Rating Rationale
June 30, 2020 | Mumbai
Kalpataru Power Transmission Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.11187 Crore
Long Term Rating CRISIL AA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.300 Crore Non Convertible Debentures CRISIL AA/Stable (Reaffirmed)
Rs.100 Crore Non Convertible Debentures CRISIL AA/Stable (Withdrawn)
Rs.250 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AA/Stable/CRISIL A1+' ratings on the bank facilities and debt programmes of Kalpataru Power Transmission Limited (KPTL). CRISIL has also withdrawn its rating on the non-convertible debentures amounting Rs.100 crore (See 'annexure for details of rating withdrawn' for details) since these are completely redeemed. The rating action is in line with CRISIL's policy on withdrawal of ratings.
 
During fiscal 2020, operating income at a consolidated level grew by around 10% fiscal on fiscal to Rs 11,775 crore, backed by strong execution across all major segments. Operating margin continued to remain healthy at 11.6% during the fiscal.
 
Though operations have been temporarily disrupted by the lockdown during March 2020 - June 2020 due to Covid-19, the business risk profile should remain strong driven by a presence across diversified businesses and healthy outstanding order book position of Rs 22,834 crore at consolidated level. Moreover, liquidity remains healthy supported by undrawn bank lines of more than Rs 300 crore as well as unencumbered cash and bank balances, which should help tide over the current situation.
 
The ratings also factors in the expected monetisation of stake in its three power transmission assets viz. Kohima Mariani Transmission Ltd (KMTL), Jhajjar KT Transco Private Ltd (JKTPL), and Alipurduar Transmission Ltd (ATL), during fiscal 2021; which will lead to net cash proceeds of approximately Rs 1,000-1,200 crore. Though the earlier stake sale agreement for ATL with CLP India Pvt Ltd was terminated in May 2020, KPTL is currently in discussion with potential investors and expects a new sale agreement to be executed during the first half of fiscal 2021.
 
The ratings continue to reflect KPTL's established track record in the transmission line tower (TLT) business, and diversified revenue. These strengths are partially offset by the large working capital requirement, and susceptibility to risks arising from exposure to projects undertaken through special-purpose vehicles (SPVs) and subsidiaries.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of KPTL and its subsidiaries - JMC Projects (India) Ltd (JMC), Shree Shubham Logistics Ltd (Shubham), Amber Real Estate Ltd (Amber), and Energy Link (India) Ltd (EnergyLink) - collectively referred to as the Kalpataru group. CRISIL has moderately integrated the business and financial risk profiles of the SPVs of KPTL and JMC, as the projects have been funded through debt without recourse to KPTL and JMC. However, CRISIL has factored in KPTL's commitment to the SPVs in the form of equity, cost overruns, and guarantees.
 
Please refer Annexure - List of entities consolidated, for details of the entities considered and their analytical treatment for consolidation.

Key Rating Drivers & Detailed Description
Strengths
* Established market position: The group has a track record of over three decades in the TLT business, and is one of the leading players in the segment. Orders of Rs 22,834 crore at consolidated level (Rs 13,288 crore for KPTL and Rs 9,546 crore for JMC) reported as on March 31, 2020, provides healthy revenue visibility over the medium term. Around 43% of the orders pertaining to KPTL at standalone level comes from overseas, with customers based in Asia, Africa, Central America, the Middle East, Commonwealth of Independent States, Australia, and Europe. Furthermore, most of KPTL's international projects are funded by multilateral development agencies, thereby reducing the counterparty credit risk. Furthermore, favourable industry scenario, with higher investments envisaged in the power transmission and distribution (T&D) segment in India over the medium term should continue to support the company's position in the domestic business.

* Diversified revenue: A well-spread revenue profile helps reduce susceptibility to downturns in any one business. While the flagship company, KPTL, which mainly operates in the TLT business contributes 67% to total revenue; 32% comes from JMC, which executes projects in the infrastructure, industrial and commercial building, railway, and road segments. The remaining 1% of consolidated revenue comes from Shubham, which provides warehousing and logistics services.

During fiscal 2020, while operating income of KPTL grew by around 11% fiscal on fiscal to Rs 7,902 crore backed by strong execution across all segments; operating margin declined to 11.3% from 11.9% in fiscal 2019 due to higher subcontracting expenses during the fiscal. JMC registered healthy operating performance during fiscal 2020 with year-over-year (y-o-y) growth of 14% in operating income to Rs 3,736 crore and improvement in operating margin to 11.6% against 11.1% in fiscal 2019, led by strong execution and improving efficiency. Healthy performance of both the entities, along with improvement in operating performance of Shubham, has led to y-o-y growth of 10% in consolidated operating income and healthy operating margin of 11.6% in fiscal 2020.

The operating performance in the near term is likely to be impacted by the pandemic and the resultant disruption in operations during the first quarter of fiscal 2021. However, established market position with diversified revenue profile and sizeable unexecuted orders in KPTL and JMC should help maintain a stable operating performance over the medium term.

* Healthy financial risk profile: Though the financial risk profile remains healthy backed by robust tangible networth leading to a comfortable gearing, the same weakened during fiscal 2020 led by increase in debt. The increase was owing to higher support extended to group entities during the fiscal in addition to enhanced working capital borrowing during end of fiscal 2020. Nevertheless, debt protection metrics, though weakened during fiscal 2020, remained comfortable with interest coverage ratio of 3.66 times, (4.12 times in the previous fiscal).

The company expects to become net-debt free at the standalone level in fiscal 2021 by substantially reducing its debt over the next 6-9 months, driven by expected cash proceeds from the stake sale in its power transmission assets, and healthy annual cash accrual. The ability to sustain improvement in cash accrual and reduction in debt, leading to stronger debt protection metrics will remain a key monitorable.

Weaknesses
* Working capital-intensive operations: Large working capital requirement inherent in the engineering and construction industry keeps reliance on short-term debt high. Receivables are typically over 150 days due to sizeable retention money blocked in completed projects till the end of performance guarantee period. Creditors too remain high at more than 250 days, with back-to-back payment clauses in most contracts allowing for passing on of any delay in realisations on receivables. Gross current assets remained high at over 300 days at consolidated level over the past three fiscals and stood at 305 days as on March 31, 2020.

Increase in KPTL's customer advances over the last three years had precluded increase in borrowings. However, it resulted in total outside liabilities to tangible networth ratio (TOLTNW) being moderate at more than 1.5 times on a standalone basis, over this period (1.74 times as on March 31 2020). Efficient working capital management as the business grows will remain a key monitorable.

* Susceptibility to risks arising from exposure to infrastructure development projects albeit expected reduction with stake sale in assets: The group remains exposed to business risks-related to infrastructure development projects, as it has been building infrastructure assets on its own over the past three years. Though KPTL has already commissioned three power transmission projects on build-own-operate-maintain (BOOM) / design-build-finance-operate-transfer (DBFOT) basis; it is currently executing one project under the SPV, KMTL, which is expected to achieve commercial operation date by August 2020.

KPTL's exposure to its subsidiaries and group entities at standalone level increased during fiscal 2020 and stood at Rs 1,836 crore as on March 31, 2020, as against Rs 1,405 crore as on March 31, 2019. The increase was mainly towards acquisition of Linjemontage, Sweden and balance stake in Shubham; along with extending incremental loans to these two entities and ATL. JMC's four operational road projects also required a net infusion of Rs 76 crore in fiscal 2020 due to weaker-than-expected operating performance; further, additional funding support is expected over the medium term.

However, the investments are not expected to constrain the group's cash flow and financial risk profile due to healthy performance of KPTL and JMC, coupled with efficient working capital management. Nonetheless, incremental exposure in these entities would be closely monitored.

KPTL has already divested its entire stake in Satpura Transco Pvt Ltd during fiscal 2020. Furthermore, KPTL is planning to hive off its stake in three transmission assets viz. KMTL, JKTPL, and ATL during fiscal 2021, with stake sale agreement announced for KMTL and JKTPL. Completion of stake sale in these transmission SPVs is expected to reduce KPTL's exposure to group entities, and the proceeds from the sale are expected to be utilised to reduce the group's leverage. Therefore, timely monetisation of non-core investments will remain a key monitorable.
Liquidity Strong

Cash accrual was healthy at about Rs 642 crore during fiscal 2020, and cash equivalents/liquid investments stood at around Rs 350 crore at March 31, 2020. Liquidity is further supported by unutilised bank lines of about Rs 310 crore as of March 2020. The available liquidity and expected annual cash accrual of Rs 800-900 crore during fiscals 2021 and 2022 should be sufficient to meet repayment obligation and moderate capital expenditure.

Outlook: Stable

KPTL should continue to benefit from its established market position and healthy order book with diversified revenue profile, while the financial risk profile remains comfortable due to adequate cash accrual.

Rating Ssensitivity Factors
Upward Factors
* Strong revenue growth, with sustained improvement in the operating margin above 12.5%, leading to higher cash accrual
* Lower-than-envisaged debt, with sustenance of TOL/TNW ratio at below 1.0 time
* Sustained and significant moderation in gross current assets

Downward Factors
* Sustained steep decline in operating margin to less than 10%, with stagnant revenue, leading to reduced cash accrual
* Weakening of the financial risk profile due to a further stretch in the working capital cycle or continued high support  extended to SPVs.

About the Company

Established in 1981 by Mr Mofatraj P Munot, KPTL is one of the leading players in the domestic T&D sector. The company undertakes turnkey contracts for setting up transmission lines and substations for extra-high-voltage power transmission. Over the years, it has diversified into civil contracts, railways and oil and gas pipeline construction.
 
JMC, established in 1986, undertakes construction contracts for infrastructure (including bridges, flyovers, highways, and captive power plants), industrial projects, and buildings.
 
Shubham offers end-to-end logistical solutions in western India in the agricultural sector, spanning warehousing, cold storage and commodity-funding services, collateral management, and commodity exports. Amber and EnergyLink are in the real estate business. Amber recently executed an information technology park project in Thane, Maharashtra, while EnergyLink is executing a real estate project in Indore, Madhya Pradesh, through its wholly owned subsidiary, Saicharan Properties Ltd.
 
Operating income and profit after tax (PAT) for KPTL on standalone basis was Rs 7,902 crore and Rs 463 crore respectively, in fiscal 2020, against Rs 7,116 crore and Rs 401 crore, respectively, for the previous fiscal.

Key Financial Indicators (Consolidated; CRISIL adjusted numbers)
As on/for the period ended March 31 Unit 2020 2019
Revenue Rs crore 11,775 10,667
PAT Rs crore 534 560
PAT margin % 4.5 5.2
Adjusted debt/adjusted networth Times 0.59 0.46
Interest coverage Times 3.66 4.12

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL 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. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
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
INE220B08043 Debentures 25-May-2017 8.45% 25-May-2022 100.0 Simple CRISIL AA/Stable
INE220B08050 Debentures 27-Sep-17 8.11% 27-Sep-22 100.0 Simple CRISIL AA/Stable
INE220B08068 Debentures 12-Sep-18 0% 11-Mar-22 50.0 Simple CRISIL AA/Stable
INE220B08076 Debentures 12-Sep-18 0% 12-Sep-22 50.0 Simple CRISIL AA/Stable
NA Commercial Paper NA NA 7-365 days 250.0 Simple CRISIL A1+
NA Cash Credit NA NA NA 775.0 NA CRISIL AA/Stable
NA Letter of credit & Bank Guarantee NA NA NA 9190.0 NA CRISIL A1+
NA Proposed Letter of Credit & Bank Guarantee NA NA NA 1222.0 NA CRISIL A1+
 
Annexure - Details of Rating Withdrawn
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size
(Rs Crore)
Complexity Level
INE220B08035 Debentures 17-Mar-2017 7.90% 15-May-2020 100.0 Simple
 
Annexure - List of Entities Consolidated
Name of entities Extent of consolidation Rationale for consolidation
JMC Projects (India) Ltd Full Strong managerial, operational, and financial linkages
Shree Shubham Logistics Ltd Full Strong managerial, operational, and financial linkages
Amber Real Estate Ltd Full Strong managerial, operational, and financial linkages
Energylink (India) Ltd Full Strong managerial, operational, and financial linkages
Jhajjar KT Transco Pvt Ltd Partial SPV with non-recourse debt; only equity contribution considered
Alipurduar Transmission Pvt Ltd Partial SPV with non-recourse debt; only equity contribution considered
Kohima Mariami Transmission Ltd Partial SPV with non-recourse debt; only equity contribution considered
Kurukshetra Expressway Pvt. Ltd Partial SPV with non-recourse debt; only equity contribution considered
Vindhyachal Expressway Pvt. Ltd Partial SPV with non-recourse debt; only equity contribution considered
Wainganga Expressway Pvt. Ltd Partial SPV with non-recourse debt; only equity contribution considered
Brij Bhoomi Expressway Pvt. Ltd Partial SPV with non-recourse debt; only equity contribution considered
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  250.00  CRISIL A1+      10-06-19  CRISIL A1+  21-05-18  CRISIL A1+    --  -- 
            30-05-19  CRISIL A1+  26-03-18  CRISIL A1+       
            02-04-19  CRISIL A1+           
Non Convertible Debentures  LT  300.00
30-06-20 
CRISIL AA/Stable      10-06-19  CRISIL AA/Stable  21-05-18  CRISIL AA/Stable  04-09-17  CRISIL AA/Stable  CRISIL AA/Negative 
            30-05-19  CRISIL AA/Stable  26-03-18  CRISIL AA/Stable  04-05-17  CRISIL AA/Stable   
            02-04-19  CRISIL AA/Stable      07-02-17  CRISIL AA/Stable   
Short Term Debt (Including Commercial Paper)  ST                  04-09-17  CRISIL A1+  CRISIL A1+ 
                    04-05-17  CRISIL A1+   
                    07-02-17  CRISIL A1+   
Fund-based Bank Facilities  LT/ST  775.00  CRISIL AA/Stable      10-06-19  CRISIL AA/Stable  21-05-18  CRISIL AA/Stable  04-09-17  CRISIL AA/Stable  CRISIL AA/Negative 
            30-05-19  CRISIL AA/Stable  26-03-18  CRISIL AA/Stable  04-05-17  CRISIL AA/Stable   
            02-04-19  CRISIL AA/Stable      07-02-17  CRISIL AA/Stable   
Non Fund-based Bank Facilities  LT/ST  10412.00  CRISIL A1+      10-06-19  CRISIL A1+  21-05-18  CRISIL AA/Stable/ CRISIL A1+  04-09-17  CRISIL AA/Stable/ CRISIL A1+  CRISIL AA/Negative/ CRISIL A1+ 
            30-05-19  CRISIL A1+  26-03-18  CRISIL AA/Stable/ CRISIL A1+  04-05-17  CRISIL AA/Stable/ CRISIL A1+   
            02-04-19  CRISIL A1+      07-02-17  CRISIL AA/Stable/ 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
Cash Credit 775 CRISIL AA/Stable Cash Credit# 775 CRISIL AA/Stable
Letter of credit & Bank Guarantee 9190 CRISIL A1+ Letter of credit & Bank Guarantee 9190 CRISIL A1+
Proposed Letter of Credit & Bank Guarantee 1222 CRISIL A1+ Proposed Letter of Credit & Bank Guarantee 422 CRISIL A1+
-- 0 -- Proposed Long Term Bank Loan Facility 800 CRISIL AA/Stable
Total 11187 -- Total 11187 --
#Rs 12.5 crores is interchangeable between fund-based and non-fund-based limits
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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