Detailed Rationale

CRISIL Ratings has removed its rating on the long-term bank facilities of Varanasi Aurangabad NH-2 Tollway Pvt Ltd (VANTPL; erstwhile, Soma Indus Varanasi Aurangabad Tollway Pvt Ltd) from ‘Rating Watch with Positive Implications’ and upgraded the rating to ‘CRISIL BBB+’ from ‘CRISIL BBB-’ while assigning a ‘Stable’ outlook.

 

The rating action follows the acquisition of the remaining 50% stake from Soma Group by the  Roadis group in February 2024 which is the road investment platform of Public Sector Pension Investment Board (PSP; rated ‘AAA/Stable/A1+’ by S&P Global Ratings), post which VANTPL has become a 100% subsidiary of Roadis Group. Furthermore, as per the discussions of CRISIL Ratings with ROADIS, the management is committed to ensuring timely servicing of the company's debt and has provided a corporate guarantee for its debt along with change in management with Roadis being involved in day-to-day operations of the company.  The rating action further reflects the benefits that VANTPL derives from the financial and managerial support given by its strong parent. Additionally, the importance of the project in the India strategy of the group, will enhance the credit profile of VANTPL.

 

The rating reflects the financial support VANTPL has received from the Roadis group in the past (Rs 380 crore during fiscals 2019-2024), and favourable location of its project stretch. Operating performance remained strong with an 8% on-year growth in toll collection to Rs 551 crore in fiscal 2024, which is likely to grow 10-12% over the medium term. Sustained rise in toll collection is expected to keep the debt service coverage ratio (DSCR) above 1 time throughout the debt tenure. These strengths are partially offset by exposure to project implementation and funding risks and susceptibility of toll revenue to traffic volume.

 

Further, VANTPL is expected to complete pending road construction of ~ 25 kilometre (km; post descoping) by June 2024, with balance project cost of Rs 2,300 crore as of March 2024. The company entered into a fixed-price contract with Welspun Enterprises Ltd (WEL; rated CRISIL AA-/Stable/A1+) of Rs 3,657 crore and other small engineering, procurement and construction (EPC) contractors in June 2022. The balance cost will be covered through a term loan of Rs 670 crore, National Highways Authority of India (NHAI; rated CRISIIL AAA/Stable) grant of Rs 565 crore, internal cash accrual and receivables from NHAI for positive change of scope and escalation claims. Furthermore, liquid surplus in the escrow account was healthy at Rs 297 crore as on March 31, 2024, and VANTPL can access these funds for construction purposes, apart from servicing debt.  Gradual progress in execution and presence of a large EPC contractor mitigates project implementation risk. Timely project implementation within budgeted cost and on-time funding will remain monitorable.

Analytical Approach

CRISIL Ratings has notched up the standalone rating of VANTPL based on expectation of strong support from the ultimate parent, PSP, both on an ongoing basis and in case of distress. This is in line with the CRISIL Ratings criteria for notching up standalone ratings of companies based on parent support.

Key Rating Drivers & Detailed Description

Strengths:

• Strong managerial and financial support from the parent: VANTPL has now become a wholly owned subsidiary of Roadis group, which is the road investment platform of PSP, post-acquisition of 50% stake from Soma Group. The group’s management is committed to ensuring timely debt servicing and has provided a corporate guarantee for the company’s debt and shortfall undertaking for capex of the project, along with being involved in daily operations of the company. Additionally, the strategic importance of the project to the Roadis group will enhance the credit risk profile of VANTPL. The group has offered steady support to VANTPL in the past to ensure timely construction, as seen in infusion of around Rs 190 crore in fiscal 2019, Rs 50 crore in fiscal 2020 and Rs 140 crore in the second quarter of fiscal 2024 The group will continue to support the company over the medium term. Moreover, change in management will have a positive impact on the company.

 

• Favourable location of the project stretch: The Varanasi-Aurangabad stretch is on National Highway (NH) 2, which is part of the Golden Quadrilateral. The stretch connects various industrial areas in Varanasi, Chandauli and Sonbhadra across Uttar Pradesh, which house coal fields, sand quarries, stone-crushing units and a large aluminium plant of Hindalco Industries Ltd. Thus, the project stretch has robust traffic potential in the absence of any other alternative route.

 

As the project involves expansion from four lanes to six lanes, the company was allowed to collect toll from the appointed date, September 12, 2011. Toll collection stood at Rs 551 crore in fiscal 2024 and is expected to grow 10-12% over the medium term on the back of healthy traffic hike and growth.

 

Weaknesses:

• Exposure to project implementation and funding risks: Out of 192.4 km, 9 km has been descoped and work on 155 km has been completed, with about 25 km pending as on March 31, 2024. The revised project cost is Rs 7,634 crore, of which the balance was Rs 2,300 crore as of March 2024. Implementation risk is partially offset as VANTPL has entered into a fixed-price contract with Welspun and some other contractors for the remaining construction.

 

The balance cost will be funded through a term loan of Rs 670 crore, NHAI grant of Rs 565 crore, internal cash accrual and receivables from NHAI for positive change of scope and escalation claims. In addition, the initial concession agreement allowed the company to withdraw up to 50% of each tranche of debt disbursed by the senior lenders from the toll collection escrow account for construction. However, after signing of the modified supplementary agreement, the toll collection amount can be utilised towards construction activities, resulting in moderate funding risk.

 

• Susceptibility to fluctuations in traffic volume and revision in toll rates: Toll collection is the only source of revenue for the project. Fluctuation in traffic volume, revision in toll rate or geopolitical risks may impact cash flow and debt servicing ability. Furthermore, as over 60% of the traffic is commercial, traffic growth is linked to the economic scenario and may be impacted in case of adverse economic conditions. Toll revenue was impacted in fiscals 2020, 2021 and 2022 owing to the Covid-19 pandemic and extended monsoons. Any significant movement in traffic can impact toll revenue and the debt servicing ability of the company.

Liquidity: Adequate

The DSCR is expected to remain over 1 time till the tenure of the loan. Liquid surplus in the escrow account was healthy at Rs 297 crore as on March 31, 2024 and can be utilised to cover debt obligation by intimating the NHAI. This is in line with the recommendation by statutory auditors, concurrent auditors and legal counsel of the lender.  Existing funds in the escrow account, supported by annual cash accrual through toll collection, should be sufficient to cover debt obligation.

Outlook: Stable

The company will continue to benefit from the support of the Roadis group and favourable project location, resulting in moderate growth in toll revenue.

Rating Sensitivity factors

Upward factors

• Timely completion of balance work on the stretch as per timeline of June 2024 or any revised timeline approved by authority.
• Improvement in toll collection resulting in sustained increase in cash accrual and DSCR above 1.30 times.

 

Downward factors

• Lower-than-expected toll collection impacting cash flow and leading to DSCR below 1.1 times on a sustained basis.
• Change in stance of support from the sponsor.
• Delay in completion of pending construction or repair and maintenance work affecting the quality of the road stretch and impacting tolling rights of the project.

About the Company

Incorporated in 2010, VANTPL is a special-purpose vehicle set up by Indus Concessions India Pvt Ltd (part of the Isolux Corsan group; now Roadis) and SEL. After acquisition of stake from SEL, VANTPL has become a 100% subsidiary of the Roadis group.

 

The project entails augmentation of the existing four lanes to six lanes of the Varanasi-Aurangabad section of NH-2 (connecting Delhi-Agra-Allahabad-Varanasi-Aurangabad-Kolkata, one of the important sections of the Golden Quadrilateral) from 786.0 km to 978.4 km (length of 192.4 km) in Uttar Pradesh and Bihar on a DBFOT (design, build, finance, operate and transfer) toll basis. The project was awarded by the NHAI under the National Highways Development Project Phase-V. The concession period is 30 years, including construction period of 30 months.

 

The Roadis group, which acquired the road assets of the Isolux Corsan group, is owned by one of the largest Canadian pension fund managers, PSP. The Roadis group manages its assets through promotion and financing of projects during the construction and operational phases.

 

Tolling on the existing four-lane stretch commenced from September 12, 2011. The Roadis group is expected to acquire the pending stake by June 2024.

Key Financial Indicators*

Particulars	Unit	2023	2022
Operating income	Rs crore	1,655	794
Profit after tax (PAT)	Rs crore	181	46
PAT margin	%	10.9	5.8
Adjusted gearing	Times	1.22	1.54
Adjusted interest coverage	Times	3.22	2.21

*As per analytical adjustments made by CRISIL Ratings

Any other information: Not applicable