Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL AA- (CE)/Stable/CRISIL A1+ (CE)' ratings on the bank facilities of EMIL Mines and Mineral Resources Ltd (EMMRL), which is a 100% subsidiary of Essel Mining and Industries Ltd (EMIL; 'CRISIL AA-/Stable').

 

The ratings are based on the strength of a continuing, unconditional, and irrevocable corporate guarantee by the parent, which covers the entire rated bank facilities of EMMRL. Additionally, CRISIL Ratings understands that EMIL will monitor the cash flows of EMMRL to ensure all debt obligations are met on time.

 

EMMRL was set up by EMIL to bid for commercial coal blocks. It is currently implementing a coal block at Bandha, Madhya Pradesh, and is expected to undertake overall capital expenditure (capex) of ~Rs 3,500 crore (Rs 284 crore spent till fiscal 2023) to operationalise the mine, timely progress of which will be monitorable.

 

Furthermore, the unsupported ratings reflect the standalone business, financial and project risk profiles of EMMRL. CRISIL Ratings has also factored in the support the company is expected to receive from EMIL.

Analytical Approach

The ratings are based on the CRISIL Ratings criteria for rating instruments backed by guarantees. The 'CE' (credit enhanced) suffix reflects the payment structure, which is designed to ensure full and timely payment to lenders on account of the corporate guarantee by EMIL.

Key Rating Drivers & Detailed Description

Strengths:

• Continuing unconditional and irrevocable corporate guarantee by EMIL: The credit-enhanced ratings of EMMRL are based on an unconditional, continuing, and irrevocable guarantee from the parent. The payment structure is designed to ensure full and timely payment to the lender. The guarantor, EMIL, will pay any amount due and payable by EMMRL in relation to these instruments, in case of any default on, or shortfall in, payment by EMMRL, as per the defined timeline structure. The guarantee and undertaking together cover the principal, interest and other amounts payable under the loan.

 

• Strong experience of the management: EMIL has been in the mining industry for more than five decades, and was one of the largest iron ore mining, processing, and trading companies in the non-captive private sector. It has since diversified into coal mining and gained extensive experience in the coal mine developer and operator (MDO) business, wherein it mines coal for Eastern Coalfields Ltd (ECL) and Mahanadi Coalfields Ltd (MCL) on a contractual basis. It is also implementing a commercial coal mining block (won through auction in fiscal 2021) located in Bandha under EMMRL. Furthermore, the company operates 150 megawatt (MW) solar and wind capacities.

 

Weaknesses

• Exposure to project implementation risks: The company is implementing a commercial coal block in Bandha at a total capital outlay of around Rs 3,500 crore. The project involves acquisition of large land parcels, receipt of multiple approvals from various state and central government agencies and subsequently, its successful commissioning, which is expected by fiscal 2027. This exposes it to risks related to delays and cost overruns, as timely completion of land acquisition and receipt of approvals are necessary for operationalising the mine. Also, it is tying up long-term project loans. Scheduled project implementation will remain monitorable.

 

• Expected decline in cash accrual and significant capex of the parent: Cash flow of EMIL has declined on account of expiry of its iron-ore mining licences; however, it will continue to be supported by the renewable and coal mining businesses. Also, over the next few fiscals, the parent will incur substantial capex towards coal MDO operations and commercial coal mining business, which are expected to be funded through infusion from the Aditya Birla Group and external borrowings. Ability to get timely approvals and achieve desired progress in the coal mining business will remain monitorable.

Liquidity: Strong

Liquidity is supported by the credit enhancement in the form of an unconditional and irrevocable corporate guarantee from, and strong liquidity of, the guarantor, EMIL. On a standalone level, EMMRL has no major principal obligation over the next fiscal. Support from the parent is expected to help meet the interest obligation. EMMRL is incurring capex of around Rs 3,100 crore over fiscals 2024-2028, funded through long-term project debt and equity support from EMIL. It has been sanctioned a loan of Rs 750 crore (outstanding as of October 2023 was Rs 109.21 crore) to meet expenses, and will raise further borrowings as required. EMIL is also expected to provide financial support in case of an exigency.

Outlook: Stable

The outlook is based on the 'Stable' outlook on the guarantor's (EMIL) debt instruments. The rating will remain sensitive to any change in the rating of CRISIL Ratings on EMIL.

Rating Sensitivity factors

Upward factors

• Improvement in the guarantor's overall credit risk profile by 1 notch.
• Timely project completion without any significantly high cost overruns leading to positive cash flows.

 

Downward factors

• Weakening of the guarantor's overall credit risk profile by 1 or more notches.
• Non-adherence to the terms of transaction structure/payment mechanism.

Adequacy of credit enhancement structure

The guarantee provided by EMIL is unconditional and irrevocable and covers the entire existing facility. CRISIL Ratings understands that EMIL will monitor cash flows of EMMRL to ensure timely servicing of debt (principal, interest, and other amounts payable on the guaranteed bank facility).

Lender monitored payment mechanism* is in place to ensure timely payment of the interest and principal obligations on the rated facilities. The payment mechanism provides adequate timeline for the guarantor to make full and timely payments in case of a default or delay by the borrower (EMMRL).

 

Furthermore, the company’s debt is consolidated with that of the parent. The project of EMMRL represents a sizeable portion of the overall capex of EMIL (over the next three fiscals) and thus remains critical to the parent. Resultantly, in case of any stress faced by EMMRL, EMIL should provide necessary support to service debt.

 

To assess EMIL, CRISIL Ratings has combined the business, financial and project risk profiles of EMIL and its subsidiaries, including EMMRL. CRISIL Ratings believes the instruments will have a high degree of safety from guarantor regarding timely and fully servicing of debt even under a stress scenario, where the cash flows in the subsidiary may not suffice to repay the debt.

Unsupported ratings:  CRISIL A+

CRISIL Ratings has introduced the 'CE' suffix for instruments having explicit credit enhancement feature in compliance with the Securities and Exchange Board of India circular dated June 13, 2019.

Key drivers for unsupported ratings

For arriving at the unsupported ratings, CRISIL Ratings has considered the standalone business, financial and project risk profiles of EMMRL. CRISIL Ratings has also applied its parent notch-up framework to factor in the extent of support available from EMIL, management’s control over operations of EMMRL, common sources of fund and capital.

 

The ratings factor in the strong financial flexibility arising from EMMRL’s strategic importance to the parent, and healthy demand outlook with its presence in key coal-consuming regions. These strengths are partially offset by exposure to project-related risks given the significant land acquisition and requirement to avail of multiple approvals from both state and central government entities.

About the Company

EMMRL, incorporated on February 27, 2020, is a 100% subsidiary of EMIL. The company was set up to participate in commercial coal mining auctions. It won two commercial mining blocks: Radhikapur (East), Odisha; and Bandha in fiscal 2021. Of this, it is currently implementing the Bandha block and is surrendering the Radhikapur (East) block due to unviability.

About the the guarantor

EMIL is closely held by the Aditya Birla group and is an established player in the mining business with a track record of over fie decades. It has a noble ferro alloy division in Vapi, Gujarat, which manufactures low-carbon ferro alloys such as ferrovanadium and ferromolybdenum. The company has investments in various Aditya Birla group companies through its subsidiary, IGH Holdings Pvt Ltd (IGH; ‘CRISIL AA-/Stable/CRISIL A1+’).

 

It subsequently diversified into coal mining, and runs MDO operations under Bhubaneshwari Coal Mining Ltd (operator for ECL), Rajmahal Coal Mining Ltd (operator for MCL), and Amelia Coal Mining Ltd (operator for THDC) on a contractual basis. It is implementing a coal MDO project under Subhadra Coal Mining Ltd and a commercial mining block at Bandha through EMMRL. EMIL acquired Pro Minerals Pvt Ltd (PMPL) in fiscal 2019, which has an IOBP plant of 1 MTPA capacity. PMPL was merged with EMIL in 2022.

 

EMIL has investments in various key Aditya Birla group companies through a 100% subsidiary, IGH. Key investments include Hindalco Industries Ltd ('CRISIL AA+/Stable/CRISIL A1+'), Grasim Industries Ltd ('CRISIL AAA/Stable/CRISIL A1+'), Aditya Birla Fashion and Retail Ltd ('CRISIL AA+/Stable/CRISIL A1+'), Vodafone Idea Ltd and Century Textiles and Industries Ltd ('CRISIL AA/Stable/CRISIL A1+'). Also, it directly holds stake in Aditya Birla Capital Ltd (‘CRISIL A1+’).

 

As a part of its initiative in the green energy space and environment conservation, EMIL owns windmills in Dhule, Maharashtra; a 27-MW solar power generation project in Rajasthan; projects with 38-MW capacity in Telangana; and a 15-MW solar power plant in Gujarat through a stepdown subsidiary, Palace Solar Energy Pvt Ltd.

Key Financial Indicators– EMMRL – CRISIL Ratings-adjusted numbers

Particulars	Unit	2023 Actuals	2022 Actuals
Revenue	Rs crore	Na	NA
Profit after tax (PAT)	Rs crore	-23	-10
PAT margin	%	NM	NM
Adjusted debt/adjusted networth	Times	NM	NM
Interest coverage	Times	NM	NM

NM: Not meaningful; *EMMRL is currently in project phase, with commissioning of its mining project expected by fiscal 2027

List of covenants

• At consolidated EMIL level – net debt (excluding debt at IGH) to be lower than Rs 5,000 crore.
• At IGH level, net debt (excluding intercorporate deposits given by EMIL) to be lower than Rs 3,500 crore.
• At consolidated EMIL level, ratio of total investments to total debt to be greater than 1.5 times.

Any other information

Payment mechanism for long-term loans and non-fund-based limit

Particulars	Timeline
Scheduled due date for payment of interest and principal by EMMRL, as per transaction document	T day
Timeline for lenders to invoke guarantee if EMMRL fails to make payment on due date or on occurrence of Default	T+5 business days
Timeline for the guarantor to pay in case the guarantee is invoked	Immediately upon invocation^

^As per guarantee document – The guarantor hereby irrevocably and unconditionally guarantees the due repayment to the bank forthwith on the bank’s first demand, without demur any and/or all the guaranteed amounts, to the satisfaction of the bank, in the event of failure on the part of borrower in repaying the same to the bank or otherwise upon occurrence of a Default