Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA-/Stable/CRISIL A1+’ ratings on the Rs.1,700 crore bank facilities of IRB Infrastructure Developers Ltd (IRBIDL). CRISIL Ratings has withdrawn its rating on non-convertible debentures (NCDs) of Rs.258 crore and Rs.500 crore long-term loans of IRBIDL on receipt of third-party confirmation that these NCDs and loans have been paid off. This is in line with the CRISIL Ratings policy on withdrawal of ratings..

 

The ratings continue to reflect the company’s strong business risk profile, supported by comfortable operating performance, moderate order book and stable working capital cycle. IRBIDL’s revenue is expected at around Rs 5,000 crore in the near team, backed by executable order book of around ~Rs 9,650 crore as on March 31, 2024 (including operations and maintenance [O&M] orders for the next three years) with order book to revenue of ~1.8 times providing revenue visibility and expected new order additions in near term. The operating margin (adjusted for claim income) declined to ~20.5% in fiscal 2023 and ~20.6% in fiscal 2024 from ~24.2% in fiscal 2022 due to increase in raw material prices and execution of competitively bid hybrid annuity mode (HAM) projects. The margin is expected to improve over the medium term supported by moderation in raw material prices.

 

Total order book improved to Rs 34,800 crore with addition of long-term O&M contracts of three toll-operate-transfer (TOT) projects. However, the order book executable over the next three fiscals reduced to ~Rs 9,650 crore as of March 2024 from ~Rs 12,000 crore as of March 2023 with limited addition to the new orders as the sector witnessed slowdown in new project awarding. The company is expected to bid for and win a higher quantum of new orders this fiscal. In the absence of new order inflow, the revenue visibility may decline and hence, order book remains monitorable. Furthermore, the order book includes two large BOT-toll projects: state project - Meerut Budaun and NHAI project - Samakhiyali Santalpur (Rs 3,447 crore as on March 31, 2024, and 36% of executable order book position), and timely implementation of these orders remains a key rating sensitivity factor. 

 

The financial risk profile remains comfortable as reflected in a strong networth of Rs 10,460 crore as on March 31, 2024 (CRISIL Ratings-adjusted), leading to healthy total outside liabilities to tangible networth (TOLTNW) ratio below 1 time. The debt increased to Rs 5,988 as on March 31, 2024 (includes utilisation of overdraft [OD] facility of Rs 577 crore - Rs 458 crore backed by fixed deposits [FD]), from Rs 4,187 crore as on March 31, 2023. The same was on account of significant investment in new TOT and sizeable under construction projects. Nevertheless, a large proportion of the debt is non-amortising in nature and hence limited outflows to service the obligation support the financial risk profile. Furthermore, the debt levels are expected to remain stable at these levels going forward and incremental investments will predominantly be funded by cash balances as well as monetisation of assets.

 

The company has significant investments in vehicles such as two listed InvITs (infrastructure investment trusts) - IRB InvIT Fund (publicly listed InvIT launched in May 2017) and IRB Infrastructure Trust (rated ‘CRISIL AAA/Stable’; private InvIT launched in fiscal 2020) and TOT asset – IRB MP Expressway Pvt Ltd (Mumbai Pune). While evaluating the credit risk profile, CRISIL Ratings assesses the quality of these investments and the consequent financial flexibility available to the company. The market value of these investments remains strong (equity value for IRBIDL’s investment in IRB InvIT Fund and IRB Infrastructure Trust is Rs. 620 crore and Rs. 15,300 crore respectively as on March 31, 2024). Furthermore, IRBIDL received inflows of Rs 300 crore and Rs 890 crore in fiscals 2023 and 2024, respectively, from these investments which have supported cash flow. IRBIDL is expected to continue to receive regular inflows from these investments.  Reduction in the value of its holdings or reduction in the surplus income from these investments without commensurate reduction in debt levels will be key rating sensitivity factors.

 

The financial flexibility is supported by a strong track record of raising debt in both the domestic as well as the overseas markets. The company has refinanced part of the existing debt in March 2024 with Rs 4,502 crore of USD notes at coupon rate of 7.11% with a tenure of seven years. Furthermore, the company is a sponsor of two listed InvIT platforms, which has supported capital unlocking in the past through asset monetisation; and the company is expected to benefit from the same in the future as well. The rating also factors in the demonstrated ability to raise equity in large under construction projects, thereby reducing the capital requirements.

 

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, stable income from investments and moderate working capital management. These strengths are partially offset by exposure to a few 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 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. Hence, these projects are moderately consolidated.

 

Cost overrun in six of the 12 assets that have been transferred to the private InvIT (IRB Infrastructure Trust) resulted in receivables of Rs 4,076 crore as on March 31, 2024. Recovery of the receivables will be through settlement of claims with the 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 networth 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 the available surplus.

 

CRISIL Ratings has also assessed the quality of its investment where IRBIDL holds equity stake in regular surplus-generating entities, including its InvITs – IRB Infrastructure Trust and IRB InvIT Fund; and its SPV, IRB MP Expressway Pvt Ltd. The surplus income from these investments accounted for significant portion of its cash inflows in fiscals 2023 and 2024.

 

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:

• Established track record in the roads and highways sector: 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 to 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 BOT segment of the road sector and is one of the largest BOT players in India. It has over 15,000 lane km of projects in operational (includes projects transferred to InvITs) or under-development stages. The company also has O&M contracts for all its projects under InvITs and SPVs. 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 a strong operating margin of over 20%.

 

• Financial flexibility derived from the InvIT platforms and operational SPVs: In addition to the demonstration of large equity raise from marquee global investors, and track record of raising debt in both domestic as well as the overseas markets, access to two InvIT platforms has materially improved the company’s financial flexibility. The company has refinanced part of the debt in March 2024 with Rs 4,502 crore of USD notes at a coupon rate of 7.11% with a tenure of seven years. IRBIDL is a sponsor of two InvIT platforms – IRB InvIT Fund and IRB Infrastructure Trust – 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 InvIT structure helps to upstream surplus cash flow to the sponsor from the beginning of operations, providing flexibility in managing the investment requirement.

 

The company receives regular surplus from its two listed InvITs and TOT asset – Mumbai Pune. The market value of these investments remains strong, thereby adding to the financial flexibility (equity value for IRBIDL’s investment in IRB InvIT Fund and IRB Infrastructure Trust is Rs. 620 crore and Rs. 15,300 crore respectively as on March 31, 2024). IRBIDL received inflows of Rs 300 crore and Rs 890 crore in fiscals 2023 and 2024, respectively, which has largely been utilised for part funding the equity requirements of new TOT and BOT assets. IRBIDL is expected to continue to receive regular inflows from these investments. Reduction in the value of its holdings or reduction in the surplus income from these investments without commensurate reduction in debt levels will be key rating sensitivity factors.

 

• Comfortable financial risk profile: The financial risk profile remains comfortable, as reflected in a strong networth of Rs 10,460 crore as on March 31, 2024 (CRISIL Ratings-adjusted), leading to a healthy TOLTNW ratio of below 1 time. The debt levels have increased to Rs 5,988 as on March 31, 2024 (includes utilisation of OD facility of Rs 577 crore – Rs 458 crore backed by FDs) from Rs 4,187 crore as on March 31, 2023. The same was on account of significant investment in new TOT and sizeable under construction projects. Nevertheless, a large proportion of the debt is non-amortising in nature and hence limited outflows to servicing the obligation support the financial risk profile. Furthermore, the debt expected to remain stable at these levels going forward and incremental investments will predominantly be funded by cash balances as well as monetisation of assets.

 

• Moderate working capital management: 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. Gross current assets (GCA, net of cash) decreased to 142 days as on March 31, 2024 (PY: 262 days) with receipt of receivables and the same is expected to remain at similar levels going forward.

 

Weaknesses:

• Concentrated and moderate order book: Total order book improved to Rs 34,800 crore with the addition of long-term O&M contracts of three TOT projects. However, the order book executable over the next three fiscals reduced to ~Rs 9,650 crore as of March 31, 2024, from ~Rs 12,000 crore as of March 31, 2023, resulting in order book to revenue of ~1.8 times with limited addition to the new orders as the sector witnessed slowdown in new project awarding. The company is expected to bid for and win a higher quantum of new orders this fiscal. In the absence of new order inflow, the revenue visibility may decline and hence, order book remains monitorable.

 

Furthermore, the order book is concentrated in the roads sector, and it includes two large BOT-toll projects, and timely implementation of these remains a key rating sensitivity factor. 

 

• Large exposure to project SPVs with pending claims settlement: The company has made large investments in its project SPVs. Loans from surpluses of operational SPVs of Rs 3,115 crore as on March 31, 2024, 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. A substantial part of the incremental equity requirements was funded through the inflows from preferential equity allotment in the past and additional debt. Further, IRB, GIC and Cintra have agreed to explore future opportunities for BOT and TOT projects together. This reduces IRBIDL’s equity contribution to 51% as witnessed in Meerut Budaun section of Ganga Expressway project (expected to be transferred to private InvIT in the near term).

 

Receivables of over Rs 4,076 crore as on March 31, 2024 from projects transferred to the private InvIT will be recovered through settlement of claims with NHAI. Realisation of these claims will be monitorable. Recently, the company has received favourable arbitration award of Rs. 1,751 crore for one of the projects under private InvIT which has been challenged by NHAI in the higher court & others are at different stages of Arbitration. Furthermore, one of the BOT projects SPVs, IRB Ahmedabad Vadodara Super Express Tollway Pvt. Ltd (IRBAV) has filed claim for compensation against revenue losses arising on account of Competing Road. The SPV approached the 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 three months, and then the 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 tribunal further directed that interim relief granted by the Delhi High Court continues. Subsequently, the tribunal declared an interim award in October 2021 in favour of the SPV. Later, NHAI challenged the interim award in the Delhi High Court which was subsequently dismissed by the court in July 2022. The SPV last filed its updated claim of Rs 2,123 crore as of September 30, 2022, in December 2022.

 

The Hon’ble Tribunal pronounced final award on April 7, 2024, with respect to its claim on account of revenue losses due to emergence of the Competing Road running parallel to the project highway (IRBAV). IRBAV had contended that the Competing Road came into existence in fiscal 2016. NHAI’s contention was primarily that there was no Competing Road. The Hon’ble Arbitral Tribunal, in its Award, has declared that the Competing Road came into existence in January 2019 (when 75% of the length of Competing Road was completed) and not in fiscal 2016. Although the Hon’ble Tribunal concluded that NHAI was in breach of its obligation to ensure that no 'Competing Road' is constructed at any time before the 10th anniversary of the appointed date, the Tribunal failed to direct NHAI to cure the breach. However, due to technical reasons, no compensation was awarded on account of this Competing Road. As per the award, while the tribunal has accepted the revenue loss issue due to competing route, discrepancy remains in terms of the start of the timeline for compensation. To this extent, the decision of the Hon’ble Tribunal is challenged by IRBAV under Section 34 of the Arbitration and Conciliation Act, 1996 before the Delhi High Court. The Award has also directed IRBAV to make the payment of premium to NHAI as per the premium deferment scheme. Under the said scheme, the Escrow waterfall mechanism prevails wherein the Premium payment comes after O&M and Debt Servicing. The Concessionaire is already following this waterfall mechanism. Balance premium, if any, along with accrued interest @ bank rate + 2% shall be paid once the debt servicing is completed and essentially one year before the completion of the concession period including extension thereof. 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 matter, the SPV shall be compensated against loss being incurred due to 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 matter, pursuant to the direction of the Bombay High Court, the unpaid premium has to 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. However, corporate guarantee extended by IRBIDL towards this SPV continues due to the ongoing litigation.

 

• Susceptibility to intense competition and cyclicality in the roads and highways sector: IRBIDL’s outstanding orders are almost entirely from the roads and highways segment. This exposes it to intense competition and sectoral concentration risk. While the company diversified into HAM segment in 2018, it continues to focus on BOT and TOT segment wherein the competition is relatively lower. The company’s ability to execute orders, grow revenue, and sustain profitability is susceptible to competition in the sector, changes in government regulations and economic conditions.

Liquidity: Strong

Liquidity is supported by healthy cash accrual, unutilised bank limit and strong cash and equivalents. Total fund-based facility of Rs 1,930 crore (including the OD facility of Rs 1,305 crore backed by FD) was utilised to an extent of 30% as on March 31, 2024. Cash and equivalents stood at Rs 1,800 crore as on March 31, 2024, of which unencumbered cash stood at around Rs 1,250 crore (excluding Rs 458 crore FDs earmarked for the OD facility). Furthermore, the company holds 15.97% unencumbered stake in the public InvIT (stake is valued at Rs 620 crore as on March 31, 2024), supporting liquidity.

 

ESG Profile

CRISIL Ratings believes that IRBIDL’s ESG profile supports its already strong credit risk profile.

 

The EPC 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:

• IRB Infra, in line with the science-based targets initiative commitment, plans to achieve net zero greenhouse gas (GHG) emissions by 2050. Further, it has set a target to reduce its fossil fuel consumption by 50% by 2040 and lower its scope 1 and 2 emission intensity by 30%.
• The company also plans to run all its toll plazas on renewable energy by 2043.
• IRB reported nil lost time injury frequency rate among employees in fiscal 2023. Its attrition rate stood at 12% for its employees in fiscal 2023, which was lower than its listed peers.
• The governance structure is characterised by a majorly independent board (50% are independent directors), ~25% woman board directors and extensive financial disclosures.

 

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 continue to benefit over the medium term from its comfortable financial risk profile, healthy business risk profile, supported by an established track record in the roads and highways sector and strong execution capabilities. Furthermore, it will benefit from the expected regular inflows from investments.

Rating sensitivity factors

Upward factors:

• Significant diversification in order book
• Substantial and sustained growth in revenue while maintaining operating margin
• Maintenance of healthy financial risk profile with TOLTNW ratio remaining below 0.4-0.5 time on a sustained basis

 

 Downward factors:

• Larger-than-expected investments towards project SPVs or lower-than-expected inflows from investment vehicles resulting in material increase in debt
• Significant delays in completion of sizeable under-construction projects or deterioration in performance of operational projects
• No major order inflows resulting in order book-to-revenue below 2 times for a prolonged period
• Significant stretch in the working capital cycle on a sustained basis

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.

 

As on August 31, 2024, IRBIDL had a portfolio of two BOT projects {Ahmedabad-Vadodara (100% stake) and Ganga Expressway- Package I (51% stake and to be transferred to private InVIT in few months)}, one toll-operate-transfer (TOT; Mumbai-Pune Expressway) and three under-construction HAM projects.

 

IRBIDL has a 51% holding in a private InvIT that houses 3 TOT projects and 11 BOT projects of which nine projects are in the operational BOT space and two BOT projects are under the tolling and construction phase, aggregating to 9,789 lane km. 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 2,421-lane km. The company also has O&M contracts for the projects under private InvIT and public InvIT. 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 (SEBI) to set up an InvIT. The company listed six of its operational assets through InvIT on BSE and NSE on May 18, 2017. The concession period of two projects has ended and they have been handed over to the authority. The present portfolio comprises five operational BOT assets and one operational HAM asset in the public 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 set up 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. IGEPL and Samakhiyali BOT project have been transferred to the trust while two TOT projects have also been awarded to the trust by NHAI in fiscal 2024. Out of the total 14 projects, 12 projects are operational and two projects, i.e., Palsit Dankuni and Samakhiyali BOT are under the tolling and construction phase. IRBIDL holds 51% stake in the private InvIT, while GIC and Cintra hold the remaining 25% and 24% stake respectively (Cintra has recently acquired stake from GIC in June 2024). IRBIDL is responsible for project management activities of these projects, including maintenance.

Key Financial Indicators

As on/for the period ended March 31*	Unit	2024	2023
Revenue	Rs.Crore	5,382	4,634
Profit After Tax (PAT)	Rs.Crore	877	848
PAT Margin	%	16.3	18.3
Adjusted debt/adjusted networth	Times	0.57	0.42
Adjusted Interest coverage	Times	1.76	3.25

*The financials represent the consolidated financials of IRBIDL and MRMPL, adjusted for CRISIL Ratings internal guidelines 

Apart from non-operating income in profit and loss statement, IRBIDL received inflows of Rs. 65 crore and Rs 705 crore in fiscals 2023 and 2024, respectively from its investments

Any other information: Not Applicable

Annexure - List of Entities Consolidated

Entity consolidated	Extent of consolidation	Rationale for consolidation
Modern Road Makers Pvt Ltd	Full	Corporate guarantee extended by IRBIDL
IRB Ahmedabad Vadodara Super Express Tollway Pvt Ltd	Moderate	To the extent of support towards cash flow mismatches during operations
IRB Sindhudurg Airport Pvt Ltd	Moderate	To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations
VM7 Expressway Pvt Ltd	Moderate	To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations
CG Tollway Ltd*	Moderate	To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations
Udaipur Tollway Ltd*	Moderate	To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations
Palsit Dankuni Tollway Pvt Ltd*	Moderate	To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations
Meerut Budaun Expressway Ltd*	Moderate	To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations
Pathankot Mandi Highway Pvt Ltd	Moderate	To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations
Chittoor Thachur Highway Pvt Ltd	Moderate	To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations
Samakhiyali Tollway Private Limited*	Moderate	To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations

*Project transferred / to be transferred to private InvIT, wherein corporate guarantee is provided by IRBIDL