Rating Rationale

Strengths
* Strong market position as the developer and operator of the Chhatrapati Shivaji International Airport, Mumbai
The company is the exclusive developer and operator of the second largest airport in India. Since it began commencement of operations in 2007, operational performance has remained sound; passenger traffic has increased at a compound annual growth rate of more than 7% (48 million passengers in fiscal 2018), with growth of over 12% in the last three years, causing MIAL to operate at near full utilizations. The Mumbai Airport is also strategically important as it is located in the heart of a key metro city, thereby attracting strong flow of both domestic and international passengers. The airport also enjoys exclusivity for a period of 30 years (extendable by another 30 years). CRISIL believes that the attractive location and a large catchment area will ensure strong traffic growth over the medium term.

* Regulated returns in the form of aero revenues
MIAL has three major revenue streams 'aero revenue, non-aero revenue, and real estate income. While aero charges are regulated by Airports Economic Regulatory Authority, the other two are largely unregulated. Aero revenue- which includes passenger fees, landing and parking charges and fuelling charges, is fairly visible and stable, backed by a regulatory mechanism that allows for regulated return on aero assets with a hybrid-till tariff structure and true-up of aero revenues. Also, non-aero revenue is well-diversified, with revenue from varied activities such as duty-free shops, advertising, income from flight kitchen, car parking, and ATM/forex services. Non-aero revenue is expected to have a healthy growth over medium term, with contribution to total revenues increasing from approximately 50% in fiscal 2018 to around 60% over the medium term. The new airport at Navi Mumbai, would also benefit from the regulated cashflows, once operational.

MIAL also has the right to develop about 194 acres of land around Mumbai airport. Of this, the company has monetised only a small parcel of 2 acres. The future proceeds would be utilized towards repayment of securitized loan as well as towards the equity requirement of NMIA project. Traction in real-estate monetization would be a key rating sensitivity factor.

* Healthy debt service metrics post the proposed refinancing
Strong traffic growth and established track record will lead to a comfortable debt service coverage ratio (DSCR), post the ongoing refinancing. The DSCR is, however, constrained by high revenue share of 38.7% with Airports Authority of India (AAI; rated 'CRISIL AAA/Stable'). With the second control period tariff order being implemented, there is cash flow certainty for the next three years for MIAL.

Also, CRISIL believes that the first phase of the NMIA project will be prudently funded by equity support from MIAL and long tenured debt at the project.

Furthermore, MIAL is structured as a special-purpose vehicle and cash flows are ring-fenced to ensure higher comfort. Supervision by AAI, with its board presence, for strategy decisions and related-party transactions, presence of an escrow account with a payment waterfall mechanism ensuring priority of debt repayment, and a debt service reserve account also provide comfort. CRISIL understands that requisite liquidity will be maintained over the medium term to take care of any uncertainties.

Weakness
* Exposure to regulatory risk
The regulatory regime for airport operators in India is still evolving. The regulatory risk is evident from delay in release of first and second control period tariff order. Tariff order for the second control period (April 1, 2014 to March 31, 2019) was released in September 2016, till which time tariff as per previous control period order was being charged. Implementation of the second control period tariff order from November 1, 2016, provides visibility of aero revenue for next three years (till fiscal 2019). However, risks associated with regulatory uncertainty still remain, including timeliness in tariff setting process. Furthermore, CRISIL believes the excess tariff collected in the current control period would be trued-down and may lead to a considerable tariff decline in the subsequent control period.

* Implementation risks associated with NMIA project
The project is expected to be executed over the next 4 to 5 years. Although the project would benefit from the regulated tariff structure, and low demand risk given the healthy demand growth in the Mumbai region, the project would still be open to funding, timely implementation and ramp-up risks.