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Indamer Aviation Private Limited June 24, 2021 Ratings Amount Facilities Rating1 Rating Action (Rs. crore) CARE BBB- (Is); Stable Issuer Rating* - Assigned [Triple B Minus (Issuer Rating); Outlook: Stable] Details of instruments/facilities in Annexure-1 *The rating is subject to consolidated overall gearing not exceeding 2.00 times as of March 31, 2021.

Detailed Rationale & Key Rating Drivers The rating assigned to Indamer Aviation Private Limited (IAPL) derives strength from extensive experience of the promoter and management in the maintenance, repair and overhaul (MRO) sector, presence in a niche segment, long-standing relation with diversified clientele for usage of services provided by IAPL. The rating also favourably considers high entry barriers in terms of statutory clearances from Directorate General of Civil Aviation (DGCA) and IAPL’s policy of low reliance on debt. The aforementioned rating strengths are however, tempered by the business risks and inherent risks in MRO businesses wherein any lapses in service could lead to heavy financial penalties and or suspension of services. Besides, restricted revenue stream combined with elongated receivable cycle, high contingent liabilities are other credit concerns. CARE also notes that IAPL has extended a corporate guarantee to AAR Indamer Technics Private Limited (AITPL) [rated CARE BBB-; (Stable)/CARE A3]. Therefore, any inability of AAR Indamer Technics Private Limited (JV of AAR Corp and IAPL) to sustain business on its own requiring higher than envisaged financial support from IAPL will be a key rating monitorable.

Rating Sensitivities Positive Factors  Signing of long-term agreements of over 5 years with dominant groups.  Increase in EBITDA margins over 45% for a sustained period. Negative Factors  Any major capital expenditure/large debt funded acquisition resulting in moderation in the financial risk profile with Total Debt to PBILDT above 2.00 times on sustained manner  Decrease in EBITDA margins below 25%  Any significant deterioration in counter party risk profile  Any increase in receivable days beyond 200 days on sustained manner

Experienced Promoters Indamer Aviation Private Limited, incorporated in 1947, was founded by American entrepreneur Mr. Joseph Koszarek to set up green-field airframe maintenance repair and overhaul (MRO) facility in . Indamer is the oldest MRO in India, providing service to corporate clients for over 7 decades. The current majority shareholder of IAPL is Mr. Prajay Patel (96.47% equity stake). He joined IAPL in March 2016. Mr. Rajeev Gupta is currently the CEO of IAPL. He has total work experience of over 33 years in various capacities in the Aviation Industry.

Niche Presence in aviation MRO segment The aircrafts have a requirement of heavy maintenance every 2 years and requiring highly specialized hangars, technical staff and tooling to perform this kind of maintenance. In such an environment, IAPL enjoys a huge market share Indian Business Aviation Maintenance Industry. The business aviation maintenance industry is relatively smaller than the commercial aviation maintenance industry and fewer players in the market. IAPL enters into a tripartite agreement for its spares and parts installed in the aircraft. The entry barriers in this type of business is very high owing to requirement of stringent DGCA approvals. These approvals are issued for varying duration ranging for a period of minimum 1 year to 5 years depending on the type of maintenance activity/quality check.

Moderate counterparty credit risk with agreement with renowned players IAPL has an order book position of Rs. 40-45 crores to be executed over a period of 1 year. These orders get renewed every year and there are some contracts which are for a longer duration. Over and above this, the company receives labour charges for servicing of aircrafts and services the aircraft at the various locations. Order book to sales ratio is 0.68x. The company has varied clientele such as , Government of Gujarat, Government of J&K, Reliance Commercial, Reliance Transport, Cooper Industries, Jindal Steel and Power among others. The agreements are renewed every year, thus providing

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Press Release revenue visibility due to an assured renewal from such clients. This lends predictability and stability to revenue with low demand risk in the medium term.

Geographical Diversification The company has presence at 14 locations across India. It has major maintenance and line maintenance facilities. The locations are Mumbai, Pune, Bangalore, Coimbatore, Chennai, Vidyanagar, Hyderabad, Bhubaneshwar, Kolkatta, Lucknow, Delhi, Srinagar, Jaipur, Ahmedabad where IAPL can carry out its activities. With operations spread across the country, the company is relatively insulated in terms of any adverse regulatory or climatic changes in any particular region. These locations are chosen on the basis of companies operating in such major cities.

Moderate financial performance and small scale of operations The total operating income (TOI) of the company had increased from Rs. 54.2 crore in FY20 to Rs. 62.6 crore in FY21 crore. Majority of the revenue has been generated mainly through MRO services and only nearly 13-18% from sale of parts and spares (Rs. 9.20 crore in FY20 and Rs. 8.29 crore in FY21). IAPL also hires hangars on rent from various airports in case of specific orders. The company has no long-term debt except a vehicle loan and the tenor till FY25. IAPL also entered into JV with AAR Corp incorporated under the name AAR Indamer Technics Private Limited to set up a green- field airframe maintenance, repair and overhaul (MRO) facility in Nagpur, Maharashtra, India and has a Letter of Intent from Indigo Airlines and Go Air.

Key Rating Weaknesses Long working capital cycle albeit stable realizations The working capital requirements have been met through internal accruals and promoter funds, since the company does not have any working capital borrowings. The debtors take nearly 4-6 months to clear the payments thus giving rise to lumpy payments during certain months, thereby impacting the cash flow position. Creditors are pertaining to spare parts and tools purchased for which the entity takes nearly 3-4 months to make the payment.

Inherent risk involved in the nature of business IAPL is exposed to regulatory risks imposed by government agencies such as Directorate General of Civil Aviation (DGCA). MRO includes periodic inspections that have to be done on all commercial/civil aircraft after a certain amount of time or usage. The age of the aircraft, the number of hours it has flown, number of take-offs and landings, requirements by aviation regulators and internal policies determine the periodicity and nature of maintenance to be undertaken. There are numerous maintenance standards and service quality levels to be adhered to, failure to do so may lead to penalties levied by the Authority and in turn higher O&M expenses or suspension of license to provide such a service.

Contingent liabilities Airport Authority of India, Juhu has demanded rent for the hangar and has served a notice of eviction from hangar premises. The company is in the process to settle the matter with AAI. If the liability materializes, IAPL will have to liquidate its deposits which will not be sufficient to meet this liability. This case has been pending since 2005.

Impact of Covid-19 & Regulatory Risk Even though Covid has left a negative impact on the commercial aviation industry, IAPL deals majorly in private smaller aircrafts/helicopters for corporates and Government clients which did not get impacted due to the demand for private jet services.

Liquidity: Adequate The company has cash and cash equivalents of Rs. 2.52 crores and fixed deposit of Rs 22.76 crore (includes lien marked for performance BG of Rs. 86 lakhs) as on March 31, 2021. Expected cash accrual for upcoming years is ~Rs. 10 crores which will be sufficient to meet the debt obligations of the vehicle loan. Any incremental working capital requirement due to lag from clients will be met through existing cash and internal accruals. The company is not expected to avail any working capital finance.

Analytical approach: Standalone

Applicable Criteria Criteria on assigning ‘outlook’ and ‘credit watch’ to Credit Ratings CARE’s Policy on Default Recognition CARE’s Issuer Rating Financial ratios – Non-Financial Sector

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Liquidity Analysis of Non-Financial Sector Entities Rating Methodology - Service Sector Companies Rating Methodology - Infrastructure Sector Ratings (ISR)

About the Company Indamer Aviation Private Limited (IAPL) is an authorized service center for Bombardier and Embraer fleets. It maintains fixed- wing aircraft and helicopters manufactured by all original Equipment Manufacturers (OEMs). It is approved by the Directorate General of Civil Aviation under Civil Aviation Requirement (CAR 145) and Continuing Airworthiness Management Organization (CAMO). The company maintains aircraft for Private Owners, Charter Operators, State Governments and Training Institutes. As on date, IAPL operates at 14 locations across India. Brief Financials (Rs. crore) FY20 (A) FY21 (Prov) Total operating income 54.2 62.6 PBILDT 11.8 24.6 PAT 6.82 22.4 Overall gearing (times) 0.07 0.03 Interest coverage (times) 39.6 95.3 A: Audited; Prov: Provisional Status of non-cooperation with previous CRA: Not applicable Any other information: Not applicable Rating History for last three years: Please refer Annexure-2 Covenants of rated instrument / facility: Detailed explanation of covenants of the rated instruments/facilities is given in Annexure-3 Complexity level of various instruments rated for this company: Annexure 4

Annexure-1: Details of Instruments/Facilities Name of the Date of Coupon Maturity Size of the Issue Rating assigned along Instrument Issuance Rate Date (Rs. crore) with Rating Outlook Issuer Rating-Issuer CARE BBB- (Is); Stable - - - 0.00 Ratings

Annexure-2: Rating History of last three years Current Ratings Rating history Name of the Type Rating Date(s) & Date(s) & Date(s) & Date(s) & Sr. Amount Instrument/Bank Rating(s) Rating(s) Rating(s) Rating(s) No. Outstanding Facilities assigned in assigned in assigned in assigned in (Rs. crore) 2021-2022 2020-2021 2019-2020 2018-2019 CARE Issuer Rating-Issuer Issuer BBB- (Is); 1. 0.00 - - - - Ratings rat Stable

Annexure-3: Detailed explanation of covenants of the rated instrument / facilities – Not applicable

Annexure 4: Complexity level of various instruments rated for this company Sr. No. Name of the Instrument Complexity Level 1. Issuer Rating-Issuer Ratings Simple

Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications.

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Contact us Media Contact Mradul Mishra Contact no. – +91-22-6754 3573 Email ID – [email protected]

Analyst Contact Group Head Name – Rajashree Murkute Group Head Contact no.- +91-22-6837 4474 Group Head Email ID- [email protected]

Relationship Contact Name: Chirag Ganguly Contact no.: +91-22-6754 3473 Email ID: [email protected]

About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices. Disclaimer CARE’s ratings are opinions on the likelihood of timely payment of the obligations under the rated instrument and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE’s ratings do not convey suitability or price for the investor. CARE’s ratings do not constitute an audit on the rated entity. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. CARE or its subsidiaries/associates may also have other commercial transactions with the entity. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is, inter-alia, based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. CARE is not responsible for any errors and states that it has no financial liability whatsoever to the users of CARE’s rating. Our ratings do not factor in any rating related trigger clauses as per the terms of the facility/instrument, which may involve acceleration of payments in case of rating downgrades. However, if any such clauses are introduced and if triggered, the ratings may see volatility and sharp downgrades. **For detailed Rationale Report and subscription information, please contact us at www.careratings.com

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