| IRB Infrastructure Developers Limited | ||||||
| Ratings placed on 'Watch Developing' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has placed its ratings on the bank facilities of IRB Infrastructure Developers Limited (IRBIDL; part of the IRB group) on 'Rating Watch with Developing Implications'. |
| Analytical Approach |
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For arriving at its ratings, CRISIL has fully consolidated the business and financial risk profiles of IRBIDL, with that of Modern Road Makers Pvt Ltd (MRMPL), while moderately consolidating the company's SPVs, together defined as IRB group. MRMPL is the Engineering, Procurement and Construction (EPC) arm of the group, and the 100% subsidiary of IRBIDL. Further, IRBIDL has extended an unconditional and irrevocable corporate guarantee (CG) for the bank facilities availed by MRMPL. IRBIDL has outstanding CGs for some of its operational and under-construction projects. CRISIL expects these CGs to fall-off once the conditions are met or on refinancing of the debt in these projects as seen with other projects in the past. CRISIL has also treated unsecured loans received from subsidiaries as neither debt nor equity as these loans are interest free, subordinated to external debt and the repayments on these loans are minimal. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Established track record in the roads and highways sector Established in 1998, IRBIDL is one of the largest players in the domestic roads and highways sector. Over two decades of experience has helped the company establish strong relationships with its stakeholders, which include the National Highways Authority of India (NHAI; rated 'CRISIL AAA/Stable'), and Ministry of Road Transport and Highways (MoRTH), and state government departments. The group is also one of the early entrants in the BOT segment of the road sector and is currently one of the largest BOT players in India. It has about 12,800 lane kilometre (km) of projects in operational or under-construction stages. IRB Group's portfolio comprises 22 projects, including 19 BOT and three Hybrid Annuity Model (HAM) projects. The BOT segment includes six operational projects, six under-construction projects, and seven projects under operations and maintenance contracts as a Project Manager for IRB InvIT. Out of the three HAM projects, one has achieved appointed date in January 2019 and construction has begun, while two are awaiting the appointed date. The IRB group's established position is also reflected in its prudent project selection and execution capabilities. IRBIDL owns a 20% share in India's Golden Quadrilateral and around 70% of Bombay'Delhi National Highway (NH-8). The strong in-house EPC division managed by MRMPL undertakes all project implementation for the BOT/HAM road projects. Prudent project selection, coupled with strong execution capabilities, help the group maintain strong operating margin of over 20% annually. * Robust order book providing strong revenue visibility The group had orders worth Rs 12,650 crore as on June 30, 2019. Revenue grew at a compound annual growth rate of over 20% over the last five fiscals; revenue grew 14% year-on-year to Rs 4,950 crore in fiscal 2019. Healthy order book to revenue of around 2.5 times provides strong revenue visibility over the medium term. * Efficient working capital management Efficient working capital management is reflected in moderate gross current assets. Despite inherently large working capital requirement in the roads and highways sector, working capital cycle is supported by efficient inventory and receivables management. IRBIDL executes only BOT/HAM projects for its SPVs and doesn't execute any EPC contracts, and all the inventory and receivables are towards or from its SPVs, helping it maintain efficient working capital cycle. For the projects with grant, prudent project selection helps these SPVs receive advances and payments from the authorities in a timely manner In addition, the group also benefits from its moderate unencumbered cash and cash equivalents supporting the liquidity and working capital cycle. * InvIT platform to support capital unlocking The IRB group launched its public InvIT platform in 2017, and transferred six of its operational assets in May 2017, and subsequently transferred one additional asset in September 2017, which helped the company unlock capital. The group has received around Rs 2200 crore of capital from proceeds of the InvIT, post repayment of debt, helping the company fund the equity requirement for the ongoing and newly awarded projects. IRB announced a private InvIT with GIC on August 6, 2019; this would reduce the equity required for IRBIDL's ongoing and under-construction assets. Furthermore, deleveraging of this portfolio will also support generation of surplus cash flow, which would help partly cover the group's investment requirement. Additionally, IRBIDL and GIC plan to explore future road sector opportunities in India together through this platform, in which the equity contribution for new projects would be in proportion in their respective shareholdings. Weaknesses: * Moderate debt protection metrics and large exposure to project SPVs The group's debt stood at Rs 3,095 crore as on March 31, 2019. High debt and moderate accrual have resulted in moderate debt protection metrics. The group has large investments in its projects SPVs. Furthermore, majority of the investments are towards under-construction projects, involving an implementation risk. The group's total exposure (in the form of equity investment/unsecured loans) is larger than its entire networth, with total exposure to tangible networth of around 2 times as on March 31, 2019. This ratio is expected to continue to remain high given the intrinsic holding company structure. However, the group has also received loans from surpluses of operational SPVs of around Rs 2,543 crore as on March 31, 2019 (increasing from Rs 2201 crore as on March 31, 2018). The group has entered into HAM projects in 2018, where the equity requirement is expected to be lower than BOT projects. Furthermore, one of the BOT projects, IRB Ahmedabad Vadodara, has been facing stabilisation issues on account of traffic diversion onto a competing stretch. The group had filed claims for the project, and resolution, which was expected in fiscal 2019, has been delayed. Given the non-receipt of resolution, IRBIDL has petitioned for relief on deferred premium payment of the project in the Bombay High Court in March 2019. In April 2019, the Bombay High Court pronounced its order in favour of IRBIDL and conferred protection from contingency of default in premium payment for three months. Further, on August 06, 2019, they have received extension from the Delhi High Court till the next date of hearing i.e. August 27, 2019. Furthermore, two of the projects were supposed to achieve PCOD but are slightly delayed, thereby increasing the support requirement from IRB. Support expected for the BOT projects, resolution of the Ahmedabad Vadodara project issue, and quantum of investment in new projects will continue to be closely monitored. * Susceptibility to intense competition and cyclicality in the roads and highways sector The group's outstanding orders as on June 30, 2019, are entirely from the roads and highways segment. This exposes the group to intense competition and sectoral concentration risk. Although the group has diversified into the HAM segment in 2018 from being a pure-play BOT player, its ability to execute orders and revenue growth and sustain profitability is susceptible to competition in the sector and adverse changes in government regulations and economic conditions. Limited diversity in revenue should continue to make the group susceptible to intense competition and cyclicality inherent in the roads and highways sector. |
| Liquidity |
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The group has cash and cash equivalent of around Rs 1700 crore; however, most of it is encumbered towards margin money requirement, resulting in moderate liquidity. Unencumbered cash and cash equivalent stood at around Rs 160 crore as on March 31, 2019. Cash accrual stood at around Rs 500 crore in fiscal 2019. |
| About the Group |
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Incorporated in 1998 and promoted by Mr Virendra D Mhaiskar, IRBIDL is an infrastructure development and construction company in India, with extensive experience in the roads and highways sector. The company is also into other business segments in infrastructure, including maintenance of roads, construction, airport development, and real estate activities. IRBIDL currently has a portfolio of 22 projects (19 BOT projects and three HAM projects, including seven that have been transferred to IRB InvIT Fund). The company operates largely as a holding company, while the construction activities are carried through its EPC arm, MRMPL. |
| Key Financial Indicators | ||||||||||||||||||||||||||||
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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) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - List of Entities Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||
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