| Air India SATS Airport Services Private Limited | ||||||
| Ratings reaffirmed at 'CRISIL A / Negative / CRISIL A1 ' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL A/Negative/CRISIL A1’ ratings on the bank facilities of Air India SATS Airport Services Private Limited (AISATS).
The reaffirmation reflects continued impact on the aviation sector due to the Covid-19 pandemic on account of travel restrictions and slump in demand. The ratings continue to factor strong presence of AI SATS in the airports that it operates in, comfortable financial risk profile, and benefits from the business expertise of SATS Ltd (SATS), which holds 50% stake in AISATS. These strengths are partially offset by exposure to risks arising from customer concentration, intense competition and susceptibility to regulatory changes.
CRISIL expects the operating performance to recover in fiscal 2022 with expected revenue growth of 30-35% over the previous fiscal due to low base effect, though it will be lower at around 80% of fiscal 2020 revenue, with pre-IND AS 116 operating margin of 12-13% (16% in fiscal 2020). Financial risk profile is expected to improve over the medium term due to reduction in debt led by regular repayments.
For fiscal 2021, revenue is estimated to de-grow 40-45% with operating margin of 4-5% due to lower scale of operations. For the nine months ended December 31, 2020, revenue was Rs 310 crore (de-growth of 45% compared to corresponding period in the previous fiscal). Despite the impact on operating performance, the business risk profile was supported by sustained market leadership across airports in which AI SATS operates and improved realisation in the ground handling segment due to price revision. |
Key Rating Drivers & Detailed Description Strengths
The company is the market leader in majority of the airports where it manages cargo and ground handling. Managerial and operational support from SATS helps attract international customers that are associated with SATS for other Asian airports. Furthermore, being an Air India Ltd (AIL) subsidiary, AISATS gets easy access and licences to all airports (except those managed by AIL’s fully owned subsidiary, Air India Air Transport Services). The compounded annual growth rate (CAGR) in revenue for the five fiscals through 2020 was 8%, supported by addition of customers and continued demand from existing clients.
The financial risk profile is expected to improve over the medium term with reduction in total debt due to regular repayment and healthy accretion to reserves. In the absence of any major debt-funded capital expenditure (capex) or incremental working capital requirement, the gearing should improve to less than 0.4 time compared to 0.5 time and above in the previous fiscals. The networth is expected to remain healthy at above Rs 450 crore over the medium term. Debt protection metrics are expected to remain comfortable with interest coverage ratio of more than 4 times and net cash accrual to adjusted debt ratio of over 0.3 time, over the medium term.
SATS has proven credentials in the cargo and ground handling business across major airports in the Asia-Pacific region. AISATS derives considerable benefits from SATS’s significant involvement in the management and operations of the joint venture (JV); several key management positions at AISATS are held by SATS’s personnel on secondment. SATS’s operational expertise has helped the company improve the quality of its cargo and ground handling services substantially, leading to a healthy relationship with prominent international airlines.
Weaknesses
Despite addition of customers, AIL accounted for 42% of revenue in fiscal 2020 and around 69% of the receivables as on December 31, 2020. Though net receivables have increased, the company has received steady monthly receipts over the past three fiscals. Management of receivables from AIL remains a key rating sensitivity factor due to its weak credit risk profile.
Growing passenger traffic and upgrade of new airports have led to the entry of several established players into the cargo and ground handling business in India. While the company may remain exposed to intense competition, faster-than-expected expansion into all major airports and the ability to capture market share from existing players will be closely monitored.
Government policies play a significant role in the ground-handling industry. The Airports Economic Regulatory Authority sets the regulations and tariffs. Regulatory response to the pandemic will continue to impact business operations of AI SATS. The current guidelines limit competition to three players per airport for ground handling till a certain number of passengers annually. Any increase in competition in the industry may lead to pressure on margins. |
Liquidity: Adequate Net cash accrual, expected at over Rs 50 crore, should comfortably cover debt obligation of Rs 10-20 crore, per fiscal over the medium term. The cash accrual should also cover incremental working capital requirement given comparatively lower capex plans due to prevailing industry conditions. Bank limit utilisation averaged 67% during the 12 months through January 2021. Liquid investments (including cash and equivalents) were Rs 9 crore as on December 31, 2020. |
Outlook Negative CRISIL Ratings believes the operating performance may show slow recovery compared to pre-covid levels due to heightened uncertainty in the sector because of the impact of Covid-19. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company AISATS, an equal JV between AIL and Singapore-based SATS, provides cargo and ground handling services at Indian airports. The company started operations in 2008 at the Hyderabad and Bengaluru airports and functioned as an unincorporated JV until AIL finalised SATS as its partner for all Indian metro airports. Upon cabinet approval, AISATS was incorporated in April 2010, and all the JV businesses existing at that time were transferred to the company in August 2010.
AISATS provides cargo handling services at the Bengaluru airport and ground handling services at the Bengaluru, Hyderabad, Delhi, Mangaluru (Karnataka), and Thiruvananthapuram (Kerala) airports. It serves over 40 international and five Indian airline customers, including Air India, Emirates, Malaysia Airlines, Singapore Airlines, Air Vistara, Jet Airways, and Thai Airways. |
About the Group- About SATS Established in 1972, Singapore-based SATS is a prominent provider of gateway services (ground and cargo handling services) and food solutions, primarily in the Asia-Pacific region. It is the leading ground and inflight catering service provider at the Singapore Airport (wherein the company controls 80% of the market share and handles around 60 airlines) and is present at over 60 locations in 13 countries. The company has established a network in Asia through its subsidiaries, associates, and JVs in China, India, the Philippines, Indonesia, Taiwan, Vietnam and the Maldives. |
Key Financial Indicators
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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)
*Interchangeable with buyer’s credit ^Interchangeable with Bank Guarantee, Buyers Credit and Term Loan #Interchangeable with WCDL %Interchangeable with cash credit of Rs.20 crore, WCDL Rs.40 crore and BG Rs.75 crore |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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