Rating Rationale
January 31, 2025 | Mumbai
Ahmedabad Municipal Corporation
Rating reaffirmed
 
Rating Action
Rs.200 Crore BondCrisil AA+/Stable (Reaffirmed)
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 reaffirmed its ‘Crisil AA+/Stable’ rating on the Rs 200 crore bond programme of Ahmedabad Municipal Corporation (AMC).

 

The rating factors in the strong growth in revenue receipts for the corporation led by significant increase in its non-tax revenue (due to higher proceeds from asset monetisation) as well as higher own-tax revenue. Revenue surplus rose to Rs 1,897 crore in fiscal 2024 from Rs 983 crore in fiscal 2023, aided by strong growth in non-tax revenue and stable growth in revenue expenditure. Operating surplus is expected over Rs 2,000 crore over the medium term, limiting reliance on external debt to meet capital expenditure (capex). Liquidity should be adequate with fixed deposits of ~Rs 1,050 crore as on December 31, 2024. 

 

The rating continues to reflect the strong creditworthiness of AMC, the strength of the trustee-administered escrow account and payment mechanism, and adequate liquidity in the form of debt service reserve account (DSRA) equivalent to 12 months of interest obligation. (Refer to annexure for the payment mechanism for coupon and redemption.)

 

The rating also factors in healthy service delivery supporting strong operating performance, strong financial position supported by comfortable liquidity and debt protection metrics and robust economic base. These strengths are partially offset by high reliance on state government grants and large capex.

Analytical Approach

For arriving at its rating, Crisil Ratings has applied its criteria on future flow securitisation.

Key Rating Drivers & Detailed Description

Strengths:

  • Sound escrow mechanism: The escrow and bond payment mechanism provides adequate strength to the bond issuance. The tax receipts and user charges escrowed at collection, and the trustee-managed escrow mechanism and payment structure with recourse to the originator ensure timely payment to investors. The DSRA equivalent to annual interest payment before pay-in and its maintenance throughout the tenure further strengthen the structure. Debt service coverage ratio (DSCR) is expected to be high throughout the tenure of the instrument.

 

  • Healthy service delivery supporting strong operating performance: The corporation has adequate civic infrastructure and robust delivery systems. High infrastructure quality is reflected in strong water supply coverage, adequate road and improving sewerage networks, and robust solid waste management practices.

 

The revenue profile of AMC includes income from collection of property tax, water and conservancy tax, income from other taxes, octroi compensation and other revenue grants, and non-tax income. Revenue surplus is healthy, backed by strong property tax collection and steady receipt of grants from the state government in lieu of octroi and non-tax income comprising town development income and asset monetisation. Despite increasing revenue expenditure, healthy growth in tax collection and strong growth in non-tax revenue led to the operating surplus rising to Rs 1,897 crore in fiscal 2024 from Rs 983 crore in fiscal 2023. The operating surplus will sustain in fiscal 2025 driven by healthy revenue collection and improvement in economic activity. Ability to manage revenue expenditure will be a key monitorable.

 

  • Strong financial risk profile supported by comfortable liquidity and debt protection metrics: Operating surplus to net debt ratio was comfortable above 1.5 times in fiscal 2024. As on March 31, 2024, debt was Rs ~1,190 crore, including bonds issued and term loans availed for capex and operating expenditure. The debt is expected to reduce over the medium term with regular repayments and no major debt addition in the near term due to healthy operating surplus. Furthermore, the corporation will receive adequate support from the state government in the form of grants and octroi compensation. Reimbursements and capital grants, along with sustenance of non-tax receipts and increase in liquidity, will be monitorables.

 

  • Robust economic base: Ahmedabad’s robust industrial base, favourable location, strategic importance to the state and high per capita income have led to a strong economic base. Industries, such as textiles, pharmaceuticals and chemicals, in Gujarat have flourished owing to favourable state government policies, affordable cost of living, surplus labour and low transportation cost.

 

Weaknesses:

  • High dependence on state government grants, though has been reducing: Although the share of grants and compensation from the state government has reduced, it accounted for a high share (around 34%) of the revenue receipts in fiscal 2024. Since the abolition of octroi in fiscal 2008, AMC has been receiving compensation consistently from the state government. In fiscal 2024, it received Rs 1,167 crore as octroi compensation. With rise in property tax revenue and non-tax revenue, dependence on government grants is expected to reduce further over the medium term.

 

  • Significant capex: The corporation is expected to undertake capex of Rs 4,000-5,000 crore per annum over the medium term for implementing the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and Smart City schemes, ongoing Sabarmati Riverfront Development Project (SRFD) and Ahmedabad Bus Rapid Transit System projects; and infrastructure projects, such as Kharicut Canal project, renewable projects and construction of sports complex. In fiscal 2023, AMC availed term loans totaling Rs 700 crore for SRFD and other projects. In fiscal 2024, AMC raised Rs 200 crore through taxable green bonds for funding a part of the project under AMRUT. The corporation has been working towards monetisation of some land parcels in its jurisdiction to partly fund capex, which led to higher revenue receipts in fiscal 2024 and is expected to continue in the near-to-medium term. Any additional capex, leading to large debt, will remain a key rating sensitivity factor.

Liquidity: Strong

Operating surplus is expected over Rs 2,000 crore against term debt obligation of Rs 200-220 crore over the medium term. Liquid surplus was Rs 1,050 crore as on December 31, 2024. AMC is expected to maintain cash and bank balance of around Rs 900 crore over the medium term and generate healthy operating surplus, which will be sufficient to meet debt obligation and partly fund capex.

Outlook: Stable

Crisil Ratings believes AMC will continue to generate large operating surplus over the medium term while maintaining comfortable debt protection metrics.

Rating sensitivity factors

Upward factors:

  • Significant improvement in service arrangements, such as water supply, sewerage and solid waste management
  • Increased collection efficiency in existing revenue sources and income from additional sources
  • Substantial and sustained increase in operating surplus to over 30%

 

Downward factors:

  • Steep decline in collection of property tax and weakening support from the state government in terms of adequacy and timeliness of octroi compensation, leading to reduction in liquidity
  • Fall in operating surplus below 15% on sustainable basis leading to weakening of debt protection metrics
  • Non-adherence to the escrow and payment mechanism

About the corporation

AMC is the largest municipal corporation in Gujarat and is governed by the Bombay Provincial Municipal Corporation Act, 1949, as amended by the government of Gujarat. It has jurisdiction over 464.16 sq km and provides a range of civic services to around 70 lakh residents. Services include water supply, sewerage disposal, solid waste management, primary education, public safety, transportation and slum improvement.

Key Financial Indicators (Crisil Ratings-adjusted numbers)

As on / for the period ended March 31

Units

2024

2023

Revenue receipts

Rs crore

7,039

5,244

Revenue surplus

Rs crore

1296

736

Revenue surplus/ revenue receipts

%

18

14

Any other information:

Annexure

Contours of the escrow structure pertaining to the Rs 200 crore bond are as follows:

a)      Property tax and user charges collected by and due to AMC shall be transferred to a separate no-lien escrow account for debt serving; eligible bondholders and lenders shall have first and pari-passu charge over the escrow account, debt service account and collection account(s).

b)      AMC should also establish separate DSRA, interest payment account (IPA) and sinking fund accounts (SFA) with the escrow banker as per the terms of each series.

c)       In case of any shortfall, all the lender and bondholders will be pari-passu and share equal charge. No objection certificate (NOC) from other lenders also received.

d)      A DSRA account is funded one day before the pay-in date with an amount equal to one interest payment.

e)      At the beginning of every month, the funds lying or deposited in the AMC account shall be used in the following priority:

  • First, transfer to the DSRA any shortfall in DSRA so that at all times the DSRA is maintained at one annual interest payment.
  • Second, transfer to IPA on monthly basis, an amount divided in equal instalment in each month such that funds in IPA are equal to funds due on coupon payment date (for semi-annual coupon, transfer of six equal installments on monthly bases to IPA) and any shortfall in earlier contribution.
  • Third, transfer to the SFA on monthly basis an amount divided in equal monthly installments for the entire tenure of the bond such that funds in SFA at the end of the tenure are equal to the principal due on redemption date (for five-year bonds, transfer of sixty equal installments on monthly basis to SFA) and any shortfall in earlier contribution.

a)      In case of any shortfall in transfer from escrow account to debt service account, AMC shall make good the shortfall from the funds from other account(s).

b)      Any surplus funds in the account thereafter will be used during the month by AMC. Any surplus in the account after meeting the dues to the bondholders can be transferred to the AMC.

c)       The amount deposited in IPA, DSRA and SFA shall be used solely for meeting the dues to the bondholders.

d)      No amount can be withdrawn from these accounts without the approval of trustees to the bond holders.

 

Interest payment mechanism

T – Interest payment date

Day

 

T-25

The trustees shall check the amount lying to the credit of IPA. In case of shortfall, the trustees shall intimate AMC of the shortfall.

T-15

AMC shall make good the shortfall in the IPA, if applicable.

T-14

In case of shortfall, trustees shall trigger the payment mechanism and instruct the bank to transfer the shortfall amount from the DSRA to the IPA.

T-10

Bank shall transfer the shortfall amount, if applicable*.

T

Interest payment is done.

*Any amount drawn from the DSRA should be deposited back in the DSRA as per the mechanism indicated above.

 

Redemption mechanism

T – Redemption date

Day

 

T-25

The trustees shall check the amount lying to the credit of the SFA. In case of any shortfall in amount, the trustees shall intimate AMC of the shortfall.

T-15

AMC shall make good the shortfall in the SFA.

T

Redemption payment in done.

Note on complexity levels of the rated instrument:
Crisil Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

Crisil Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the Crisil Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name Of Instrument Date Of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs. Crore) Complexity Levels Rating Outstanding with Outlook
INE117E08029 Bond 06-Feb-24 7.90 06-Feb-29 200.00 Simple Crisil AA+/Stable
Annexure - Rating History for last 3 Years
  Current 2025 (History) 2024  2023  2022  Start of 2022
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Bond LT 200.0 Crisil AA+/Stable   -- 29-02-24 Crisil AA+/Stable 07-09-23 Crisil AA+/Stable,Provisional Crisil AA+/Stable 17-01-22 Crisil AA+/Stable Crisil AA+/Stable
      --   --   -- 17-01-23 Crisil AA+/Stable   -- --
All amounts are in Rs.Cr.
Criteria Details
Links to related criteria
Rating Criteria for Municipal and Urban Local Bodies
CRISILs rating methodology for future flow securitisation
The Infrastructure Sector Its Unique Rating Drivers

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