Detailed Rationale

CRISIL Ratings has assigned its 'CRISIL AA+(CE)/Stable/CRISIL A1+(CE)' ratings to the bank facilities of EMIL Mines And Mineral Resources Limited (EMMRL). EMMRL 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 EMMRL's parent, EMIL. The guarantee covers the entire rated bank facilities of EMMRL. Additionally, CRISIL Ratings understands that EMIL will monitor the cash flows of EMMRL to ensure that all debt obligations are met on the due date.

 

EMMRL was incorporated by EMIL to bid for commercial coal blocks. It is currently implementing a coal block at Bandha, Madhya Pradesh. It is expected to undertake overall capital expenditure (capex) of Rs 3,300 crore (including estimated interest to be paid on project debt prior to commissioning) over the next 4-5 fiscals, and timely progress on the same will be a key monitorable.

 

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

Analytical Approach

The ratings are based on 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.

 

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

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 EMIL. The payment structure is designed to ensure full and timely payment to the lender. The guarantor, EMIL, will pay, not later than one business day from the due date, any amount due and payable by EMMRL in relation to these instruments, in case of any default on, or shortfall in, payment by EMMRL. The guarantee and undertaking together cover the principal, interest and other amounts payable under the loan.

 

• Strong experience of the management

EMIL has experience of more than five decades in the mining industry 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 has 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. Further, the company also operates 150 megawatt (MW) solar and wind capacities.

 

Weaknesses:

• Exposure to project implementation risks

EMMRL is implementing a commercial coal block in Bandha at a total capital outlay of around Rs 3,300 crore (including estimated interest to be paid on project debt prior to commissioning). 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 is necessary for operationalizing the mine. Also, it is in the process of tying-up long-term project loans. The parent’s vast experience in the mining industry provides comfort, however, scheduled implementation of the project will remain a key monitorable.

 

• Expected decline in cash accrual and significant capex of the parent

Cash flow of EMIL is expected to decline in the near term on account of expiry of its iron-ore mining licenses; however, it will continue to be supported by the renewable and coal mining businesses. Also, over the next few fiscals, EMIL will incur substantial capex towards the coal MDO (mine developer and operator) operations, commercial coal, and diamond mining business, which is expected to be funded through infusion from the Aditya Birla Group and external borrowings. Ability of the company to get timely approvals and achieve desired progress in the diamond and the coal mining (MDO as well as commercial mining) businesses will remain key monitorables for EMIL.

Liquidity: Strong

Liquidity is strong, derived from 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 repayment obligations over the next year. Support from EMIL is expected to be used to meet interest obligations over the next year. EMMRL is currently undertaking capex of around Rs 3,300 crore, over the next 4-5 years, which will be funded through long-term project debt and equity support from EMIL. It has currently raised bridge loan of Rs 250 crore to meet expenditure requirements in the interim and can raise further borrowings as required. Further, EMIL is expected to provide financial support in the event 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 CRISIL Ratings’ rating on EMIL.

Rating Sensitivity factors

Upward factors

• Improvement in the guarantor's overall credit risk profile by one notch
• Timely project completion without any significantly high cost overruns

 

Downward factors

• Weakening in the guarantor's overall credit risk profile by one 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 amount. 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).

 

To assess EMIL, CRISIL Ratings has combined the business and financial risk profiles of EMIL and its subsidiaries, including EMMRL. CRISIL Ratings believes the instruments will have a high degree of safety regarding timely servicing of debt obligations.

Unsupported ratings CRISIL A+

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

Key drivers for unsupported ratings

For arriving at the unsupported ratings, CRISIL Ratings has considered the standalone business and financial risk profiles of EMMRL. CRISIL Ratings has also applied its parent notch-up framework to factor in the extent of support available from EMIL.

 

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 partly offset by exposure to project related risks given the significant land acquisition and requirement to avail 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 viz. Radhikapur (East), Odisha and Bandha in fiscal 2021. Of this, it is currently implementing the Bandha block and is looking to surrender the Radhikapur (East) block due to unviability. The Bandha coal block is being implemented at a total capital outlay of around Rs 3,300 crore and is expected to commission by fiscal 2027.

 

About the guarantor

EMIL is closely held by the Aditya Birla group. The company was an established player in the iron ore mining business, with a track record of over five decades. EMIL has a ferro chemicals division in Vapi, Gujarat, which manufactures low-carbon ferroalloys such as ferrovanadium and ferromolybdenum.

 

It subsequently, diversified into coal mining, and runs MDO operations under Bhubaneshwari Coal Mining Ltd (BCML, operator for ECL) and Rajmahal Coal Mining Ltd (RCML, operator for MCL), on a contractual basis. Further, it is implementing a commercial mining block at Bandha through EMMRL. Additionally, under the MDO route it had won coal blocks at Madannagar (Chattisgarh), Amelia (Madhya Pradesh) and Subhadra (Odisha), with Coal India Ltd’s (CRISIL AAA/CCR AAA/Stable/CRISIL A1+) subsidiaries and THDC India Ltd as counterparties.

 

EMIL has investments in various key Aditya Birla group companies through a 100% subsidiary, IGH Holdings Pvt Ltd (IGH; ‘CRISIL AA-/Stable/CRISIL A1+’). 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/Positive/CRISIL A1+'), Aditya Birla Capital Ltd (‘CRISIL A1+’), and Century Textiles and Industries Ltd ('CRISIL AA/Stable/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 step-down subsidiary, Palace Solar Energy Pvt Ltd.

 

The company has been selected as the preferred bidder by the Government of Madhya Pradesh in the Bunder Diamond project.

Key Financial Indicators – EMMRL – CRISIL Ratings adjusted numbers

Particulars	Unit	2022 Actuals	2021 Actuals
Revenue	Rs crore	-	-
Profit after tax (PAT)	Rs crore	-10	-
PAT margin	%	NM	NM
Adjusted debt/adjusted networth	Times	NM	NM
Interest coverage	Times	NM	NM

NM: not meaningful; *EMMRL currently is 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 at EMIL level

 

Any other information: Payment mechanism for long-term loans and non-fund-based limits

Particulars	Timeline
Scheduled due date for payment of interest and principal by EMMRL, as per the sanction letter	T day
Timeline for guarantor to make the payment	T+1 business day

 

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs crore)	Complexity level	Rating assigned with outlook
NA	Term Loan	NA	NA	Mar-26	250	NA	CRISIL AA- (CE) /Stable
NA	Bank Guarantee	NA	NA	NA	650	NA	CRISIL A1+ (CE)

 

Annexure – List of entities consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
Bhubaneshwari Coal Mining Ltd	Full	Subsidiary
Rajmahal Coal Mining Ltd	Full	Subsidiary
IGH Holdings Pvt Ltd	Full	Subsidiary
Palace Solar Energy Pvt Ltd	Full	Subsidiary
EMIL Mines And Mineral Resources Ltd.	Full	Subsidiary