Rating Rationale
March 09, 2017 | Mumbai
Amravati Municipal Corporation
  Outlook assigned; Rating reaffirmed  
 
Rating Action
Corporate Credit Rating CCR BBB-/Stable (Outlook assigned; Rating Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'Stable' outlook to the Corporate Credit Rating of Amravati Municipal Corporation (AMC), while reaffirming the rating at 'CCR BBB-'.

The ratings continue to reflect a sound economic base, favourable legislative framework, moderate financial risk profile, and collection efficiency. These rating strengths are partially offset by weak economic management as reflected in inadequate service arrangements, low recovery of maintenance cost, increasing dependence on state government grants, and the large planned capital expenditure towards Smart City projects.

Key Rating Drivers & Detailed Description
Strengths
* Moderate financial risk profile backed by average collection efficiency and adequate liquidity
AMC has a moderate financial risk profile, marked by adequate own source of revenue and debt protection metrics. The property tax collection efficiency of around 78% in 2016 is comparable with similar-rated urban local bodies.
 
As on September 30, 2016 the corporation had debt of around Rs 17 crore against fixed deposits. Further, interest received on fixed deposit is sufficient to repay the interest obligations. The corporations maintain cash balance of around Rs 25 crore to meet its revenue expenditure during an emergency.
  
* Enabling legislative framework, with favourable provisions regarding recovery of taxes and operational autonomy
AMC is governed by the Maharashtra Municipal Corporation Act, 1949, which provides the corporation with good revenue-raising powers, limited obligatory services, and a favourable borrowing framework. It also stipulates AMC to establish a sinking fund for timely repayment of debt and earmarking of specific tax and enabling provisions.
  
* Sound economic base supported by good connectivity
Amravati is the administrative head quarters for Amravati division as well as for Amravati district.  The city has a population of about 6.47 lakhs (as per the 2011 census) and average literacy rate of 92% which is higher than State literacy levels. Amravati is a growing Industrial centre, with cotton mills as an important industry. Further, Amravati has good road, rail connectivity with almost all important cities in India. It is extremely well connected to Nagpur, Mumbai, Kolkata and Chennai.

Weakness
* Inadequate service arrangements and low cost recovery of maintenance
The level of coverage and the quality of services provide by the corporation is limited as reflected by inadequate solid waste management and sanitation and sewerage services. Further, the corporation has limited solid waste management reflected in zero segregation of waste resources; however it has approximately 90% of door-to-door collection of waste. Further, the corporation has no cost recovery of services provided.
 
* Increasing dependence on state government grants
The corporation was self-sufficient in terms of revenue (over 90% derived from own sources) in fiscal 2016. However, dependence on state grants will increase from fiscal 2017 on account of abolition of LBT in Maharashtra. The Government of Maharashtra (GoM) had abolished LBT in the state for a trader with an annual turnover of less than Rs.50 crore, with effect from August 1, 2015. To compensate for the loss of LBT, the state government has been providing compensation in the form of grants. For fiscal 2016, AMC received Rs 50 crore as compensation. CRISIL believes that adequate and timely receipt of grants in lieu of LBT will be a key rating sensitivity factor.  
 
* Large planned capex towards Smart City
The size of the planned projects under Smart city as compared to that of those undertaken by the AMC in the past is quite large. Thus limited experience of AMC in handling large projects and inadequate staff vis-a-vis the size of the projects, pose some risk of implementation delays due to complexities inherent to such infrastructure projects. Project delays may result in cost escalations, which may put additional financial burden on AMC's resources.
 
* Uncertainty regarding impact of goods and service tax (GST) on revenue
Considering that a significant portion of AMC's revenue still comes from LBT (from traders with turnover over Rs 50 crore), there will be some impact of shift towards GST. The extent of compensation from the government or any other compensation mechanism in lieu of abolition of the remainder LBT is not yet ascertainable. However, it could lead to increased dependence on government grants, and will remain a key monitorable.

Outlook: Stable
CRISIL believes AMC's financial risk profile will remain moderate over the medium term, backed by moderate collection efficiency.

Upside scenario:
* Significant increase in overall surplus
* Considerable improvement in services provided
* Generation of additional revenue sources
 
Downside Scenario
* Large debt funded capex, weakening the financial risk profile
* Delay in receipt / reduction in quantum of grants from Maharashtra government in lieu of LBT or unfavourable impact of GST on the revenues of the corporation

About the corporation
The civic administration in Amravati, Maharashtra, vests with AMC. As per the Maharashtra Municipal Corporation Act, 1949, which governs AMC, the corporation is responsible for providing civic services such as water supply, construction and maintenance of roads, street lighting, sewerage and drainage facilities, solid waste management, health services, education, and others. The total area of the city is 270 square kilometre of which 121 square kilometre falls under municipal limits.

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)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs. Crore) Rating assigned with outlook
NA NA NA NA NA NA NA
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
-  CCR  0  CCR BBB-/Stable    No Rating Change  27-12-16  CCR BBB-    --    --  -- 
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
Rating Criteria for Municipal and Urban Local Bodies

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