees issued.

The historical pattern changed across the last three fiscal years. Contract value of projects awarded where PBGs were advanced was ₹646.6732 crore in Fiscal 2026, compared with ₹314.4255 crore in Fiscal 2025 and ₹1,151.2744 crore in Fiscal 2024. PBGs issued fell to ₹15.3184 crore in Fiscal 2026 from ₹20.5911 crore in Fiscal 2025 and ₹61.0758 crore in Fiscal 2024, moving the PBG-to-order-value ratio from 5.31% to 6.55% and then 2.37%.

ArMee attributes the projected increase in order values and PBG requirements to renewable-energy expansion as well as IT infrastructure and IT managed-services growth. Engineering, procurement and construction, or EPC, solar contracts and solar projects under power purchase agreements, or PPAs, generally have higher contract values than ArMee’s IT infrastructure activities. Battery energy storage system, or BESS, projects accounted for ₹595.1837 crore, or 22.35%, of the ₹2,663.4435 crore order book at June 30, 2026.

How much does government-linked business affect ArMee’s collateral needs?

ArMee remains dependent on government and PSU end customers, a category for which PBGs are generally issued. Direct revenue from government and PSU clients represented 22.99% of revenue from operations in Fiscal 2026, compared with 57.47% in Fiscal 2025 and 90.96% in Fiscal 2024. ArMee says the change in direct classification does not by itself indicate a comparable fall in government-linked end demand.

Including projects where government or PSU bodies were end customers but revenue was booked through empanelled private partners, government-linked revenue represented 83.84% of Fiscal 2026 revenue, 90.91% in Fiscal 2025 and 90.96% in Fiscal 2024. ArMee says ₹849.808 crore of Fiscal 2026 revenue and ₹439.2222 crore of Fiscal 2025 revenue related to such partner-routed projects. Under the stated contract terms for those projects, ArMee did not issue PBGs.

The distinction affects collateral demand because a project with a government or PSU end customer may be contracted through a partner that furnishes the relevant guarantee structure. Revenue from clients other than direct government or PSU clients rose to ₹1,075.4722 crore, or 77.01% of revenue from operations, in Fiscal 2026 from ₹92.2674 crore, or 9.04%, in Fiscal 2024. ArMee attributes much of that increase to the route through which government-linked projects were contracted and paid.

What other funding needs could affect the deposit plan?

ArMee’s proposed fixed-deposit allocation sits alongside higher working-capital requirements. Net working capital, calculated by ArMee as specified current assets less specified current liabilities and excluding borrowings, rose to ₹157.1193 crore at March 31, 2026 from ₹122.7708 crore at March 31, 2025 and ₹57.5762 crore at March 31, 2024.

Revenue from operations increased from ₹1,004.5226 crore in Fiscal 2024 to ₹1,293.9425 crore in Fiscal 2025 and ₹1,455.8333 crore in Fiscal 2026, representing a stated compound annual growth rate of 20.39%. Over the same period, working capital as a percentage of revenue increased from 5.73% to 9.49% and then 10.79%, as receivables, unbilled revenue and other project funding needs grew faster than the relevant liabilities.

ArMee also disclosed third-party PBG support in Fiscal 2024. Acer’s bankers advanced ₹41.3608 crore of PBG limits to ArMee’s bankers for orders worth ₹701.0291 crore, while the third-party collateral was not reflected in ArMee’s audited financial statements. ArMee says its own banking limits were limited at the time and that no separate agreement, fee, commission, revenue sharing or profit sharing governed the Acer support.

Conclusion

ArMee’s planned ₹155 crore fixed-deposit allocation identifies guarantee collateral as an operating constraint on contract execution, not simply a funding use alongside growth. With 99.18% of ₹125.40 crore in sanctioned non-fund-based limits utilized at March 31, 2026, the company expects deposits to support PBGs and EMDs and reduce the need to use internal accruals for that collateral.

The next point to watch is whether ArMee deploys ₹90 crore in Fiscal 2027 and ₹65 crore in Fiscal 2028 as planned against projected PBG requirements of ₹373.6767 crore. ArMee states that actual deployment may change with issue timing, market conditions, business requirements, demand, contractual obligations, competition and interest-rate or exchange-rate movements, and any unspent amount may be used in a later fiscal year.