| Dharamshala Ropeway Limited | ||||||
| Ratings reaffirmed at 'CRISIL BBB+/Stable/CRISIL A2' | ||||||
| Rating Action | ||||||
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| 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 BBB+/Stable/CRISIL A2’ ratings on the existing bank facilities of Dharamshala Ropeway Ltd (DRL).
The ratings continue to factor in the strategic location of the ropeway project and its dynamic pricing model, along with the strong operational and financial support expected from the parent, TRIL Urban Transport Pvt Ltd (TUTPL). So far, traffic has been modest in comparison to earlier expectation, leading to lower-than-expected ticket collections during the first 18 months of operations. Owing to inherent seasonality, traffic volume is expected to be higher in peak season. The car parking facility being constructed near the lower terminal should provide fillip to the traffic. Moreover, ticket prices are dynamic and DRL has complete autonomy in controlling prices as per demand and other factors. These should strengthen cash flow over the medium term and will be a key monitorable.
Debt service coverage ratio (DSCR) is expected to remain weak over the next few fiscals given lower than anticipated ticket collections. Shortfall, if any, is expected to be funded by TUTPL, similar to the support extended in fiscal 2023 in form of inter corporate deposits (ICDs). However, average DSCR is expected to be adequate over the tenure of the loan, driven by increase in both traffic and ticket prices. The DSCR may also be supported by likely refinancing of term loan over a longer tenure, and thus, will be a key monitorable. Furthermore, the sponsor has created a debt service reserve account (DSRA) covering three months of debt obligation, as stipulated in the financing agreements.
Besides DSCR, the ratings factor in the financial support received from the TUTPL, the single largest shareholder, in case of exigencies. TUTPL is a 100% subsidiary of Tata Realty and Infrastructure Ltd (TRIL; 'CRISIL AA+/Stable/CRISIL A1+’), a wholly owned subsidiary of Tata Sons Ltd (‘CRISIL AAA/Stable/CRISIL A1+’). These strengths are partially offset by susceptibility to fluctuations in traffic volume and interest rate. |
Analytical Approach CRISIL Ratings has applied its parent notch-up framework to factor in the extent of distress support available from the parent, TUTPL, and the ultimate parent, TRIL. |
Key Rating Drivers & Detailed Description Strengths: Strategic location of the ropeway and dynamic pricing model to aid cash flow, resulting in adequate DSCR As per studies, more than 15 lakh tourists visit Dharamshala each year. The approach road to the ropeway is behind the bus stand, and hence, easily accessible for tourists. The car parking facility is proposed to be constructed near lower terminal point, so the tourists visiting the site by car can park their cars and access the ropeway. Besides providing an experience, this ropeway reduces travel time between Dharamshala and McLeod Ganj significantly, which should support traffic volume.
The company is entitled to levy and collect fees from the users in accordance with the fee notification set forth in the concession agreement. As per the agreement, the price of the ticket shall follow a dynamic pricing model controlled by DRL, depending on demand. This should support cash flow during non-peak season.
Operational and financial support from TRIL/TUTPL DRL is the first ropeway project being executed by TUTPL. TRIL is expected to retain management control (at least 51% shareholding) in TUTPL. Furthermore, TUTPL will have management control in DRL throughout the tenure of the debt.
Despite undertaking for funding up to 10% of cost overrun, TUTPL has borne the entire cost overrun to support the project during the construction phase. Furthermore, TUTPL has extended timely financial aid to the project for meeting debt obligation, latest being during fiscal 2023. TRIL/TUTPL are expected to continue providing support during exigencies. The company also has liquidity buffers in the form of DSRA equivalent of 3 months of debt servicing.
Weakness: Susceptibility to volatility in traffic volume and interest rates Fluctuation in traffic volume owing to extreme weather conditions, geo-political risks or unforeseen circumstances such as the Covid-19 pandemic may adversely impact cash flow and debt protection metrics. Traffic during the first 18 months of operations remained modest, owing to diversion in flow of tourists from Dharamshala to Kashmir post the pandemic.
The term loan has a floating interest rate, which is vulnerable to changes in the economic scenario and may impact the DSCR in case of unfavourable movement in interest rate. The company has plans to refinance the existing term loan with a longer tenure term loan repayable up to fiscal 2038, which is likely to be backed by a corporate guarantee from TRIL as per the articulation by the management. The same is also expected to benefit in terms of lower interest rate. Nevertheless, the cash flows would remain susceptible to movement in interest rates. However, the risk is mitigated by the dynamic fare model. |
Liquidity: Adequate Cash flow and liquidity support in the form of ICDs from the parents, TRIL/TUTPL, will cover the debt obligation over the next 2-3 years, while the cash flow from operations alone is expected to comfortably cover debt obligation for the remaining tenure of the debt. The project also benefits from the creation of a DSRA equivalent to three months of debt obligation. |
Outlook: Stable CRISIL Ratings believes DRL will continue to benefit from the dynamic fare model and the need-based financial support from TUTPL. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company DRL was incorporated on May 8, 2015, as a special-purpose vehicle of TUTPL (74% stake), holding company for the urban transport project portfolio of TRIL, and A Power Himalayas Ltd (26%). The company has signed a 40-year concession agreement with the Ministry of Tourism and Civil Aviation, Himachal Pradesh, for the development of an aerial passenger ropeway between Dharamshala and McLeod Ganj through a public-private partnership on design, build, finance, operate, toll and transfer basis. The project received commercial operation date on January 17, 2022. |
About the Group TRIL, a wholly owned subsidiary of TATA Sons Ltd, is a key vehicle for the implementation of the Tata group's long-term strategy in the infrastructure and real estate sectors. |
Key Financial Indicators*
*As the project was commissioned on January 17, 2022, the financial indicators for fiscal 2022 are not applicable/meaningful; NM: Not meaningful ^includes Rs 185.6 crore revenue from construction services of ropeway |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Interchangeable with letter of credit to the extent of Rs 80 crore |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||
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Criteria Details
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