| Welspun EDAC JV Private Limited | ||||||
| Rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA- (CE)/Stable/CRISIL A1+ (CE)’ ratings on the bank facilities of Welspun EDAC JV Private Limited (WEJPL).
CRISIL Ratings had on June 13, 2023, assigned its ‘CRISIL AA- (CE)/Stable/CRISIL A1+ (CE)’ ratings to the bank facilities of WEJPL.
The ratings are based on the strength of a continuing, unconditional and irrevocable corporate guarantee provided by the parent, Welspun Enterprises Ltd (WEL; 'CRISIL AA-/Stable/ A1+'). The guarantee covers all rated bank facilities of WEJPL. Additionally, CRISIL Ratings understands that WEL is also likely to monitor the cash flows of WEJPL to ensure that all debt obligations are met on the due date.
WEJPL is an 80 % subsidiary of WEL and EDAC Engineering Ltd (20%). The joint venture was formed so as to bid for tenders invited by the Municipal Corporation for Greater Mumbai (MCGM) for design, construction, operation, and maintenance (O&M) of waste-water treatment facility at Dharavi (Mumbai) with capacity of 418 million litres per day (MLD). The unit also included a tertiary treatment facility for 209 MLD with O&M for 15 years on a lump-sum basis. The Company has partnered with Xylem for design consultancy and technical aspects of the Project. Xylem is an approved technical partner by MCGM.
Further, the unsupported ratings reflect the standalone business and financial risk profiles of WEL. CRISIL Ratings has also factored in the support that WEJPL is expected to receive from WEL. |
Analytical Approach The ratings are based on the criteria for rating instruments, backed by guarantees. The (CE) suffix reflects the payment structure designed to ensure full and time-bound payment to lenders, backed by the corporate guarantee from WEL.
To arrive at the unsupported rating, CRISIL Ratings has applied its parent notch-up framework to factor in the support from the parent |
Key Rating Drivers & Detailed Description Strengths: Continuing unconditional and irrevocable corporate guarantee by WEL The ratings are based on an unconditional, continuing and irrevocable guarantee from WEL. The capital structure remains comfortable, with gearing of 0.11 time as on March 31, 2023. Gearing is likely to sustain over the medium term, driven by low debt and a healthy cash surplus.
The payment structure is designed such that it will ensure full and timely payment to the lender. The guarantee covers the principal, interest and other monies payable under the guaranteed bank loan. The guarantor, WEL, will pay any amount due and payable by WEJPL in relation to these instruments no later than three calendar days from the date of invocation of guarantee, in line with the final executed corporate guarantee document.
Strong experience of the management The Welspun group ventured into the infrastructure space in 2010, by acquiring a majority stake in MSK Projects (India) Ltd (subsequently renamed as Welspun Projects Ltd and now, known as Welspun Enterprises Ltd). Over the years, WEL has grown in scale and has undertaken public private partnership (PPP) projects related to roads, water and urban infrastructure. In the highway sector alone, the company has successfully completed six build-operate-transfer (BOT) toll road projects, covering a total length of over 500 km. Additionally, WEL was awarded India’s first HAM project, the Delhi-Meerut Expressway, where it received the provisional commercial operations date (PCOD) 11 months before the scheduled completion date. In December 2022, WEL has monetized its operational road project portfolio comprising of 5 HAM and 1 BOT-Toll project to Actis Highway Infra Limited for total enterprise value of ~Rs. 6,000 Crore.
The current portfolio comprises of 2 under-construction HAM projects and one road project, one water connectivity project and one waste-water treatment facility project under the engineering, procurement and construction (EPC) segment. Most projects are sub-contracted to established regional mid-sized EPC companies. Longstanding presence of WEL has ensured that projects are completed in a timely manner. The parent has the required expertise and capability to design, build, operate and maintain the project.
Low funding risk Funding risk remains low, with no requirement of long-term debt. The project only requires an advance payment bank guarantee limit of Rs 300 crore and performance bank guarantee, which has been partially funded from WEL lines. Funding has been tied up with IndusInd and Bandhan Bank, against which MCGM (counterparty) has released Rs.133.6 crore in advance and the payment has been received as per the billing process. During the O&M phase of 15 years, company will generate monthly invoices to MCGM and payments will be received within 21 days.
Weakness: Exposure to project implementation risk WEJPL is engaged in the design, construction, O&M of the waste-water treatment facility at Dharavi, Mumbai. The total capacity of 418 MLD includes a tertiary treatment facility of 209 MLD, and O&M for 15 years. The company has acquired 95% of the land requirement for the project. Basic engineering has been completed and detailed engineering is in process currently. The total design and build cost is Rs 2,764.3 crore. The project involves acquisition of land, receipt of multiple approvals for tree cutting, from various state government agencies, and successful commissioning of the project, scheduled by fiscal 2027. The company remains exposed to risk related to delays and cost overruns. This risk is mitigated by the vast experience of the parent and technical tie-up with Xylem for the technical phase during construction (30-35% work) and during the O&M phase. However, scheduled implementation of the project will remain a key monitorable. |
Liquidity: Strong Liquidity is backed by the credit enhancement in the form of an unconditional and irrevocable corporate guarantee from the parent. WEL is likely to provide financial support in the event of an exigency. The company does not require any long-term debt during the construction stage or the O&M phase of 15 years. As per the terms of draft contract agreement, it is eligible to get a mobilisation advance to the extent of 10% of design & build cost i.e. Rs 276.43 crore. The parent also has access to the fund-based and non-fund-based limits aggregating Rs. 2,200 Crore, with current utilization of Rs. 1,349 Crore (fund-based utilization is nil) as of August 31, 2023.
The parent also has access to the fund-based and non-fund-based limits, which have been utilised at an average of nil and 61%, as of August 31, 2023. |
Outlook: Stable The outlook is based on the 'Stable' outlook on the guarantor's (WEL) debt instruments. The rating will remain sensitive to any change in CRISIL Ratings’ rating on WEJPL |
Rating Sensitivity Factors Upward factors
Downward factors
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Adequacy of credit enhancement structure WEL has provided a corporate guarantee, which is unconditional and irrevocable and covers the full amount under the bank facility. CRISIL Ratings understands that WEL will monitor cash flows of WEJPL to ensure timely servicing of debt.
As per the payment mechanism, the guarantor, WEL, shall monitor if the borrower, WEJPL, has made all the necessary payments on the due dates. In the event of any failure on part of WEJPL in repaying the same to the Bank on due date and/or on occurrence of an Event of Default under the Facility/ Facility documents, the Bank shall within 10 Business Days of such an event, invoke this Guarantee by raising a demand notice upon the Guarantor
Upon such an invocation, WEL will irrevocably and unconditionally agree and guarantee the due payment within 3 Business Days. The guarantee and the undertaking together cover the principal, interest, and other monies payable under the loan.
A lender monitored payment mechanism is in place to ensure timely payment of obligations on the rated facilities. The payment mechanism provides adequate timeline for the guarantor to make full and timely payments in case of a default or delay by the borrower (WEL).
To assess WEL, CRISIL Ratings has consolidated the business and financial risk profiles of WEL and its subsidiaries, including WEJPL. The financials of WEL, including the entire guaranteed debt, are loaded on the guarantor. CRISIL Ratings believes that the guarantor will be able to fully service the guaranteed debt obligation in a timely manner even under a stress scenario, where the cash flows in the subsidiary is not sufficient to meet the debt obligations. |
Unsupported ratings: CRISIL A CRISIL Ratings has introduced the 'CE' suffix for instruments having explicit Credit Enhancement feature in compliance with the Securities Exchange Board of India's circular dated June 13, 2019. |
Key drivers for unsupported ratings For arriving at the unsupported ratings, CRISIL Ratings has considered the standalone business and financial risk profiles of WEJPL. CRISIL Ratings has also applied its parent notch-up framework to factor in the extent of support available from WEL.
The ratings factor in the strong financial flexibility arising from strategic importance of WEJPL to the parent, WEL, and the latter’s capability in executing water projects. These strengths are partly offset by exposure to project related risk. |
About the Company WEJPL is an 80: 20 joint venture between WEL and EDAC Engineering Ltd. The MCGM had invited e-Tenders from parties having requisite experience and the financial and organisational competence for the design, construction, operation and maintenance of the waste water treatment facility at Dharavi (Mumbai). Total capacity of 418 MLD includes a tertiary treatment facility of 209 MLD, along with O&M for 15 years on lump sum basis.
WEJPL won this tender for development of the waste water treatment facility. MCGM issued a letter of award dated May 27, 2022 for the project in favour of the company. |
About the Group WEL, formerly known as Welspun Projects Ltd, is a part of the Welspun group. Established in 1994, WEL operates primarily in the infrastructure space- road and water segment, with small investments in oil & gas as well. Under infrastructure, WEL develops and operates PPP projects in various sectors such as roads, water and urban infrastructure. WEL is also engaged in exploration and production of oil and natural gas, through Adani Welspun Enterprise Ltd, a joint venture with the Adani group. It has four oil & gas blocks – three at the discovery/development stage and one block in the exploratory stage.
For the first three months of fiscal 2024, WEL registered revenue from operation of Rs 699 crore and profit after tax (PAT) of Rs 93 crore against Rs 763 crore and Rs 49 crore, respectively, for the corresponding period of the previous fiscal. |
Key Financial Indicators
Note: Company was incorporated in fiscal 2023 |
List of covenants Financial covenants for the Sponsor for IndusInd Bank:
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Letter of Credit (sublimit of BG)- Rs 100 crore #CC Rs 12.5 crore (sublimit of WCDL) @100% interchangeable to Bank Guarantee Limit of Rs.80 Crore |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||
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*Letter of Credit (sublimit of BG)- Rs 100 crore
#CC Rs 12.5 crore (sublimit of WCDL)
@100% interchangeable to Bank Guarantee Limit of Rs.80 Crore
Criteria Details
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