Rating Rationale Brickwork Ratings reaffirms ‘BWR BBB-’ for the existing and proposed Bank Loan facilities aggregating ₹ 3400 Cr & NCD Issue of ₹50 Cr of SEW Infrastructure Ltd with a revision in the outlook from ‘Stable’ to ‘Negative’.

Brickwork Ratings (BWR) has reaffirmed the Ratings1 and revised the outlook for the Bank Loan Facilities (existing and proposed) of SEW Infrastructure Ltd (SIL or ‘the company’) as follows:

Amount Facility Tenure Rating Rating History (₹Crs) Fund Based: 600.00 Cash Credit BWR BBB- - Existing 421.00 BWR BBB- (Pronounced as BWR - Proposed# 179.00 (Pronounced as BWR Triple B Minus) Non Fund Based*: Long Term 2800.00 Triple B Minus) Outlook: Stable Bank Guarantee Outlook: Negative (BLR: March 2014; - Existing 2116.00 NCD: April 2014) - Proposed# 684.00 NCD Issue 50.00 Total 3450.00 INR Three Thousand Four Hundred Fifty Crores only

* Bank guarantees with sublimits of LC in some cases. Tenure of Bank Guarantees is Long Term. # The proposed limits are expected to get sanctioned during the current financial year.

BWR has principally relied upon the audited financial results up to FY14, provisional financial performance for FY15, publicly available information and information/clarifications provided by the company.

The rating continues to draws strength from the extensive industry experience of the promoters, established and strong operational track record of SIL, adequate revenue visibility backed by healthy order book position, strong tangible net worth and expected easing of liquidity position with the expected monetisation of stake in multiple SPVs. These rating strengths are partially offset by the company’s susceptibility to risks relating to the nature of the EPC business, and y- o-y fall in the revenue and profitability margins.

The revision in outlook is on account of strained liquidity position of the company marked by significant funds blocked in the BOT projects and inability to obtain adequate bank funding. The

1 Please refer to www.brickworkratings.com for definition of the Ratings

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company is in the process of monetising its stake in various SPVs and the sanction of additional working capital limits by banks is also expected within 3-4 months which may ease the liquidity position.

Background: SIL is an engineering, procurement and construction contractor, engaged in the construction of highways, irrigation works, power projects and industrial structures. The company also undertakes highways and power projects under the BOT/BOOT model. SEW Infrastructure Ltd was started as a partnership firm in the name of Southern Engineering Works in 1959 at by Mr. V Nageswara Rao, Late Shri Y Purnachandra Rao and Mr. Y.M.G. Nageswara Rao. In 1983 it was converted to a Private Limited Company and in 1988 was incorporated as a Public Limited Company in the name of SEW Constructions Ltd. In April 2008 the name of the company was changed to SEW Infrastructure Ltd from SEW Constructions Ltd.

SIL undertakes various civil construction projects such as Dams & Barrages, Canals & Canal Structures, Lift Irrigation Projects, Thermal & Hydel Power Projects , Roads & Bridges, Industrial & Institutional Buildings, Housing Projects, Public Health Engineering Projects, Power Transmission & Distribution Lines and Substations and Railway Projects.

SIL has floated various subsidiaries/step down subsidiaries and entered into joint ventures with established infrastructure companies for the execution of different projects. Some of the major wholly owned subsidiaries of SIL are SEW Green Energy Ltd, SEW Transportation Networks Ltd, SEW Power Ltd and SEW Realty Ltd. SIL also has overseas branches at Ethiopia, Nepal and Uganda, for the execution of various road and hydro electric projects in these countries.

SIL has been involved with the execution of high profile Government contracts right from its inception. Some of the major projects completed by SIL include Nagarjuna Sagar Dam in , Veligallu Project in Andhra Pradesh, Kelo Dam Project in Chattisgarh, Ratnagiri Thermal Power Plant in etc.

The company currently has an Order Book position of Rs. 15316.96 Cr as on January 30, 2015 indicating healthy revenue visibility over the next few years.

Management: The Managing Director of SIL is Mr. V. Rajasekhar, the 3rd generation promoter and grandson of Mr. V. Nageswara Rao. The company has PE investment from private equity funds, NYLIM Jacob Ballas and Rohatyn Group, who collectively hold 19.60% stake in SIL. The remaining stake is held by the promoters.

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The Board of Directors comprises Mr. V. Rajasekhar, Mr. M. Thirpath Reddy, Mr. Y. Balakrishna Rao, Mr. Y. Gangadhara Rao, Mr. S. Anil Kumar and Mr. V. Rajkumar. The Board also includes two nominee directors and two independent directors. All the directors are well qualified and experienced. The directors are assisted by a management team of qualified and experienced professionals.

Financial Highlights: SIL recorded Net Operating Income of Rs. 2358.46 Cr for FY14 as against Rs. 2556.59 Cr in FY13. Operating Margin was 10.94% and PAT Margin was 1.96% in FY14 as against 10.73% and 3.23% respectively in FY13. Tangible Net Worth increased from Rs. 880.42 Cr as on March 31, 2013 to Rs. 903.47 Cr as on March 31, 2014. The Overall Gearing also improved from 1.09 times as on March 31, 2013 to 1.03 times as on March 31, 2014.

SIL had long term investments amounting to Rs. 764.01 Cr as at March 31, 2014, which reflects the equity infused by SIL into various subsidiaries and Joint Ventures. On a provisional basis, SIL reported an Operating Income of around Rs. 2096.27 Cr for FY15 (April-March) with a PAT margin of 1.61% and Operating Margin of 11.93%.

Rating Outlook: The present stressed liquidity and delay in tying up adequate bank funding have impacted the financial risk profile of the company and hence the outlook has been revised to Negative. The company’s ability to ensure availability of the required bank funding, monetise the stakes in the SPVs and ensure timely servicing of debt shall be the key rating monitorables.

Analyst Contact Relationship Contact

[email protected] [email protected] Phone Media Contact

1-860-425-2742 [email protected]

Disclaimer: Brickwork Ratings (BWR) has assigned the rating based on the information obtained from the issuer and other reliable sources, which are deemed to be accurate. BWR has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented “as is” without any express or implied warranty of any kind. BWR does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by BWR should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses incurred by users from any use of this report or its contents. BWR has the right to change, suspend or withdraw the ratings at any time for any reasons.

www.brickworkratings.com 3 22 Jul 2015