Rating Rationale
October 01, 2018 | Mumbai
IRB Infrastructure Developers Limited
'CRISIL A+/Positive/CRISIL A1' assigned to bank debt
 
Rating Action
Total Bank Loan Facilities Rated Rs.4200 Crore
Long Term Rating CRISIL A+/Positive (Assigned)
Short Term Rating CRISIL A1 (Assigned)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL A+/Positive/CRISIL A1' ratings to the bank facilities of IRB Infrastructure Developers Limited (IRBIDL; part of the IRB group).
 
The ratings reflect the group's established track record in the roads and highways sector, coupled with prudent project selection and strong execution capabilities, the robust order pipeline providing strong revenue visibility, and the efficient working capital cycle. The ratings also factor in the group's ability to fund its ongoing projects through operationally surplus projects and capital unlocked from its Infrastructure Investment Trust (InvIT) platform. These strengths are partially offset by moderate debt protection metrics, and large exposure to project special-purpose vehicles (SPVs), and susceptibility to intense competition and cyclicality in the roads and highways sector.

Analytical Approach

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 with that of the company's SPVs, combinely 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 for the bank facilities availed by MRMPL. IRBIDL has outstanding corporate guarantees (CGs) for some of its operational and under-construction projects. However, CRISIL expects these CGs to fall-off once the operations are stabilised or when the projects are transferred to InvIT, 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
Strengths
* Established track record in 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 Build, Operate and Transfer (BOT) segment of the road sector, and is currently one of the largest BOT player in India. It has about 12,800 lane kilometre (km) of projects at developed or under-development stage. Further, it maintains a healthy balance between operational and under-construction projects at all times. Currently, it owns a portfolio of 24 projects - 21 BOT assets (including 7 assets transferred to InvIT) with 14 operational projects and 7 under-construction projects and 3 Hybrid Annuity Model (HAM) projects. The group entered into HAM segment in 2018 by winning three projects worth Rs 5500 crore.
 
The IRB group's established position is also reflected from its prudent project selection and execution capabilities. This is reflected from the fact that IRBIDL owns 20% share in India's Golden Quadrilateral, and around 70% of Bombay ' Delhi National Highway (NH-8). Strong capabilities are reflected from successful completion of most of its projects within the scheduled time and budgeted cost. 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 25% annually.
 
* Robust order book providing strong revenue visibility
The group had orders worth Rs 15,080 crore as on March 31, 2018. Of these, 61% of orders constitute BOT orders, while 34% of orders constitute HAM orders. Maintenance contracts for operational projects constitute 5% of total orders. Revenue has grown at a compound annual rate of 12% over the last five fiscals; revenue grew 20% to Rs 4350 crore in fiscal 2018, year-on-year. Robust order book to revenue of more than 3.7 times provides strong revenue visibility over the medium term.
 
* Efficient working capital management
Efficient working capital management is reflected through 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 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. Continued transfer of operationally stable assets to the InvIT platform, to support funding of under-construction projects, should help execution. Further, the operationally surplus assets will continue to help cover the group's investment requirement.
 
Weaknesses
* Moderate debt protection metrics and large exposure to project SPVs
The group's debt stood at Rs 2947 crore as on March 31, 2018. Though the group has healthy net profit of around Rs 580 crore, net cash accrual remains moderate at around Rs 300 crore on account of high dividend outflow. High debt and moderate accrual have resulted in moderate debt protection metrics.
 
The group has large investments in its projects SPVs. Further, 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 at 1.28 times as on March 31, 2018. Though it has improved from 1.64 times as on March 31, 2017, due to inflow of funds post InvIT, it continues to remain high given the intrinsic holding company structure. However, the group has also received loans from the surpluses of operational SPVs of around Rs 2200 crore as of March 31, 2018 (increased from Rs 1344 crore in fiscal 2017). The group has entered into HAM in 2018, where the equity requirement is expected to be lower than BOT projects.
 
One of its BOT project ' Ahmedabad Vadodara has been facing stabilisation issues on account of competing stretch; the group has filed claims for the project. Support expected towards the operational projects, resolution of issue for Ahmedabad Vadodara project, quantum of investment in new projects and ability to transfer the operational projects to InvIT would remain key rating sensitivity factors.
 
* Susceptibility to intense competition and cyclicality in the roads and highways sector
The group's outstanding orders as on March 31, 2018 are entirely from roads and highways segment. This exposes the group to intense competition and sectoral concentration risk. Although group has diversified into HAM segment in 2018, from being a pure-play BOT player, its ability to execute orders and revenue growth is susceptible to changes in government regulations and economic conditions. Limited diversity in revenue will continue to make the group susceptible to intense competition and cyclicality inherent in the roads and highways sector.
Outlook: Positive

CRISIL believes IRB group's overall credit profile will improve over the medium term, supported by strong outstanding orders and execution capabilities. The credit profile is also supported by expected transfer of operationally stable projects to the InvIT platform, unlocking the funding capital for new projects. The ratings may be upgraded if improved performance of operational BOT projects, resolution of claims for Ahmedabad-Vadodara project and the group's sustained operating performance, strengthens the group's financial risk profile. The outlook may be revised to 'Stable' if significant weakening of operating performance or working capital cycle, caused by delays in projects implementation, or higher-than-expected exposure to project SPVs and sizeable equity investments towards new projects, weaken the financial risk profile.

About the Company

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 24 projects (21-BOT projects, 3-HAM projects) in the roads and highways sector, out of which 14 are operational (including 7 which have been transferred to IRB InvIT Fund), 6 projects are under-construction, 2 projects have achieved financial closure and 2 projects are in the process of achieving financial closure. The company operates largely as a holding company while the construction activities are carried through its EPC arm MRMPL.
 
IRBIDL became a listed company in 2008, by listing its shares on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). In September 2016, IRBIDL received an approval from SEBI to set-up an InvIT. The company has listed its 6 of the operational assets through InvIT on BSE and NSE on May 18, 2017. The company has also transferred one additional asset to the InvIT on September 28, 2017. IRBIDL currently undertakes maintenance of these projects and holds 15.65% of unit capital in the InvIT.
 
IRBIDL reported a net profit of Rs 71 crore on operating income of Rs 935 crore in first quarter of fiscal 2019 as against Rs 120 crore of net profit and Rs 671 crore of operating income in first quarter of fiscal 2018.

Key Financial Indicators
Financials as on / for the period ended March 31*   2018 2017
Revenue Rs crore 4350 3619
Profit after tax Rs crore 579 503
PAT margin % 13.3% 13.9%
Adjusted debt/adjusted networth Times 0.78 0.89
Interest coverage Times 3.49 2.57
*The financials here represent the consolidated financials of IRBIDL and MRMPL 

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)
ISIN Name of instrument Date of allotment Coupon rate % Maturity date Issue size
(Rs crore)
Rating assigned with outlook
NA Long Term Loan NA NA Mar-2029 496.25 CRISIL A+/Positive
NA Long Term Loan NA NA Mar-2020 299.60 CRISIL A+/Positive
NA Long Term Loan NA NA June-2019 275.45 CRISIL A+/Positive
NA Long Term Loan NA NA Sep-20221 200.00 CRISIL A+/Positive
NA Long Term Loan NA NA Mar-2021 34.79 CRISIL A+/Positive
NA Long Term Loan NA NA Mar-2021 17.63 CRISIL A+/Positive
NA Long Term Loan NA NA June-2019 229.47 CRISIL A+/Positive
NA Long Term Loan NA NA Mar-2021 300.00 CRISIL A+/Positive
NA Proposed long-term bank loan facility NA NA NA 246.81 CRISIL A+/Positive
NA Bank Guarantee NA NA NA 1100.00 CRISIL A1
NA Proposed Bank Guarantee NA NA NA 1000.00 CRISIL A1
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  2100.00  CRISIL A+/Positive    --    --    --    --  -- 
Non Fund-based Bank Facilities  LT/ST  2100.00  CRISIL A1    --    --    --    --  -- 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Proposed Long Term Bank Loan Facility 246.81 CRISIL A+/Positive -- 0 --
Proposed Bank Guarantee 1000 CRISIL A1 -- 0 --
Bank Guarantee 1100 CRISIL A1 -- 0 --
Long Term Loan 1853.19 CRISIL A+/Positive -- 0 --
Total 4200 -- Total 0 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
The Infrastructure Sector Its Unique Rating Drivers
Rating Criteria for Construction Industry
CRISILs Bank Loan Ratings
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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