Rating Rationale
October 20, 2020 | Mumbai
North Western Karnataka Road Transport Corporation
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.121 Crore
Long Term Rating CRISIL BB-/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL BB-/Stable' rating on the long-term bank facilities of North Western Karnataka Road Transport Corporation (NWKRTC).
 
The rating continues to reflect an established market position in North-West Karnataka and the strong financial, operational and managerial support from the Government of Karnataka (GoK). These strengths are partially offset by a below-average financial risk profile, owing to large accumulated losses, and modest profitability. 

Key Rating Drivers & Detailed Description
Strengths
* Strong financial, operational, and managerial support from the state government
The corporation is strongly supported by GoK, given the importance given by the latter for providing public transport to all regions of the state. NWKRTC is one of the four transport corporations set up by the state government to offer affordable transport services. Due to its strategic importance to the state government, it enjoys need-based financial support from the government as seen in regular grants received. The top management consists of senior officials of GoK, indicating a strong linkage to the state government.
 
The operations of the corporation are supported by the grants of Rs 310 crore from state government of Karnataka in first half of fiscal 2021. The corporation is expected to receive further support during the remainder of the current fiscal, which will help the corporation to breakeven on cash profit level.
 
* Leading market position in the transportation segment in North-West Karnataka
The corporation has a wide network of routes. It operates a fleet of around 5080 vehicles, with 4661 routes in eight divisions covering the entire North-West Karnataka and nearby state of Maharashtra. Its serves over 44 talukas comprising 4,428 villages.
 
NWKRTC's operating performance is expected to be moderated by the measures taken by various state governments towards containment of COVID-19 which included temporary closure of non-critical establishments, inter-state transportation etc. The operations were halted from last week of March 2020 and resumed later in May-2020. As of Sept/Oct 2020, around 85% of schedules are operational. Revenues are expected to decline by 45 to 50% in fiscal 2021. Despite the expected gradual recovery of operations in second half of fiscal 2021, the operating losses are expected to be high for fiscal 2021 due to high fixed costs.
 
Weaknesses
* Below-average financial risk profile
Due to large accumulated losses and low profitability in the past, the debt protection metrics stay under pressure. However, the financial risk profile remains supported by regular infusions in the form of grants from GoK. The corporation is expected to avail additional debt of Rs 54 crore in current fiscal to fund the payments towards the buses purchased in March 2020. The total debt is expected be reach a maximum of around Rs 300 crore which is expected to gradually reduce over medium term in absence of a debt funded capex over fiscals 2021 and 2022. The financial risk profile is expected to remain under pressure due to subdued profitability.
 
* Low operating profitability
Being a GoK-supported organisation, the corporation has a mandate of providing affordable transport services to the public. Hence, it does not have the flexibility of changing the bus fare on account of an increase in fuel or other operating costs, thereby constraining profitability. After fare hike of 12% in February 2020, the profitability is expected to improve in fiscal 2022. However, with increasing operating costs, the profitability is expected to remain under pressure over medium term.
Liquidity Adequate

The liquidity was supported due to moratorium till August-2020. The corporation has long term repayment obligations around Rs 35 crore in fiscal 2021 and Rs 61 crore in fiscal 2022. The debt repayments are expected to be made through daily collections through escrow mechanism. The collections of assigned depots are deposited in escrow account with the lenders and payments towards the debt obligations are made through the escrow account ensuring the payments are made on due dates in full. The escrow mechanism ensures timely servicing of debt obligations.

NWKRTC has adequate liquidity marked by daily revenue generation of Rs 3-5 crore against bank debt of Rs 260 crore as on September 30, 2020. The corporation had cash and equivalents of Rs 71 crore as on March 31, 2020.

The capital expenditure plans over fiscal 2022 and 2023 will be primarily funded through government grants.

Outlook: Stable

CRISIL believes NWKRTC will maintain its credit risk profile over the medium term, supported by continued support from the state government and improvement in revenues.

Rating Sensitivity factors
Upward Factors:
* Improvement in financial risk parameters with interest cover over 2 times on sustainable basis
* Sharp improvements in operating performance leading to better debt protection metrics.

Downward Factors:
* Sharp decline in operating profitability leading to interest cover below 1.2 time on sustained basis
* Considerable reduction in government support.

About the Corporation
NWKRTC was set up in 1997, under provision of the Road Transport Corporation Act, 1950, following the bifurcation of the Karnataka State Road Transport Corporation. NWKRTC is wholly owned by GoK. The sole purpose of its creation is to provide extensive bus transport services in North-West Karnataka, including to remote and non-profitable locations across the region.
Key Financial Indicators
Particulars Unit 2020 2019
Revenue Rs.Crore 1955 2027
Profit After Tax (PAT) Rs.Crore -186 -89
PAT Margin % -9.5 -4.4
Adjusted debt/adjusted networth Times 0.74 0.35
Interest coverage Times -6.10 1.24

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.Cr)		 Complexity Level Rating Assigned with Outlook
NA Proposed Long Term Bank Loan Facility NA NA NA 73.96 NA CRISIL BB-/Stable
NA Term Loan NA NA Oct -2021 47.04 NA CRISIL BB-/Stable
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
Fund-based Bank Facilities  LT/ST  121.00  CRISIL BB-/Stable      23-10-19  CRISIL BB-/Stable  31-10-18  CRISIL BB-/Stable  06-09-17  CRISIL BB-/Stable  -- 
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 73.96 CRISIL BB-/Stable Proposed Long Term Bank Loan Facility 12.89 CRISIL BB-/Stable
Term Loan 47.04 CRISIL BB-/Stable Term Loan 108.11 CRISIL BB-/Stable
Total 121 -- Total 121 --
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

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