Rating Rationale
January 30, 2024 | Mumbai
IAV Utkarsh Limited
Rating reaffirmed at 'CRISIL AA-/Stable'
 
Rating Action
Total Bank Loan Facilities RatedRs.1500 Crore
Long Term RatingCRISIL AA-/Stable (Reaffirmed)
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 AA-/Stable' rating on the long-term bank facilities of IAV Utkarsh Limited (IAVUL; formerly known as IOT Utkarsh Limited).

 

IAVUL is a wholly-owned subsidiary of IndianOil Adani Ventures Ltd (IAVL; formerly known as ‘Indian Oiltanking Limited’). IAVL is a joint venture (JV) between Indian Oil Corporation Ltd (IOCL; rated ‘CRISIL AAA/Stable/CRISIL A1+’) and Adani Ports and Special Economic Zone Ltd (APSEZ; part of Adani group) each holding 49.38% and UTI Capital Pvt Ltd (UCPL) holding the balance 1.24%.

 

The rating centrally factors the strategic importance this project holds for the parent IAVL given the superior equity returns expected to be generated over the concession period of 25 years based on a Build Operate Own Transfer (BOOT) agreement with a strong counterparty, Numaligarh Refinery Limited (NRL; ‘CRISIL AAA/Stable/CRISIL A1+’). Also, IAVUL will form a significant part of the consolidated revenues of IAVL once it is operational. The rating also takes comfort from the vast experience of IAVL (as an engineering, procurement, and construction (EPC) contractor for the project) in successfully implementing similar projects of construction, operation and maintenance of liquid terminals and related activities in India and abroad.

 

These strengths are partially offset by the construction phase of the project, given the construction period of around 35 months and susceptibility of the project to time and cost overruns over the course of the construction period. However, the non-complex nature of the project and IAVL’s track record of implementing similar projects in the past would largely mitigate these risks.

 

The project had achieved 35% completion as of September 2023 and is progressing as per the schedule. As per the management any time or cost overruns are not expected at this juncture. The project phase risks will keep on moderating with the timely progress of the project. As per current estimates of the management, construction of tankages is expected to be completed by 2024 and mechanical completion is expected to be completed by March 2025, in line with the targeted timelines.

 

Further, CRISIL Ratings will continue to closely monitor developments related to any regulatory/government action or investigation into the Adani group. As such, any material adverse impact on the credit risk profile of the Adani group or its entities may adversely impact IAVL’s credit risk profile and, in turn, IAVUL’s credit rating. Thus, it will be a rating sensitivity factor for IAVUL.

Analytical Approach

CRISIL Ratings has applied its parent notch-up framework to factor in the extent of support received from IAVL, which holds 100% stake in IAVUL. Considering the strategic importance the project holds for IAVL, the company is expected to continue receiving the required operational, financial and managerial support from the parent in a timely manner.

Key Rating Drivers & Detailed Description

Strengths:

  • Strategic importance to the promoter IAVL: IAVUL’s project would be of strategic importance to IAVL’s operations, as it is expected to generate superior equity returns from the project and will form a significant portion of IAVL’s consolidated revenues once it becomes operational. IAVUL has awarded the EPC contract to execute the project to IAVL, which would be overseen by the experienced project management team of IAVL. Also, IAVUL will enter into a contract with IAVL for operations and maintenance (O&M) of the project during the BOOT concession period.

 

The project is expected to receive the required managerial, financial and operational support from IAVL, on a timely basis. The company has also been closely providing the required operational support on the ground, to ensure seamless execution of the project. IAVL would be funding the equity requirement as well as provide the required support to fund cost overruns (if any) through additional infusions.

 

  • Stable cash flows expected from a firm BOOT agreement with a strong counterparty: The project is backed by a BOOT agreement with a concession period of 25 years, that assures steady cash flows from the ‘use or pay’ arrangement with a strong counterparty, NRL. As per the BOOT agreement, NRL would pay monthly fixed charges as well as inflation-linked O&M charges to IAVUL from the commissioning date. The revenues are largely insulated from market risk under the BOOT structure. IAVUL’s facility will be critical for NRL, as it is part of a larger project towards expansion of its crude oil refining capacity by 6 million metric tonnes per annum (mmtpa) at the existing refinery at Numaligarh, Assam and a ~1630-kilometre pipeline to connect IAVUL’s liquid terminal facilities with the refinery.

 

Weakness:

  • Susceptibility to time and cost overruns, owing to construction phase of the project: The BOOT agreement was executed between NRL and IAVUL in October 2022 and accordingly the physical progress is still in its initial phase. The long construction period of around 35 months for the project would render it susceptible to delays and cost overruns over the construction period. While IAVL has vast experience and a suitable track record in successfully implementing projects towards construction of liquid terminals, steady execution of the project by IAVUL as per planned timelines would be a key rating monitorable. The progress achieved by the company as of September 2023 is in line with the schedule, however, the same will be monitored.

Liquidity: Strong

The entire external debt to fund the project cost has been tied up in the form of term loan. The cost incurred till date has been funded through drawdown of the sanctioned loan, equity infusions and short-term unsecured loans extended by IAVL. The project is expected to continue receiving the required promoter support from IAVL, on a timely basis.

Outlook: Stable

The outlook reflects CRISIL Ratings’ view of stability in the credit risk profile of IAVL owing to contracted nature (>80%) of its cashflows providing sufficient long-term visibility of its ability to support IAVUL. IAVUL is expected to receive the required managerial, financial and operational support from IAVL, in a timely manner.

Rating Sensitivity factors

Upward factors:

  • Improvement in the credit risk profile of IAVL by 1 or more notches
  • Significant progress on the project execution such that there is visibility of the project completion within budgeted time and cost

 

Downward factors:

  • Considerable delay in project execution, resulting in significant time and cost overruns
  • Any change in the support philosophy of IAVL
  • Weakening in the credit risk profile of IAVL by 1 or more notches

About the Company

Incorporated in August 2022, IAVUL is a special purpose vehicle promoted by IAVL with an aim to set up a crude oil import terminal with a planned storage capacity of 600,000 cbm (10 tanks of 60,000 cbm each) on BOOT basis for NRL at Paradip port, Odisha. Additionally, IAVUL shall also be responsible for O&M of the project assets for a period of 25 years.

 

The project is currently in the construction phase and is expected to be completed by September 2025. The necessary statutory approvals related to operations in the BOOT area have been obtained by IAVUL. The project cost is estimated at Rs 1,818 crore to be funded in the debt: equity ratio of 80:20.

About the Parent

IAVL is an equal JV between APSEZ and IOCL, with both partners holding equity to the extent of 49.38%, with UCPL holding the balance 1.24%, and is a provider of terminaling services to the petroleum/petrochemical sectors in India. IAVL currently owns 4 terminals in India and is handling O&M of other two terminals with a total capacity of 2.24 million cbm. IOTL also has significant expertise in the EPC domain and has executed various Oil/LPG storage terminals, pipelines, BOOT projects and other projects in the Oil and Gas segment.

Key Financial Indicators*

As on/for the period ended March 31

 Unit

2023

2022

Operating income

Rs.Crore

NA

NA

PAT

Rs.Crore

NA

NA

PAT margin

%

NA

NA

Adjusted debt/Adjusted networth

Times

NA

NA

Interest coverage

Times

NA

NA

*Company is in project stage

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the instrument Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs.Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Term Loan* NA NA 30-Jun-2042 1455 NA CRISIL AA-/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 45 NA CRISIL AA-/Stable

*Letter of Credit of Rs 260 crore as a sub-limit of Term Loan 

Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 1500.0 CRISIL AA-/Stable   -- 30-05-23 CRISIL AA-/Stable   --   -- --
      --   -- 16-03-23 CRISIL AA-/Stable   --   -- --
      --   -- 09-02-23 CRISIL AA-/Stable   --   -- --
      --   -- 18-01-23 CRISIL AA-/Stable   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Proposed Long Term Bank Loan Facility 45 Not Applicable CRISIL AA-/Stable
Term Loan* 1455 State Bank of India CRISIL AA-/Stable
*Letter of Credit of Rs 260 crore as a sub-limit of Term Loan 
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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