RATING RATIONALE 31-Dec-2019

Krishnapatnam Infratech Limited

Brickwork Ratings reaffirms the ratings and revises the outlook for the Bank Loan Facilities of Rs.195.00 Crs. of Infratech Limited

Particulars:

Rating* Amount (Rs. Crs.) Facilities** Tenure Previous Previous Present Present (15-Feb-2019) BWR A- (CE) / Credit Fund Based watch with developing 197.60 195.00 Long Term BWR A- (SO)^/ Stable Term Loan implications ​ Reaffirmed

Total 197.60 195.00 Rupees One Hundred and Ninety Five Crores Only

*Please refer to BWR website www.brickworkratings.com/ for definition of the ratings ​ ​ ** Details of Bank Loan facilities is provided in Annexure-I

Unsupported Rating: BWR BB / Credit watch with developing implications. ​ ^The suffix SO has been replaced with CE as per the SEBI guidelines June 13,2019 as on 14-Sep-2019.

Credit Enhancement (CE) is in the form of co-obligation of Krishnapatnam Port Company Ltd (KPCL) for the term loan with the liability of KIL and KPCL being joint and several in nature

RATING ACTION / OUTLOOK

The reaffirmation of rating continues to factor the operational track record of the Hyderabad based Navayuga group of companies, experienced management, conversion of Compulsory Convertible Debentures (CCD) to equity during Aug 2019 and satisfactory track record of port operations of Krishnapatnam Port Company Ltd (KPCL). The rating also positively factors KPCL being a co-obligor for the rated bank loan. The rating, however, remains constrained by the reliance of the Company on the cash flows of KPCL for meeting its debt servicing obligations, exposure to SEZ project implementation and execution risks and associated time and cost overruns, intra group transactions, political risks associated with the the project and inherent risks associated with the underlying businesses.

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At a standalone rating, the outlook has been placed under credit watch with developing implications on account of ongoing court order stay regarding the retrivation of 4700 acres land allotted by the Government of AP to KIL and expected changes in the management/shareholding pattern post the sale of stake of promoters in KPCL. The outlook has placed under credit watch with developing implications in view of promoters of the KPCL (Co-obligor of the rated facilities) being in the process of dilution of their shareholding funds in KPCL. The due diligence is in progress and KPCL expects that the deal would be completed by FY20.

KEY RATING DRIVERS

Credit Strengths: ● Experienced promoter group : The Hyderabad based Navayuga group of companies ​ has strong capabilities in engineering, procurement and construction (EPC) business and moderate business risk profile marked by sustained revenue growth and medium term revenue visibility. Mr. C Visweswara Rao and Mr. C Sridhar are the main Promoter Directors of KIL. ● Satisfactory financial & operational performance of KPCL: KPCL is the co-obligor ​ for the rated term loan and the liability of KIL and KPCL is joint and several for the said facilities. KPCL’s financial performance is satisfactory as seen in operating margins & profitability and adequate liquidity position of the Company. During FY19, Company has reported improvement in scale of operations by 23% i.e. from ₹1858.17 Crores in FY18 to ₹2286.95 Crores. The increase in scale of operations was mainly on account of improvement in cargo handled by 20% when compared with the previous year. Company has shown improvement in operating and net profit margins. Net profit of the Company has improved from ₹138.34 Crores in FY18 to ₹347.24 Crores in FY19. Also, the tangible net worth of the Company improved to ₹2623.23 Crores as on FY19 from ₹2278.14 Crores as on FY18. Increase in tangible net worth was on account of retention of operating profits in the Company. ● Conversion of Compulsory Convertible Debentures(CCD) to Equity: During Aug ​ 2019, KIL has converted it Compulsory Convertible Debentures O/s of ₹142.95 Crores to equity shares as per the terms and conditions. Hence, the share capital of the company has improved from ₹82.96 Crores as on 31-Mar-2019 to ₹236.56 Crs as on 30-Nov-2019. Post the conversion of CCD to equity, the share holding pattern of the company has been revised to Krishnapatnam Port Company Ltd (15.62%) Navayuga Infra Projects Private Ltd (15.00%) and Navayuga Engineering Company Ltd (67.27%).

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Credit Risks: ● Political risks associated with the implementation of the SEZ: AP Government had sought retrivation of 4700 acres land allotted by the Government of AP to KIL in October 2019. However, Company has clarified that honourable high court of AP has granted relief ordering status quo on the cancellation notice issued by Industrial Infrastructure Corporation (APIIC) for existing sale deed of KIL. The said land is a freehold land. ● KPCL Promoters are in the process of dilution of shareholding funds: The Promoters ​ of the KPCL are in the process of sale upto 70% of stake in the Company. Currently, the prospective buyers are conducting due diligence for the same. KPCL expects that the deal would be completed by March 2020 ● Intra group transactions consisting of various investments in group companies- There are several intra group transactions within the entities of Navayuga Group of Companies, consisting of various equity investments and CCDs in associate Companies and Subsidiaries. Also, the Group structure is highly leveraged and the debt is secured by the assets owned by the Group.

ANALYTICAL APPROACH AND APPLICABLE RATING CRITERIA

For arriving at its ratings, BWR has considered the standalone and consolidated financials of KIL. KIL’s subsidiary Companies are Nava Vishwa Sashi Vijaya Krishna Properties Pvt Ltd (which is yet to start business operations) and Equinox Marinetek Services Pvt Ltd (which is engaged in providing services and supplies for marine, shipping, logistics and cargo handling, etc.) have been consolidated for arriving at the consolidated financials. Also, BWR has assessed the associate company Krishnapatnam Port Company Limited financials for determining the credit enhancement of the rating. BWR has applied its rating methodology as detailed in the ​ Rating Criteria (hyperlinks provided at the end of this rationale)

RATING SENSITIVITIES

Going forward, the ability of the Company to ensure timely implementation of the Multi-Product SEZ (MPSEZ) project in phases as planned, realise revenues from the sale of plots and generate sufficient operational cash flows for its debt servicing will remain key rating sensitivities.

● Positive: Implementation of the project as per the plan, improvement in revenues and ​ profitability, upward revision in the rating of KPCL (Co-obligor of the rated facilities)

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● Negative: Delay in implementation of the project, retrivation of land allotted to KIL by ​ ​ ​ Government of AP, deterioration in the financial profile of KPCL (Co-obligor of the ​ rated facilities) and delay in support from KPCL for meeting the debt obligations ● The credit watch with developing implications is proposed if there is clarity on the cancellation of the retrivation of the land allotted by the Government of AP to KIL, KPCL stake sale are finalised and the expected changes in the management/shareholding pattern post the stake of promoters funds sale in KPCL.

LIQUIDITY INDICATORS

Stretched - At a standalone financials basis, In FY19, company was unable to generate cash accruals to repay its debt obligations. Company has generated net cash accruals of ₹2.37 Crores against the debt obligations of ₹2.40Crores. However, on a consolidated financials company has generated net cash accruals of ₹3.60 Crores against the debt obligations of ₹2.63 Crores. As on 31 March 2019, On a standalone financials, company has reported cash and bank balance of ₹5.44 Crores and on a consolidated financials cash and bank balances reported at ₹6.38 Crores.

Krishnapatnam Port Company Ltd (KPCL) is also the Co-obligor for the term loan with the liability of KIL and KPCL being joint and several in nature. Hence, if there is any inadequacy in the cash accruals generated by KIL, KPCL will be ensuring the availability of the funds for repayment of debt obligations of KIL. The total debt obligations to be paid by KPCL in FY19 was at ₹584.93 Crs, for which KPCL has generated net cash accruals of ₹663.13 Crs during the year. Also the KPCL has reported cash and cash equivalents of ₹11.33 Crs and Fixed deposits of ₹1.53 Crs as on 31 March 2019

COMPANY’s PROFILE - KIL

Incorporated in Jan 2008 at Hyderabad, Krishnapatnam Infratech Limited (KIL) (a part of Hyderabad based Navayuga Group of Companies), is setting up a Multi-Product Special Economic Zone (SEZ) including Domestic Tariff Area and related infrastructure facilities including Free Trade Warehousing Zone in around 6000 acres of land close to Krishnapatnam Port in Kota and Chillakur Mandals, SPSR District, Andhra Pradesh. The Multi-Product SEZ (MPSEZ) project site is situated at a distance of 7 Kms from Krishnapatnam Port and 26 Kms from National Highway-5 (Kolkata – Chennai). Govt. of India (GOI) had granted formal approval to KIL for setting up MPSEZ including Domestic Tariff Area at Chillakur Mandal, Nellor district, A.P., on 10th Mar 2010. Further, Terms of Reference were approved by GOI on ​ nd 2 ​ Dec 2013. ​

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KEY FINANCIAL INDICATORS - Standalone - KIL

Key Financial Indicators Units FY18 FY19 Result Type Audited Audited Operating Income Rs. Crs 0.63 2.52

Operating Profit Rs. Crs 0.63 2.52 Net Profit Rs. Crs 0.51 2.37 Tangible Net worth Rs. Crs 109.08 98.45

Total Debt/ Tangible Net worth Times 3.02 3.45

Current Ratio Times 3.50 3.13

KEY FINANCIAL INDICATORS - Consolidated - KIL

Key Financial Indicators Units FY18 FY19 Result Type Audited Audited Operating Income Rs. Crs 6.96 10.55

Operating Profit Rs. Crs 1.21 4.32 Net Profit Rs. Crs 0.59 3.34 Tangible Net worth Rs. Crs 114.73 105.04

Total Debt/ Tangible Net worth Times 2.87 3.24

Current Ratio Times 3.73 3.25

COMPANY’s PROFILE - Krishnapatnam Port Company Ltd (KPCL) (Co-obligor of the loan rated)

Incorporated in March 1996 at Hyderabad, Krishnapatnam Port Company Limited (‘KPCL’ or ‘the Company’) is promoted by the Hyderabad-based Navayuga group of Companies. Krishnapatnam Port, a non-major all-weather port (operating 365 days a year) under the administrative control of the Government of Andhra Pradesh (GoAP), has been developed by Krishnapatnam Port Company Limited (KPCL). The concession agreement between Govt. of AP and KPCL grants KPCL an exclusive right to develop and operate the port and related facilities on Build, Operate, Share & Transfer (BOST) basis for a period of 30 years starting from

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FY2009, extendable by a further 20 years. Mr. C. Visweswara Rao is the Executive Chairman and Mr. C. Sasidhar is the Managing Director of the Company.

KEY FINANCIAL INDICATORS - KPCL - Standalone Financials Key Financial Indicators Units FY18 FY19 Result Type Audited Audited

Operating Income ₹ Crores 1890.04 2338.04

Operating Profit ₹ Crores 1069.78 1336.67 Net Profit ₹ Crores 138.34 347.24 Tangible Net worth ₹ Crores 2278.14 2623.23 Total Debt/ Tangible Net worth Times 2.72 2.36

Current Ratio Times 1.35 1.35

KEY COVENANTS OF THE INSTRUMENT/FACILITY RATED The terms of sanction include standard covenants normally stipulated for bank loan facilities. Also for the rated facilities Krishnapatnam Port Company Ltd (KPCL) is the Co-obligor for the term loan with the liability of KIL and KPCL being joint and several in nature.

NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY IF ANY : Nil

RATING HISTORY FOR THE PREVIOUS THREE YEARS

Facilities Current Rating Rating History Tenure Amount (Long Term/ Rating 15-Feb-2019 2018 20-Nov-2017 2016 (Rs. Crs.) Short Term) BWR A- (CE) / ​ Credit watch with Fund Based BWR A- (SO) BWR A- (SO)/ Long Term 195.00 developing -- -- Term Loans Stable Stable implications Reaffirmed

Total 195.00 Rupees One Hundred and Ninety Five Lakhs Only

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The suffix SO has been replaced with CE as per the SEBI guidelines June 13,2019 as on 14-Sep-2019. COMPLEXITY LEVELS OF THE INSTRUMENTS

For more information, visit www.brickworkratings.com/download/ComplexityLevels.pdf ​

Hyperlink/Reference to applicable Criteria

● General Criteria ● Approach to Financial Ratios ● Infrastructure Sector ● Credit Enhancement

Analytical Contacts Investor and Media Relations

Sowmya Yatham Manager- Ratings Board: 080 - 40409940 Ext: 309 [email protected] M : +91 7738875550 B : +91 22 6745 6666 Vipula Sharma [email protected] Director – Ratings Board: 080 - 40409940 Ext: 330 [email protected]

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KRISHNAPATNAM INFRATECH LIMITED

ANNEXURE I Details of Bank Loan Facilities rated by BWR

Sl. No. Name of the Type of Long Term Short Total Bank Facilities (Rs. Crs.) Term (Rs. Crs.) ​ (Rs. Crs.)

1 Yes Bank Term Loan 195.00* -- 195.00

Total 195.00 -- 195.00

Total Rupees. One Hundred and Ninety Five Crores Only Note: *O/s term loan as on 30-Nov-2019

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