| IRB Infrastructure Developers Limited | ||||||
| Ratings upgraded to 'CRISIL AA-/Stable/CRISIL A1+' | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its ratings on the bank facilities of IRB Infrastructure Developers Limited (IRBIDL) to ‘CRISIL AA-/Stable/CRISIL A1+' from ‘CRISIL A/Positive/CRISIL A1’.
The upgrade reflects substantial improvement in IRBIDL’s financial risk profile post equity infusion of Rs 5,347 crore by GIC (Singapore’s sovereign wealth fund) and Cintra (subsidiary of Ferrovial, S.A – a Spanish multinational infrastructure company) in the third quarter of last fiscal and consequent significant reduction of debt. Of the Rs 5,347 crore, ~Rs 3,250 crore was utilised to prepay IRBIDL’s long term debt, thereby reducing its debt levels which had risen to support the funding of under-construction projects and working capital requirements. Net worth is expected to increase to Rs ~10,000 crore as on March 31, 2023 (CRISIL Ratings adjusted) from Rs 3,421 crore as on March 31, 2021, and debt is expected to almost halve by March 31, 2023 from Rs 6,997 crore as on March 31, 2021. Consequently, IRBIDL’s capital structure will improve significantly with TOL/TNW ratio expected at below 0.5 time in the medium term from 2.5 times as on March 31, 2021. The debt-to-EBITDA (earnings before interest, tax, depreciation and amortisation) ratio has improved materially to 3.1 times as on March 31, 2022 from 6.7 times as on March 31, 2021. Further, the ratio is expected to improve to ~2.5 times in the near to medium term.
Significant reduction in debt levels as well as demonstration of large equity raise from marquee investors has materially improved the financial flexibility of the company. The financial flexibility is also underlined by a strong track record of raising debt in both the domestic as well as overseas markets. Furthermore, the company is a sponsor of two InvIT (infrastructure investment trust) platforms – IRB InvIT Fund (publicly listed InvIT launched in May, 2017) and IRB Infrastructure Trust (private InvIT launched in fiscal 2020) – which have supported capital unlocking in the past through asset monetisation and the company is expected to benefit from the same in future as well. The company’s strategy is to sell the HAM projects on completion to IRB InvIT Fund or third party. In line with this strategy, IRBIDL transferred its operational HAM asset, VK1 Expressway Pvt Ltd (VK1; ‘CRISIL A+/Positive’) to the public InvIT unlocking equity capital of Rs 342 crore. The rating upgrade also factors in demonstrated ability of the company to raise equity in large under construction projects, thereby reducing the capital requirements in the near to medium term. The company has executed definitive agreements with GIC for 49% shareholding in Meerut Budaun section of Ganga Expressway (Uttar Pradesh) project and Palsit Dankuni (West Bengal) is getting executed through Private InvIT where GIC is 49% partner.
The business risk profile of IRBIDL is also witnessing traction with executable order book of around Rs 10,900 crore as of September 30, 2022 (including operations and maintenance [O&M] orders for next three years only i.e., Rs 2,097 crore). This has resulted in improvement in order book-to-revenue (of fiscal 2022) ratio to 2.7 times as of September 2022 from below 2.0 times earlier. The order book position has improved with two large BOT orders and three HAM (hybrid annuity mode) projects awarded in fiscal 2021 and 2022. However, the order book is skewed towards one large state BOT-Toll project i.e., Meerut Budaun (Rs 4,981 crore as on 30th September 2022 and 46% of executable order book position), exposing the company to the execution risk and timely execution of the large order will remain a key sensitivity factor. While the company has not won any orders in fiscal 2023 till date, it is expected to bid for and win orders in upcoming pipeline of awards from authorities. In absence of new order inflows, the order book to revenue ratio of the company may gradually decline and diversification in order book may not be achieved. Hence, it remains a monitorable from credit perspective.
The ratings continue to reflect the company’s established track record in the roads and highways sector, backed by prudent project selection, strong execution capabilities and moderate working capital management. These strengths are partially offset by exposure to under-construction special-purpose vehicles (SPVs) with concentration on large projects at initial stages, receivables from claims in private InvIT SPVs and susceptibility to intense competition and cyclicality in the roads and highways sector. |
Analytical Approach CRISIL Ratings has fully consolidated the business and financial risk profiles of IRBIDL with that of Modern Road Makers Pvt. Ltd (MRMPL), and moderately consolidated with that of the SPVs. MRMPL is the engineering, procurement and construction (EPC) arm of the group and a wholly owned subsidiary of IRBIDL. Furthermore, IRBIDL has extended an unconditional and irrevocable corporate guarantee for the bank facilities availed by MRMPL. IRBIDL has outstanding corporate guarantees for some of its operational and under-construction projects. CRISIL Ratings expects these corporate guarantees to fall-off once the minimum debt service coverage ratios are met or on refinancing of the debt in these projects as seen with other projects in the past.
Cost overrun in five of the nine assets that have been transferred to the private InvIT (IRB Infrastructure Trust) resulted in receivables of Rs 3,517 crore as on March 31, 2022. Recovery of the receivables will be through settlement of claims with National Highways Authority of India (NHAI; ‘CRISIL AAA/Stable’), which management is confident of recovering over the course of time. As part of the analytical treatment, CRISIL Ratings has adjusted net worth to the extent of 50% of the receivables.
CRISIL Ratings has also treated unsecured loans received from SPVs as neither debt nor equity as the repayments on these loans are flexible depending on available surplus.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
IRBIDL’s financial risk profile substantially improved post equity infusion of Rs 5,347 crore by GIC and Cintra in fiscal 2022. Of the Rs 5,347 crore, ~Rs 3,250 crore was utilised to prepay long term debt, thereby reducing its debt levels which had risen to support the funding of under-construction projects and working capital requirements. Net worth is expected to increase to Rs ~10,000 crore as on March 31, 2023 (CRISIL Ratings adjusted) from Rs 3,421 crore as on March 31, 2021, and debt is expected to almost halve by March 31, 2023 from Rs 6,997 crore as on March 31, 2021. Consequently, IRBIDL’s capital structure will improve significantly with TOL/TNW ratio expected at below 0.5 time in the medium term from 2.5 times as on March 31, 2021. The debt-to-EBITDA ratio is also expected to improve materially to ~2.5 times in the near to medium term. Financial flexibility is also supported by company’s strong track record of refinancing loans both in the domestic as well as overseas market.
Established in 1998, IRBIDL is one of the largest players in the domestic roads and highways sector. Over two decades of experience has helped the company establish strong relationships with its stakeholders, which include NHAI, Ministry of Road Transport and Highways (MoRTH) and state government departments.
The company was one of the early entrants in the build-operate-transfer (BOT) segment of the road sector, and is one of the largest BOT players in India. It has 12,000 lane kilometre (km) of projects in operational (includes projects transferred to InvITs) or under-development stages. The company also has O&M contracts for 11projects, which includes ten projects under Private InvIT and Meerut Budaun section of Ganga Expressway, and six projects under its public InvIT (IRB InvIT Fund – where it holds 15.97% stake) as project manager.
IRBIDL has ~20% share in India’s Golden Quadrilateral. A strong in-house EPC division managed by MRMPL undertakes project implementation for all the BOT/HAM road projects. Prudent project selection and strong execution capabilities help the company maintain strong operating margin of over 25%.
Despite inherently large working capital requirement in the roads and highways sector, IRBIDL’s working capital cycle is supported by moderate inventory and receivables. The company executes BOT/HAM projects for its SPVs, and hence, all the inventory and receivables are towards or from its SPVs, helping maintain its working capital cycle. While the gross current assets (GCA, net of cash) stood at 216 days as on March 31, 2022, it was largely due to high inventory and debtor days. GCA (net of cash) improved to 188 days as on September 30, 2022 and is further expected to improve.
Demonstration of large equity raise from marquee global investors, and track record of raising debt in both domestic as well as overseas markets has materially improved the company’s financial flexibility. IRBIDL is a sponsor of two InvIT platforms – IRB InvIT Fund (publicly listed InvIT launched in May 2017) and IRB Infrastructure Trust (private InvIT launched in fiscal 2020) – which have supported capital unlocking in the past through asset monetisation and the company is expected to benefit from the same in future as well. The company’s strategy is to sell HAM projects on completion to IRB InvIT Fund or third party. In line with this strategy, IRBIDL transferred VK1 (operational HAM asset) to the public InvIT unlocking equity capital of Rs 342 crore. The company has demonstrated ability to raise equity in large under construction projects, thereby reducing the capital requirements in the near to medium term. The company has executed definitive agreements with GIC for 49% shareholding in Meerut Budaun section of Ganga Expressway (Uttar Pradesh) project and Palsit Dankuni (West Bengal) is getting executed through Private InvIT where GIC is 49% partner. The InvIT structure helps to upstream surplus cash flow to the sponsor from the beginning of operations, providing flexibility in managing the investment requirement.
Weaknesses:
The company had executable order book of around Rs 10,900 crore as of September 30, 2022 (including O&M orders to be executed over next three years only). This has resulted in improvement in order book-to-revenue (of fiscal 2022) ratio to 2.7 times as of September 30, 2022 from below 2.0 times earlier. While order book position has improved with two large BOT orders and three HAM projects awarded in fiscal 2021 and 2022, it is skewed towards one large state BOT-Toll project i.e., Meerut Budaun (Rs 4,981 crore as on September 30, 2022 and 46% of executable order book position), exposing the company to concentration and execution risks given the nascent stage of construction. Timely execution of large orders will remain a key sensitivity factor.
Further the company has not won any EPC orders in fiscal 2023 till date, it is expected to bid for and win orders in upcoming pipeline of awards from authorities. In absence of new order inflows, the order book to revenue ratio of the company may gradually decline and diversification in order book may not be achieved. Hence, it remains a monitorable from credit perspective.
The company has made large investments in its project SPVs. Loans from surpluses of operational SPVs of Rs 2,526 crore as on March 31, 2022 mitigate part of the investment exposure. Although the company undertook HAM projects in 2018 and thereafter (where the equity requirement is lower than for BOT projects), its focus is on building a BOT/TOT portfolio, which will keep equity commitment high. However, a substantial part of the incremental equity requirements were funded through the inflows from preferential equity allotment. Further, IRB and GIC has agreed to explore future opportunity for BOT and TOT projects together in ratio of 51:49. This reduces IRBIDL’s equity contribution to 51% and the same was witnessed in Palsit Dankuni and Meerut Budaun section of Ganga Expressway project.
Receivables of over Rs 3,517 crore as on March 31, 2022, from projects transferred to the private InvIT will be recovered through settlement of claims with NHAI. Realisation of these claims will be a key monitorable.
Furthermore, one of the BOT project SPVs, IRB Ahmedabad Vadodara Super Express Tollway Pvt. Ltd has filed claim for compensation against revenue losses arising on account of competing road. The SPV approached the Hon’ble Bombay High Court in March 2019 and received an order in its favour conferring protection from contingency of default in premium payment for initial period of 3 months and then the Hon’ble Delhi High Court later awarded that this relief shall continue until arbitration proceedings under Section 17 of the Act are completed. The arbitral proceedings began in December 2020, the Hon’ble Tribunal further directed that interim relief granted by the Hon’ble Delhi High Court continues. Subsequently, the Hon’ble Tribunal declared an interim award in October 2021 in favour of the SPV. Later, NHAI challenged the interim award in the Hon’ble Delhi High Court which was subsequently dismissed by the Court in July 2022. The arbitration proceedings are in progress, in the meanwhile, the SPV filed its updated claim of Rs 2,123 crore (as of September 30, 2022) in December 2022. The claim for revenue loss is recurring as it will continue till end of concession period along with the accrued interest, resulting in an increase in the claim amount.
In case of the favourable outcome of the arbitration, the SPV shall be compensated against the competing road by NHAI on recurring basis as per the terms of the Concession Agreement until the breach is cured. Therefore, the toll revenue plus the compensation receivable from NHAI would be sufficient to meet the premium obligations. In case of SPV being unsuccessful in the arbitration, pursuant to the direction of the Hon’ble Bombay High Court, the unpaid premium has be paid to NHAI on the principle of "premium deferment scheme" of the central government earlier agreed in Supplementary Agreement dated June 6, 2014. Under the said scheme if cash flows are insufficient to make premium payments, the same will be accrued and paid post completion of debt servicing (as the project has a long tail period post receipt of extension in concession period). Hence, no support is expected from IRBIDL towards this project. Moreover, corporate guarantee extended by IRBIDL towards this SPV has fallen off post the SPV reaching threshold debt service coverage ratio of 1.15 times. Any change in this understanding is a rating sensitivity factor.
IRBIDL’s outstanding orders are almost entirely from the roads and highways segment. This exposes it to intense competition and sectoral concentration risk. Although the company diversified into the HAM segment in 2018 and thereafter from a pure-play BOT and TOT player, its ability to execute orders, grow revenue, and sustain profitability is susceptible to competition in the sector, changes in government regulations and economic conditions. Limited diversity in revenue will keep IRBIDL susceptible to intense competition and cyclicality inherent in the construction industry.
Competition may intensify further (particularly HAM space) with relaxation in bidding norms by NHAI. However, given IRBIDL’s continued focus in the BOT-toll space where competition is limited, operating margin is expected to remain stable over the medium term. |
Liquidity: Strong Liquidity is supported by healthy cash accrual, unutilised bank limits and strong cash and equivalents. Total fund based facility of Rs 1,930 crore (including the overdraft [OD] facility of Rs 1300 crore backed by fixed deposits [FD]) was utilised to an extent of 69% as on September 30, 2022. Cash and equivalent stood at Rs 1,926 crore as on September 30, 2022, of which unencumbered cash stood at around Rs 107 crore (excluding Rs 1,300 crore FDs earmarked for the OD facility). Furthermore, the company holds 15.97% unencumbered stake in the public InvIT (stake is valued at Rs 553 crore as on September 30, 2022), supporting liquidity.
The company has a strong track record of refinancing loans, which will continue to support liquidity. IRBIDL had raised overseas bonds of Rs 2,184 crore in fiscal 2021 with nil repayments for 7 years and a put option at the end of 3.5 years. Moreover, the company prepaid its majority of long term debt (other than the overseas bonds) with the proceeds from equity infusion which will result into minimal maturing debt obligation till fiscal 2025 thereby enhancing liquidity.
ESG Profile CRISIL Ratings believes that IRBIDL’s ESG profile supports its already strong credit risk profile.
The construction sector has a significant impact on the environment as a result of high emissions, waste generation and impact on land and biodiversity. The impact on social factors is indicated by labour-intensive operations and safety issues on account of construction-related activities. IRBIDL has a continuous focus on strengthening various aspects of its ESG profile.
Key ESG highlights:
There is growing importance of ESG among investors and lenders. IRBIDL’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given the sizable share of market borrowings in its overall debt and access to both domestic and foreign markets for raising funds. |
Outlook: Stable IRBIDL will benefit from significant improvement in the financial risk profile post equity infusion, healthy business risk profile, supported by an established track record in the roads and highways sector and strong execution capabilities. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company Incorporated in 1998 and promoted by Mr Virendra D Mhaiskar, IRBIDL is an infrastructure development and construction company in India with extensive experience in the roads and highways sector. The company is also into other business segments in the infrastructure sector, including maintenance of roads, construction, airport development and real estate.
At end-December 2022, IRBIDL had a portfolio of two BOT Projects {Ahmedabad-Vadodara (100% stake) and Ganga Expressway- Package I (51% stake)}, one toll-operate-transfer (TOT; Mumbai-Pune Expressway) and three HAM projects (post transfer of VK1 Expressway to IRB InvIT fund).
IRBIDL has a 51% holding in a private Infrastructure Investment Trust (InvIT) that houses 10 BOT projects of which nine projects are in the operational BOT space and one project is under the tolling and construction phase, aggregating to 6,275 lane kms. IRBIDL also holds a 15.97% stake as a sponsor in a public InvIT (IRB InvIT Fund), which has five BOT and one HAM project in its portfolio, of around 2,447-lane km. The company also has O&M contracts for the 11 projects, which includes ten projects under private InvIT and Meerut Budaun section of Ganga Expressway, and six projects under its public InvIT (IRB InvIT Fund – where it holds 15.97% stake) as project manager. The company operates largely as a holding company, while construction activities are carried out through its EPC arm, MRMPL.
IRBIDL became a listed company in 2008 by listing its shares on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). In September 2016, IRBIDL received approval from the Securities and Exchange Board of India to set up an InvIT. The company listed six of its operational assets through InvIT on BSE and NSE on May 18, 2017. It then transferred another asset to the InvIT on September 28, 2017. The concession period of two projects has ended and they have been handed over to the authority. The present portfolio comprises of five operational BOT assets and one operational HAM asset (VK1) in the InvIT. IRBIDL undertakes maintenance of these projects and holds 15.97% of the unit capital in the InvIT.
IRBIDL made an announcement of the definitive agreement entered into on August 6, 2019, with GIC for investment in IRBIDL’s road portfolio through a private InvIT. On February 26, 2020, the company had set up the InvIT, IRB Infrastructure Trust and transferred nine of its BOT assets in fiscal 2020 and another project (Palsit-Dankuni) transferred in April 2022 into the trust, in which it holds 51%, while GIC holds the remaining 49%. Out of these ten projects, nine operational projects are already operational and one project i.e. Palsit Dankuni is under the tolling and construction phase. IRBIDL is responsible for project management activities of these projects, including maintenance. |
Key Financial Indicators
*The financials represent the consolidated financials of IRBIDL and MRMPL, adjusted for CRISIL Ratings internal adjustments |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Repaid in December 2021 |
Annexure – List of entities consolidated
*Project transferred / to be transferred to private InvIT as part of GIC deal with IRBIDL holding 51% stake in the InvIT @Successfully transferred to the public InvIT |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 27-Jan-23 in line with the lender-wise facility details as on 06-Dec-21 received from the rated entity.
*Repaid in December 2021
Criteria Details
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