October 04, 2017 DA Toll Road Private Limited

Summary of rated instruments Instruments* Amount Rated Rating Action (Rs. crore) Long-Term (LT) Fund 1,883.34 [ICRA]BBB (Stable) reaffirmed Based-Term Loan (increased from Rs. 1,860crore) Long-Term (LT) Fund 15.44 [ICRA]BBB (Stable) reaffirmed Based-Proposed (reduced from Rs. 54.50crore)

Long-Term (LT) Non Fund NIL Based - Bank Guarantee (reduced from Rs. 100 crore)

*Instrument details are provided in Annexure-1

Rating action ICRA has reaffirmed the long-term rating of [ICRA]BBB (pronounced ICRA triple B) outstanding on the Rs. 1,898.78 crore1 (reduced from Rs. 2,014.50 crore) bank loans of DA Toll Road Private Limited (DATRL)2. The outlook on the long-term rating is ‘Stable’.

Rationale The reaffirmation of the rating favourably takes into account the importance of the project highway as part of the connecting important cities of and . The rating also factors in the tolling track record of more than four years reducing risk of revenue loss on account of delay in completion as per schedule. The company witnessed a higher traffic growth of 6.2% during FY2017 (based on PCUs) driven by improvement in the condition of the roads of the project stretch. With the completion of the entire project stretch in the current fiscal, the company would be setting up another toll plaza that is expected to augment the toll collections. The availability of long tail period of ~8 years further enhances the company’s financial flexibility. The rating further draws comfort from the established track record of the parent, Reliance Infrastructure Limited, in the roads sector.

The rating, however, continues to remain constrained due to the significant delays in project execution on account of non-availability of right of way (RoW) and environmental clearances. This has resulted in the extension in the construction completion date by 2.8 years, i.e. by December 15, 2017. The execution risks continue to remain high, though the company has now completed ~85% physical progress as on 30th June 2017. The project faces traffic risk that is typical to any toll road project aggravated by the presence of an alternate route viz. Yamuna Expressway (YE), which could lead to traffic diversion. However, the higher toll rates at YE mitigate the risk to a certain extent. The rating also remains constrained by the interest rate risk as interest rate is variable on major portion of the company’s debt. The rating remains constrained by the WPI-linked escalation in toll rates, which could limit the growth in toll collections during periods of low WPI rate as seen in the recent past.

Going forward, the timely execution of the project within the budgeted cost and the traffic growth rates for the project will remain the key rating sensitivity from a credit perspective.

1 100 lakh = 1 crore = 10 million 2 For complete rating scale and definitions, please refer to ICRA’s website (www.icra.in) or other ICRA rating publications.

Key rating drivers

Credit Strengths  Healthy traffic Growth in FY2017 - At present, the site includes two toll plazas, one at 74 km (Palwal) and the other at 164 km (). Post COD the project stretch will include 3 toll plazas at 46 km, 94 km and 164 km. The company witnessed a higher traffic growth of 6.2% during FY2017 (based on PCUs) driven by improvement in the condition of the roads of the project stretch. The growth in PCU volumes in cars and MAV (Multi-Axle Vehicles) segments in FY2017 has largely been responsible for the growth in overall traffic PCU volumes. Going forward, on completion of construction of the entire project stretch, the traffic growth is further expected to get a boost from increase in commercial vehicles.

 Favourable location of the project - The project is part of Golden Quadrilateral connecting Delhi with Kolkata and also North-South Corridor connecting Delhi with Cochin and Kanyakumari. The present project is on NH–2 which connects many states and various important cities such as Agra, Kanpur, Allahabad, Varanasi, Aurangabad, Barwa Adda, Raniganj etc. The entire length (179.50 Km) of the project between 20.50 km and 200.00 km of NH-2 is an important link connecting Delhi and Agra and carries predominant interstate traffic in addition to tourist traffic bound towards Agra, , Rajasthan, and Maharashtra.

 Extended moratorium owing to shift in COD - The total project debt comprises of Rs. 1,560 crore of term loan (TL) and US$50 m of external commercial borrowings (ECB). The repayment of the term debt is to be made in 46 unequal (ballooning) quarterly instalments and was initially scheduled to commence from January 2017. However on account of shift in COD from January 2016 to January 2017, DATRL had received an approval from the lenders for one year extension in moratorium period. With further shift in COD to December 2017, the lenders have extended the moratorium by additional nine months. The repayment is now scheduled to commence from December 2018. The repayment of the US$50 million ECBs have not been rescheduled and will commence from March 2018. The company, however, has a long tail period of ~8 years which provides financial flexibility for debt refinancing. ICRA notes that the company would have to create a Debt Servicing Reserve Account (DSRA) equivalent to one quarter of debt servicing obligations as part of the sanction terms and the promoter has provided an undertaking to support DSRA till the project meets base case DSCR of 1.2 times for three consecutive years

 Established presence of promoter, Reliance Infrastructure Limited (R Infra), in the roads sector – The company is a wholly owned subsidiary of R Infra. The promoters have long-standing experience of over a decade in the roads sector. The Group is currently executing 11 toll road projects with a total project stretch of 970 km having presence in seven states. The extensive experience of promoter is expected to believe the company over the medium to long run.

Credit Weaknesses  High execution risk evident from delays in achieving project milestones – There have been delays in achieving the project milestones. The initial COD was April 15, 2015 which was subsequently revised to January 13, 2016 owing to delays in receipt of forest and environmental clearances. The project construction was further delayed owing to delays in initial period of construction due to reasons beyond the scope of the company. The company subsequently received an extension of timeline (EOT) from NHAI as per which the revised COD was January 11, 2017. However, due to issues pertaining to handover of Right of Way, and other reasons, the revised project milestone could not be achieved again. NHAI has further approved the EOT for the COD to December 15, 2017.

 High alternate route risk albeit supported by low toll rates and better connectivity - Delhi and Agra are directly connected by two roads viz. the company’s project stretch and Yamuna Expressway (YE). YE project is a 6-lane (extendable to 8 lanes) concrete pavement expressway of 165 km connecting Agra and and has been operational since August 2012. YE thus provide a stiff competition to the project stretch for traffic volumes. However, the toll rates are higher at YE compared to the project stretch. Further, YE starts post , makes it less attractive for traffic originating from Gurgaon and Faridabad.

 Project cash flows sensitive to traffic growth rates - DATRL’s toll collections are exposed to volatility in toll collections due to future traffic growth rate. Any moderation in traffic growth from anticipated levels may lead to weakened project metrics.

 Toll rate hike linked to WPI – The annual toll rate hike is linked to WPI; reduction/lower hike in the toll rates due to negative WPI may impact toll collections.

 Exposure to interest rate risk - DATRL cash flows are exposed to interest rate risk considering the floating nature of interest rates for the project loan.

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below.

Links to applicable Criteria Corporate Credit Ratings: A Note on Methodology

About the Company: Incorporated in May 2010, DA Toll Road Private Limited (DATRL), is a special purpose vehicle (SPV) promoted by Reliance Infrastructure Limited (R Infra). It has been set up for the purpose of widening/up- gradation of the stretch between Delhi and Agra from existing 4-lanes to 6-lanes. The total length of the road under the project is 179.50 kilometre (km). The project was awarded to the company under a competitive bidding process under National Highway Development Program (NHDP) on a Design, Build, Finance, Operate and Transfer (DBFOT) basis. The key bid variable was the grant receivable from NHAI which was bid at Rs. 180 crore by R Infra. The concession period is for 26 years from the appointed date (i.e., October 16, 2012). The project COD is targeted in December 2017.

Table: Key Financials of DATRL Particulars Units FY2016 FY2017 Operating income (OI) Rs. Crore 755.9 833.7 Profit After Tax (PAT) Rs. Crore 110.3 12.7 OPBDIT/ OI % 17.2% 10.1% RoCE % 19.6% 3.6%

Total Debt/ Tangible Net Worth times 2.2 4.1 Total Debt/ OPBDIT times 6.3 19.1 Interest coverage times 26.7 1.7 NWC/OI % 1% 5% OPBDITA: Operating Profit before Depreciation, Interest, Taxes and Amortisation; RoCE: Return on Capital Employed; NWC: Net Working Capital Note: The above financials are as per Ind AS

Status of non-cooperation with previous ICRA: Not Applicable

Any other information: Not Applicable

Rating History for last three years:

Table: Rating History Name of Current Rating Chronology of Rating History for the past 3 Instrument years S. Type Rated Month - Month - year Month - Month - No. amount year & & Rating in year & year & (Rs. rating FY2017 Rating in Rating in Crore) FY2016 FY2015 October October September - 2017 2016 2015 Long [ICRA]BBB [ICRA]BBB [ICRA]BBB 1 Term Loan 1883.34 - term (Stable) (Stable) (Stable) Proposed Term Long [ICRA]BBB [ICRA]BBB [ICRA]BBB 2 15.44 - Loan term (Stable) (Stable) (Stable) Bank Long [ICRA]BBB [ICRA]BBB 3 100.00 - Guarantee term (Stable) (Stable)

Complexity level of the rated instrument: ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the website www.icra.in

Annexure-1 Details of Instruments ISIN No Instrument Date of Coupon Maturity Amount Current Issuance / Rate Date Rated Rating and Sanction (Rs. Outlook crore) [ICRA]BBB - Term Loan - - FY2030 1883.34 (Stable) [ICRA]BBB - Proposed Term Loan - - - 15.44 (Stable) Source: DATRL

Name and Contact Details of the Rating Analyst(s): Analyst Contacts Mr. K. Ravichandran Mr. Shubham Jain +91 44 4596 4301 +91 124 4545 306 [email protected] [email protected]

Mr. Abhishek Dafria Mr. Rohit Agarwal +91 22 6169 3344 +91 22 6169 3329 [email protected] [email protected]

Name and Contact Details of Relationship Contacts: Mr. L Shivakumar +91 22 61143406 [email protected]

About ICRA Limited: ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating Agency. Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit Rating Agency Moody’s Investors Service is ICRA’s largest shareholder. For more information, visit www.icra.in

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