| Ashoka Concessions Limited | ||
| 'Provisional CRISIL AA-(SO)/Stable' assigned to NCD | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to annexure for Details of Instruments & Bank Facilities | ||
| ^A prefix of 'Provisional' indicates that the rating centrally factors in the strength of specific structures, and will be supported by certain critical documentation by the issuer, without which the rating would either have been different or not assigned ab initio. This is in compliance with a May 6, 2015, directive by the Securities and Exchange Board of India (SEBI), 'Standardising the term, rating symbol, and manner of disclosure with regard to conditional/ provisional/ in-principle ratings assigned by credit rating agencies (CRAs)' |
| Detailed Rationale |
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CRISIL has assigned its 'Provisional CRISIL AA-(SO)/Stable' rating to the non-convertible debentures (NCDs) of Ashoka Concessions Limited (ACL). |
| Analytical Approach |
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For arriving at the ratings on the NCDs, CRISIL has applied its criteria on rating instruments backed by guarantees. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Unconditional and irrevocable corporate guarantee extended by ABL ABL has extended an unconditional and irrevocable guarantee to meet all the repayment obligations of the proposed NCDs in a timely manner. ACL shall ensure that the redemption amount or amounts due or any other payment due as per the debenture trust deed shall be deposited in the debenture holders' account 3 (three) calendar days prior to the interest payment date or redemption date (deposit date). If ACL fails to deposit the redemption amount and/or fails to deposit the interest or any other amounts due, three days prior to the deposit date, then the debenture trustee shall on the same day, issue a notice to ABL, requiring it to deposit the amount on or before one day prior to the interest payment date or redemption date. Upon receipt of such notice from the debenture trustee, ABL shall be obliged to repay the redemption amount and/or the interest and/or any other amounts due (as the case maybe) in the debenture holders' accounts, due and payable by the issuer, on or before 1 (one) day prior to the deposit date. Further, the guarantee is continuing and covers the entire facility. * ABL's established track record in executing EPC contracts and BOT road projects Experience of over two decades in the EPC business and established relationships with state government departments, National Highways Authority of India (rated 'CRISIL AAA/Stable'), and Ministry of Road Transport and Highways should continue to support the business. The company was one of the early entrants in BOT road projects in India, and won its first project in 1997. Along with ACL, it currently has 23 such projects, of which 15 are operational, 5 under construction, 2 have achieved financial closure and 1 with a letter of award (in March 2019). Over 10,100 lane kilometre (km) has been constructed so far and nine completed projects have been successfully handed over. Of the portfolio of 23 projects, 15 (7 BOT toll/annuity and eight hybrid annuity model [HAM]) are housed under ACL. Out of the five under-construction HAM projects, one has achieved more than 85% progress, and two more have achieved more than 50% progress as of July 2019, while the other two are at nascent stages of construction. In March 2018, ACL won five HAM projects worth Rs 5,550 crore. Financial closure of these five projects was achieved by October 2018, and three of them are currently under execution (remaining two are awaiting appointed dates). EPC works of these HAM projects is Rs 3,755 crore, which would be undertaken by ABL. Additionally, ACL won one more HAM project in March 2019, with a bid project cost of Rs 1,382 crore, to be undertaken by ABL (Concession agreement is yet to be signed). ABL's strong project execution capabilities are reflected in successful completion of projects within the scheduled time and budgeted cost. The strong in-house EPC division undertakes all project implementation for the BOT/HAM road projects. The group also manufactures readymade concrete and high-grade bitumen, which supports operating efficiency, reflected in a moderate operating margin of 12-14% in the past five fiscals through 2019. * ABL's robust order pipeline providing healthy revenue visibility Order pipeline was Rs 9,037 crore (including EPC works of new HAM project for which letter of award is received) as on June 30, 2019. Around 79% of orders are from the road segment, while 9%, 12% and 0.2% are from the power transmission and distribution (T&D) segment, railways segment and commercial gas distribution (CGD) segments, respectively. Of the road orders in the overall order book, HAM and EPC account for 56% and 23%, respectively. Outstanding order to revenue ratio was 2.4 times, providing healthy revenue visibility over the medium term. * Sound financial risk profile of ABL Operating income reported a strong growth of around 55% in fiscal 2019 ' revenue grew to Rs 3821 crore in fiscal 2019, from Rs 2446 crore in fiscal 2018, backed by healthy order execution. Receipt of appointed dates during the fiscal, for three of the five HAM projects (awarded in April 2018) helped the company scale up substantially. Operating margin sustained at 12-14% in the five fiscals through 2019, leading to steady accretion to reserves and thereby, resulting in improvement in networth. Further for Q1-2020, ABL reported healthy growth in revenue of 28% over Q1-2019. Operating margin continued to remain at around 12.5%. Revenue growth is expected to be strong and profitability is likely to sustain over the medium term, supported by strong executable orders and execution capabilities. Although, capital structure remained comfortable, as reflected in adjusted gearing of around 0.57 time as on March 31, 2019, it has increased from 0.29 time as of March 31, 2018. This was largely on account of high working capital requirement with scale up of operation. Though gearing remained low, total outside liabilities to adjusted networth (TOL/ANW) deteriorated to 1.68 times as on March 31, 2019 from 1.29 times a year back, caused by increase in debt levels and liabilities towards customers (including HAM SPVs) and suppliers. The company is expected to invest Rs 700-1,000 crore over fiscals 2020 to 2022, towards execution of ongoing HAM projects as well as expected BOT orders and equity investments in CGD business. Additionally, ABL will provide financial support to ACL for meeting cashflow mismatches at the underlying SPVs as well. ABL would be infusing the entire equity commitments towards the HAM projects under ACL until the new investor comes in, and also to fund the incremental capital expenditure (capex) and working capital requirement. The ongoing negotiations to bring in a new investor, is expected to restrict the significant improvement in debt level over the medium term. Debt (including guaranteed debt of ACL) is expected to remain at or below Rs 900 crore. Exit of one investor and participation of the new investor, offering equity commitment and support in near term, remains a rating sensitivity factor. Healthy profitability and moderate debt levels will help maintain comfortable debt protection metrics: the interest coverage and net cash accrual to adjusted debt ratios were 7.13 times and 0.35 time, respectively, in fiscal 2019. Pace of growth and execution of the BOT/HAM portfolio, and investment requirement towards subsidiaries and its impact on the capital structure, will remain key rating sensitivity factors. Weaknesses: * Working capital-intensive operations Working capital requirement is inherently large in the EPC industry, given the high dependence on state and central government authorities for timely receipt of payments. Further, in the power T&D segment, working capital requirement is higher because 20% of the payment is received upon erection of supplied material and 10% of the contract value is held as retention money until the expiry of the warranty period. The working capital cycle has been impacted in fiscals 2017 and 2018, on account of large inventory requirement in the power T&D segment. Working capital cycle has improved over the past two fiscals, with gross current assets (GCA) at 194 days as on March 31, 2019 (225 days as on March 31, 2018), aided lower inventory, backed by execution of higher road orders. However, working capital requirement increased, as payables declined to 210 days as on March 31, 2019, from 250 days as on March 31, 2018. Sustained improvement in working capital cycle will remain a key rating sensitivity factor. * Susceptibility to intense competition and cyclicality in the construction industry Of the outstanding orders as on June 30, 2019, 79% comprised projects from roads and highways, and the remaining from the power T&D, railways and commercial gas distribution segments. Although the company executes projects across various modes (BOT/EPC/HAM) in the roads segment, revenue is susceptible to changes in government regulations and economic conditions. Limited diversity in revenue will continue to make it susceptible to intense competition and cyclicality inherent in the construction industry. Liquidity: Strong Liquidity is strong for ACL's proposed NCDs, backed by unconditional and irrevocable corporate guarantee extended by ABL. Expected cash accrual of over Rs 350 crore, should suffice to cover the maturing debt of Rs 50-100 crore, per fiscal, over 2020 and 2021. Fund-based bank limit utilisation, though increased to around 40% for the nine months through July 2019 (less than 20% in the past), owing to increase in scale of orders under execution, is expected to remain moderate at current levels. The company primarily uses non-fund-based facilities for meeting working capital requirement. Utilisation of these facilities averaged around 60% for the nine months through July 2019. Furthermore, an established relationship with suppliers results in a long credit period and hence, lower dependence of own funds. Cash and cash equivalents stood at Rs 70 crore as on June 30, 2019. |
| Outlook: Stable |
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The outlook is based on that of the guarantor, ABL. The ratings will remain sensitive to any change in CRISIL's credit view on ABL. |
| About the Company |
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ACL was set up in November 2011, as a subsidiary of ABL, which transferred seven BOT projects to the former. SBI Macquarie infused Rs 800 crore through a stake dilution of 34% (which may go up to 39% based on shareholding agreement terms at the time of the actual conversion of Compulsorily Convertible Debentures to Equity) in ACL, which acts as an exclusive BOT project developer for both ABL and SBI Macquarie. All the HAM projects awarded to ABL have also been housed under ACL. |
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| Key Financial Indicators: ABL | ||||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | ||||||||||||||
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
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