Detailed Rationale

CRISIL Ratings has upgraded its rating on the long-term bank facility and non convertible debentures of Second Vivekananda Bridge Tollway Company Private Limited (SVBTC) to ‘CRISIL AAA/Stable’ from ‘CRISIL AA+/Positive’.

 

The upgrade in the rating is driven by expected sustenance of strong traffic volumes and healthy debt service coverage ratio (DSCR) due to traffic growth and timely revision of toll rates.

 

Traffic on the stretch grew 21% in fiscal 2023; this along with revision in toll rates led to nearly 32% year-on-year revenue growth in fiscal 2023. Toll collection was healthy at ~Rs 70 crore in the first four months of fiscal 2024, against ~Rs 63 crore in the corresponding period of the previous fiscal, led by revision in toll tariff while the traffic (in passenger car unit [PCU] terms) remained steady at around 67 lakh due to the extended monsoon. Growth in toll income is likely to remain stable, with steady growth in economic activities and subsequent increase in vehicle mobility.

 

The company regularly undertakes routine maintenance expenses and completed its second periodic major maintenance (MM) in fiscal 2021. The third periodic MM is due in fiscal 2025 and 2026, for which a provision of Rs 37 crore has been created. Debt protection metrics were strong, reflected in DSCR of 3.67 times in fiscal 2023 (2.76 times in fiscal 2022). Average DSCR is expected at more than 2.5 times over the tenure of debt, factoring the third periodic MM as well.

 

The rating continues to reflect the strategic location of the project and strong debt protection metrics of the company. The rating also factors in strong liquidity, supported by maintenance of a debt service reserve account (DSRA) equivalent to one quarter of debt obligation and build-up of liquidity to cover the scheduled MM) expense. These strengths are partially offset by susceptibility to volatility in traffic volume, toll collection and interest rate.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has taken a standalone view on the company

Key Rating Drivers & Detailed Description

Strengths:

Strategic location of the project

The Second Vivekananda Bridge (SVB) links the national highways (NHs) on both sides of the Hooghly River. Traffic through NH-16 (Old NH-6) connecting to Mumbai, NH-19 (Old NH-2) connecting to Delhi, and NH-12 (Old NH-34) and NH 112 (Old NH-35) connecting to Northeast India and Bangladesh constitutes a major part of the traffic on the bridge. Commercial traffic (for trade such as automotive components, including vehicle chassis, agricultural products such as jute and onion and seafood) comprises more than 75% and helps generate healthy toll revenue. Traffic on the stretch grew 21% in fiscal 2023, on a low base of fiscal 2022; this along with the revision in toll rates led to nearly 32% year-on-year revenue growth in fiscal 2023. Toll collection was healthy at ~Rs 70 crore during the first four months of fiscal 2024, against ~Rs 63 crore in the corresponding period of the previous fiscal, led by revision in toll tariff while the traffic (in PCU terms) remained steady at around 67 lakh due to the extended monsoon.

 

Growth in toll income is likely to remain stable, with steady growth in economic activities and subsequent increase in vehicle mobility. Also, there is an elevated expressway (Kona Expressway) being built to Vidyasagar Setu, which is expected to start by January 2024. This will also help in terms of increasing the movement of commercial vehicles/large vehicles in this route. SVB can take this additional traffic load as the road is operating at ~40% of the installed capacity.

 

Strong debt protection metrics

Debt protection metrics are strong, reflected in average DSCR of 3.67 times in fiscal 2023 (2.76 times in fiscal 2022). The metrics are also supported by lower provisioning towards the third periodic MM reserve (as the cost is revised downwards) and higher revenue. Average DSCR is expected to remain over 2.5 times over the tenure of the debt. The DSCR will be supported by low debt of ~ Rs 187 crore as of March 2023, with long tenure till fiscal 2029 and strategic location of the project, supporting traffic volume, toll revenue and healthy cash flow. The total debt-to-toll revenue ratio was low at 0.89 time as on March 31, 2023 (debt of Rs 187 crore and toll revenue of Rs 208 crore), with a balance debt tenure of six years, spreading out principal repayment and reducing annual debt obligation.

 

Given that the project is a major bridge, CRISIL Ratings expects unforeseen or high operating and maintenance (O&M) expenses in the computation of the DSCR compared with normal road projects, affecting the surplus-generating ability of the company. While the project will be able to absorb some increase in expenses, higher-than-expected O&M and MM costs or any further cost towards preventive maintenance will remain a key monitorable. The company has strong liquidity, with cash and equivalents of Rs 246 crore as on July 31, 2023, and also plans to maintain adequate cash surplus (around Rs. 200 crore) to take care of any unforeseen maintenance expenses. Any change in this will remain a key rating sensitivity factor.

 

Weaknesses:

Susceptibility of cash flow to volatility in traffic volume and fluctuations in interest rate

Toll revenue is the single source of revenue. Hence, any fluctuation in toll revenue owing to lower traffic volume or toll rate revision may impact the cash flow and debt servicing ability of the company. Traffic volume has been volatile in the recent past because of low industrial activity across Kolkata and decline in commercial traffic. Trucks and multi-axle vehicles are restricted in Kolkata during the day. Moreover, ban on overloading has impacted commercial traffic, which contributes more than 70% of overall traffic plying on the stretch. 

 

While the state support agreement prevents the construction of competing bridges till fiscal 2029, traffic may be diverted to bridges running parallel (does not qualify under competing stretch) to the project stretch. The new Kalyani bridge is being built across the Hooghly River, which will be completed by fiscal 2027/2028 and may result in some diversion of traffic. However, this bridge is 10-15 kilometre (km) away from the SVB and 50 km from the main city, limiting the impact on traffic.

 

Also, changes in government policy (such as demonetisation in November 2016) or unforeseen circumstances, such as the Covid-19 pandemic and subsequent restrictions on movement in fiscals 2021 and 2022, may impact cash flow and debt protection metrics. Hence, volatility in traffic volume and change in tolling policy will remain key rating sensitivity factors.

 

Furthermore, the term loan contracted for the project has a floating interest rate. The interest is reset every six months and was last reset in  March 2023. Currently, the interest rate on the term loan is 10% (increased from 9.6% as on September 15, 2023). Hence, the company remains susceptible to changes in the interest rate and its impact on the DSCR.

Liquidity: Superior

Cash and bank balance stood at Rs 246 crore (including DSRA and debenture redemption reserve) as on July 31, 2023, of which ~Rs 227 crore is unencumbered. The company maintains a DSRA equivalent to three months of debt obligation and it will be maintained throughout the tenure of debt. The company builds up liquidity to cover the scheduled MM expenses. The cost of the third MM scheduled in fiscal 2025 - 2026 is expected at Rs 37 crore; the company has provisioned the entire amount. Annual cash accrual and existing cash and equivalents should be adequate to meet debt obligations during fiscal 2024.

Outlook: Stable

CRISIL Ratings believes SVBTC will maintain its credit risk profile, driven by low debt, strong liquidity and steady toll revenue resulting from the strategic location of the bridge.

Rating Sensitivity Factors

Downward factors

• Decline in traffic or higher-than-expected operational cost, weakening the cash accruals subsequently resulting in DSCR going below 2 times on a sustained basis.
• Undertaking any additional debt weakening the financial risk profile

About the Company

SVBTC is a special-purpose vehicle set up for implementing the 6.1-km, 20-lane SVB tollway across the Hooghly River in Kolkata. The company is promoted by Pacific Alliance Stradec Group Infrastructure Co LLC (which holds 99.99% equity stake) as the lead sponsor.

 

SVB is the largest build-operate-transfer (BOT) tollway bridge constructed in India. The tollway is around 50 metre (m) downstream from the first Vivekananda bridge. The main structure across the Hooghly River is 880-m long and 29-m wide pre-cast segmental bridge. Approaching the main structure on both sides are six-lane viaducts connected to approach ramps and access roads on embankments on either side. The bridge is managed on BOT basis, with the National Highways Authority of India (‘CRISIL AAA/Stable’) as the concessioning authority. The construction was completed in June 2007 in 39 months, and the bridge was opened to the public in July 2007. The concession period is 30 years (till 2033). The toll rate is linked to the wholesale price index (WPI) and variation in rupee-dollar rates, and revised every July based on the WPI on January 31 of that year.

Key Financial Indicators*

As on/for the period ended March 31	Unit	2023	2022
Operating income	Rs crore	208	158
Profit after tax (PAT)	Rs crore	107	62
PAT margin	%	51.50	39.50
Adjusted debt/adjusted networth	Times	0.53	0.59
Adjusted interest coverage	Times	8.78	5.65

*As per analytical adjustments made by CRISIL Ratings

Any other information: Not applicable