Press Release

DBL - Tollways Limited December 30, 2020 Ratings Facilities Amount (Rs. crore) Ratings1 Rating Action Long term Bank 71.67 CARE A-; Stable Reaffirmed; Outlook revised Facilities (Reduced from 78.93) (Single A Minus; Outlook: Stable ) from Negative to Stable 71.67 Total Facilities (Rupees Seventy One Crore and Sixty Seven Lakh only) Details of facilities in Annexure-1

Detailed Rationale & Key Rating Drivers The rating of the bank facilities of DBL Jaora-Sailana Tollways Limited (DJSTL) continue to derive strength from its assured cash flow stream in the form of annuity receivable from Road Development Corporation [MPRDC (a GoMP undertaking); rated CARE A (Is); Stable] along with the operational status of its road project with established track record of receipt of annuities and creation of debt service reserve account (DSRA). Further, the annuity receipts of DJSTL adequately cover its debt servicing requirements. The rating of DJSTL also continue to take into account divestment of the controlling stake in DJSTL by DBL to Shrem Roadways Private Limited (SRPL; part of Chhatwal Group Trust) and responsibility of DBL for undertaking the requisite operation and maintenance (O&M) and major maintenance (MM) activity of the stretch without any consideration for the same from DJSTL. The above rating strengths, however, continue to be tempered by inherent interest rate risk and performance risk attached with the O&M contractor (i.e. DBL). CARE Ratings also takes note of the fact that DJSTL has availed the moratorium as per the measures announced by The Reserve Bank of on March 27, 2020. Further, it is to be noted that DJSTL has paid all the amounts acc rued under moratorium in July 2020.

Outlook: Stable The outlook for the rating has been revised to ’stable’ on account of creation of DSRA of Rs.9.31 crore in fund based form equivalent to the six months of debt servicing as per the sanctioned terms post expiry of DSRA bank guarantee

Rating Sensitivities Positive Factors:  Improvement in the credit profile of MPRDC Negative Factors:  Deterioration in the credit profile of MPRDC and significant deterioration in credit profile of O&M contractor  Non-adherence to the stipulated O&M and MM requirements by O&M contractor leading to delay/deduction in DJSTL’s annuity receipt thereby impacting debt coverage indicators  Change in existing O&M and MM arrangement deteriorating the debt coverage indicators  Significant interest rate movements adversely affecting its debt coverage indicators

Detailed description of the key rating drivers Key Rating Strengths Operational annuity road project coupled with established track record of receipt of annuity from MPRDC: DJSTL’s annuity road project achieved commercial operations date (COD) on May 2014 ahead of its scheduled COD. Further, DJSTL has an established track record of receipt of thirteen semi-annual annuities (including one bonus annuity) from MPRDC in a timely manner.

Low counterparty credit risk: Incorporated on July 14, 2004, MPRDC is wholly owned by GoMP. It is the ‘State Highway Authority’ and facilitator for construction, maintenance and up gradation of state highways and major district roads for GoMP. It receives funds quarterly in advance for meeting viability gap funding (VGF) funding, annuity pay outs and for regular contracts.

Adequate debt coverage indicators: Annuity received from MPRDC adequately covers the debt obligation of DJSTL. Further, as per the terms of sanction of term loan, repayment of term loan shall be due after 30 days from due date of

1Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications. 1 CARE Ratings Limited

Press Release receipt of annuity, thus providing comfort in case of any delay in the actual receipt of annuity. However, timely and need based support from SRPL in case of any exigencies, shall remain crucial from the credit perspective.

Established track record of O&M contractor i.e., DBL in execution and maintenance of road projects: DBL had entered in to a stake sale agreement on March 26, 2018 in lieu of which 100% stake in DJSTL were transferred to SRPL. Post stake sale, DJSTL had entered into an O&M contract with SRPL which in turn has sub-contracted the O&M work to DBL. As per the terms of stake sale and sub-contract agreement, DBL shall be entitled to the toll collection proceeds of its 11 out of 14 State Highway (SH) road SPVs (in Madhya Pradesh and Gujarat) sold to SRPL while simultaneously being fully responsible for undertaking the requisite O&M and MM of all these road SPVs (including DJSTL); and any surplus or deficit arising thereof shall be attributed to DBL. Thereby, the SPV shall continue to benefit from the vast experience and established track record of DBL in O&M of roads.

Liquidity Analysis: Adequate Creation of DSRA and established track record of steady stream of annuity receipt from MPRDC provides comfort: As per the terms of sanctioned debt, DJSTL has to maintain DSRA equivalent to six months of debt servicing in fund based or non-fund based form. DJSTL has created DSRA of Rs.9.31 crore in fund based form equivalent to the six months of debt servicing post expiry of DSRA bank guarantee. DJSTL has an established track record of receiving thirteen annuities from MPRDC, generally within 15 days from the due date while having gap of 30 days between annuity due date and debt repayment due date, thereby providing adequate liquidity cushion to DJSTL’s upcoming debt repayment.

Key Rating Weaknesses Inherent interest rate risk: The SPV remains susceptible to inherent interest rate risk over the long tenor of the loan considering variable rate of interest and presence of annual reset clause whereas its revenue stream in the form of annuities are fixed in nature. Consequently, any adverse movement in the interest rate may impact the debt coverage indicators of the company. Timely need-based support by SRPL in such an eventuality would be a key rating monitorable.

Inherent O&M risk along with performance risk related to O&M contractor: Although O&M requirement is relatively lower as the project stretch is part of low traffic state highway, DJSTL is still exposed to inherent O&M and MM risk attached to BOT projects as non-maintenance of the road as per the specified standards by DBL may result in delay or deduction in the receipt of annuities. However, the responsibility of undertaking the requisite O&M and MM in DJSTL vests with DBL which has a considerable experience in such activity. Nevertheless, non-adherence to stipulated O&M and MM requirements by O&M contractor shall be a key rating sensitivity.

Analytical Approach: Standalone while factoring the track record and capability of the O&M contractor

Applicable Criteria: Criteria on assigning ‘outlook’ and ‘credit watch’ to Credit Ratings CARE’s Policy on Default Recognition Financial Ratios – Non Financial Sector Liquidity Analysis of Non-Financial Sector Entities Rating Methodology: Consolidation and Factoring Linkages in Ratings Rating Methodology – Annuity-based Road Projects

About the company DJSTL, a special purpose vehicle (SPV) originally incorporated by DBL had entered into a 15 year concession agreement (CA) with MPRDC for the design, build, finance, operate and transfer (DBFOT) of 87.77 km road project in Madhya Pradesh on annuity basis. The project was for two laning of Jaora – – Jalandharkheda & Piploda – Sailana Road, Raipuriya – Patlabad – Bamniya Road, Jawad – Khoh Road and Soyat Pidawa Road. DJSTL achieved commercial operations date ahead of schedule. In August 2017, DBL had signed a term sheet with Chhatwal Group Trust to divest its entire stake in DJSTL and its 23 other SPVs (including the 14 SH SPVs). As on March 31, 2020, SRPL holds 100% stake of DJSTL.

2 CARE Ratings Limited

Press Release

Brief Financials (Rs. crore) FY19 (A) FY20 (A) Total operating income 19.47 18.47 PBILDT 10.80 11.75 PAT 8.63 3.25 GCA 5.42 7.03 Overall gearing (times) 2.40 1.99 Interest coverage (times) 1.29 1.52 A: Audited

Note: DJSTL’s financials for FY19 and FY20 are as per IndAS applicable to it, wherein it has recognized financial assets as the present value of annuities receivable under its concession (discounted based on effective interest rate method) and interest income on these assets as it accrues during the period.

Status of non-cooperation with previous CRA: Not Applicable

Any other information: Not Applicable

Rating History (Last three years): Please refer Annexure-2

Covenants of rated facility: Detailed explanation of covenants of the rated facilities is given in Annexure-3

Complexity level of various facilities rated for this company: Annexure-4

Annexure-1: Details of Facilities

Date of Coupon Maturity Size of the Issue Name of the Facility Rating assigned along with Rating Outlook Issuance Rate Date (Rs. crore) Fund-based - LT-Term Loan - - December 2026 71.67 CARE A-; Stable

Annexure-2: Rating History of last three years

Current Ratings Rating history Date(s) & Date(s) & Date(s) & Date(s) & Sr. Name of the Bank Amount Rating(s) Rating(s) Rating(s) Rating(s) No. Facilities Type Outstanding Rating assigned in assigned in assigned in assigned in (Rs. crore) 2020-2021 2019-2020 2018-2019 2017-2018 1)CARE A-; 1)CARE A-; 1)CARE A-; Fund-based - LT-Term CARE A-; 1. LT 71.67 - Negative Stable Stable Loan Stable (06-Mar-20) (21-Dec-18) (25-Sep-17)

Annexure-3: Detailed explanation of covenants of the rated facilities

Name of the Facility Detailed explanation A. Financial covenants Not Applicable B. Non-financial covenants Not Applicable

Annexure 4: Complexity level of various facilities rated for this Company

Sr. No. Name of the Facility Complexity Level 1. Fund-based - LT-Term Loan Simple

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

3 CARE Ratings Limited

Press Release

Contact us Media Contact Mr. Mradul Mishra Contact no. - +91-22-6837 4424 Email ID - [email protected]

Analyst Contact Group Head Name - Mr. Maulesh Desai Group Head Contact no. - 079- 4026 5605 Group Head Email ID - [email protected]

Relationship Contact Name - Mr. Deepak Prajapati Contact no. - 079- 4026 5602 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 Bank of India (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

4 CARE Ratings Limited