| Mahua Bharatpur Expressways Limited | ||
| 'Provisional CRISIL AAA(SO)/Stable' assigned to NCD | ||
| Rating Action | ||
| ||
| 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 |
|
CRISIL has assigned its 'Provisional CRISIL AAA(SO)/Stable' rating on the non-convertible debentures of Mahua Bharatpur Expressways Limited (MBEL). |
| Key Rating Drivers & Detailed Description |
|
Strengths * Healthy traffic potential of project backed by strategic location and operational track record The project traverses through NH-11 that connects Agra to Jaipur through the three stretches of Agra - Bharatpur, Bharatpur - Mahua, and Mahua - Jaipur. While both the cities of Jaipur and Agra are very important tourist destinations, 65% of the revenue and 60% of traffic is through commercial vehicles (CVs). Of this, about half the traffic is due to CVs transporting consumption goods, specifically construction materials, which is expected to remain steady over the near term. Furthermore, the construction material industry is expected to show steady growth of 8-10% over the medium term, due to a pick-up in the roads sector, which is expected to contribute 42% of the total construction spending. Furthermore, with pick up seen in the economic activity, supply of steel and construction material is expected to pick up over the next five years which also support the growth of CV traffic. The growth in industrial activity has increased the growth of the Multi axle vehicles (MAV) contributing higher revenue growth and the same is expected to continue going forward. The stretch is also expected to benefit from completion of Agra Lucknow Expressway and development of ring roads in Agra and Jaipur which are feeder routes to the project stretch. The project has been operational since May 2009, and has witnessed a healthy twelve percent compound annual growth rate in revenue over the past six years. The road consists of two plazas at Amoli and Ludhwai between Mahua and Bharatpur, with both having similar vehicular traffic. While demonetisation led to loss of toll revenue for 23 days, the revenue was not significantly impacted owing to higher growth in multi-axle vehicles on the project stretch. Thus the stretch will continue to show healthy traffic and revenue growth backed by industry backed traffic. The growth will further be supported with the development of the feeder routes to the project stretch. * Strong debt protection metrics, supported by relatively low senior debt level The company is expected to have strong debt protection metrics with an average debt service coverage ratio (DSCR) of above 2 times over the tenure of the NCD, backed by good cash flow generating capacity of the project and relatively lower annual debt servicing obligations. Toll revenue grew at a CAGR of 12% between fiscals 2010 and 2016, supported by average growth in toll rate of 8% and modest growth in traffic volumes. The toll rate hike is linked to the Wholesale Price Index (WPI) and is revised every year on July 1, based on WPI rates of March of that year. CRISIL expects the traffic growth to remain healthy and toll rate hikes to increase with positive movement in WPI over the past few quarters. Also, the company has a healthy senior debt (proposed) to toll ratio of 3.2x, along with long tenor of 13 years thereby spreading out principal repayment and reducing annual debt obligations. Given the healthy cash flow cushion available for meeting debt obligations and the steady growth in toll revenue, the debt protection metrics are expected to remain strong over the tenure of debt. Any additional debt taken by the company will remain a rating sensitivity factor. * Experienced management team Cube Highways has a well-equipped team of professionals to manage the routine affairs at toll plaza and the maintenance of the road. MBEL's senior management consists of an experienced traffic consultant who has over 30 years of experience in conducting traffic studies of prominent stretches, a veteran with sound expertise in toll management, and professionals with deep understanding of the technical specifications and advanced methods of operations and maintenance (O&M) to proactively tackle the maintenance of the road projects. This is further supported by an experienced finance and legal team. The sponsor uses advanced road-testing mechanisms to prioritise maintenance options on the basis of the life-cycle cost of the assets. With respect to MBEL, the sponsor had infused Rs 74.2 crore over Q4'FY16 and Q1'FY17 to complete the first major maintenance of the road project, which was not done by the earlier sponsor. The use of advanced technology and management's extensive experience should help in stringent monitoring of the toll operations, effective maintenance and avoidance of any structural damage to the road. * Tight escrow mechanism with a well-defined payment waterfall and creation of DSRA and MMRA The waterfall mechanism ensures that the toll collection will be escrowed and will be used to meet the NCD principal and interest payments post the payment of taxes, statutory dues, and maintenance expenses. The structure stipulates upfront creation of a DSRA equivalent to principal and interest due for six months. No funds will be taken out by the promoter till additional three months DSRA is built up. Moreover, the nine months DSRA will be maintained on an ongoing basis till the end of tenor of the bond. Once the DSRA is created as per the requirement, the funds will then be used for creation and reinstatement of MMRA. The structure also stipulates that if the DSCR drops below 1.5x, the entire surplus generated by the asset will be trapped in the cash retention account. The DSCR will be checked for trailing 12 months quarterly. In addition to the above check, the funds will be transferred to the distribution account quarterly only once the amount equivalent to the semi -annual debt servicing obligations is provided for or paid. Weaknesses * Susceptibility of toll revenue to volatility in traffic volumes or change in tolling policy The company started toll collection in May 2009, and had toll revenue of Rs 61 crore for fiscal 2017. Toll is its only revenue source, and hence, any volatility in collection because of factors such as toll leakage, lack of timely increase in rates, seasonal variations in vehicular traffic, and susceptibility to economic downturns could adversely impact cash flows. . Although toll revenue was not impacted due to demonetisation on an annual basis owing to higher growth in multi-axle vehicle growth, the toll was lost on the vehicles ploughing during the 23 days. Any such change in the tolling policy on the stretch will also impact cash flows. Hence both volatility in traffic volumes and change in tolling policy will remain key rating sensitivity factors. |
| Outlook: Stable |
|
CRISIL believes MBEL's debt protection metrics will remain strong over the medium term, supported by strong traffic drivers resulting in steady revenue growth and low debt levels. The outlook may be revised to 'Negative' if heavy toll loss reduces the cushion available to meet debt obligations or additional debt is contracted, or in case of inability to adhere to the structure. |
| About the Company |
|
MBEL was originally promoted by Madhucon Projects Ltd (Madhucon) as Madhucon Agra Jaipur Expressway Ltd. Madhucon completed the sale of this project in March 2016. |
| Key Financial Indicators | ||||||||||||||||||||||||
|
|
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) | ||||||||||||||
|
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||
| Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release. | |||||||||||||||||||||||||||||||||||||||
| Links to related criteria |
| CRISILs Approach to Financial Ratios |
| Rating Criteria for Toll Road Projects |
| For further information contact: | ||||||
|