August 06, 2021 Tamil Nadu Dindigul Karur Expressways Limited (TNDK): Rating reaffirmed Summary of rating action Previous Rated Amount Current Rated Amount Instrument* Rating Action (Rs. crore) (Rs. crore) Long Term - Fund Based TL 121.70 118.01 [ICRA]D; Reaffirmed Total 121.70 118.01 *Instrument details are provided in Annexure-1 Rationale The rating reaffirmation considers continued delays in repayment of Tamil Nadu Dindigul Karur Expressways Limited’s (TNDK) debt obligations and has also been classified as non-performing asset by the lenders. Despite restructuring of debt in December 2012, TNDK’s liquidity position remained poor due to lower traffic than envisaged. The toll collections continue to remain significantly below expectations when compared to initial projected levels. Further, TNDK witnessed 14% decline in toll collections in FY2021 owing to adverse impact of the COVID-19 pandemic. ICRA also notes that the prospects for traffic growth along the route are modest, given that the stretch is not an arterial route. Given the poor toll collections, major maintenance (MM) reserve could not be created. As per concession agreement, the first MM was due in November 2014. However, due to funding constraints, it was delayed by 50 months and finally commenced in January 2019 with an estimated cost of Rs. 76.6 crore, which is being funded through the project cash flows. As on March 31, 2021, 90% of the MM work is completed and expected to be completed by FY2022. Key rating drivers and their description Credit challenges Delays in debt servicing: Due to delays in repayment of TNDK’s debt obligations, it has been classified as nonperforming asset by the lenders, the delays are due to lower toll collections owing to lower traffic than envisaged. Lack of funding for MM: As per concession agreement, the first MM was due in November 2014. However, due to funding constraints, it was delayed by 50 months and finally commenced in January 2019 with an estimated cost of Rs. 76.6 crore, which is being funded through the project cash flows. As on March 31, 2021, 90% of the MM work is completed and expected to be completed by FY2022. Inherent risk in BOT (Toll) road projects: The project remains exposed to risks inherent in BOT (Toll) road projects, including risks arising from political acceptability of toll rate hike over the concession period and development/improvement of alternate routes and likelihood of toll leakages. Liquidity position: Poor The company's liquidity position is poor. The principal repayment obligation for FY2022 for TNDK is Rs. 32.48 crore which cannot be met through cashflow from operations. Rating sensitivities Positive factors – The rating could be upgraded if the company demonstrates track record of regular debt servicing. Negative factors – Not Applicable www.icra .in Page | 1 Analytical approach Analytical Approach Comments Applicable Rating Methodologies Corporate Credit Rating Methodology Rating Methodology for BOT (Toll) Roads Policy on Default Recognition Parent/Group Support Not Applicable Consolidation/Standalone The ratings are based on the standalone financial statements of the company. About the company TNDK is a special purpose vehicle (SPV) promoted by Madhucon Projects Ltd (MPL), Madhucon Infra Limited and Madhucon Toll Highways Limited. TNDK has been formed to strengthen and widen the existing 68 km long stretch between Karur-Dindigul on NH-7. The project also includes the improvement, operations and management of the already 4 lane stretches in adjacent section from Karur Bypass (chainage 292.600 km) to end of Karur Bypass (chainage 305.600 km) covering total length of 9.60 km. The project has been awarded by NHAI on Build-Operate-Toll (BOT) (Toll) basis, with a concession period of 20 years starting Oct 2006.The project has been delayed by about seven months, with the actual COD being November 2009 instead of April 2009 scheduled earlier. This highway is the major arterial route that serves a significant volume of passenger traffic traveling to various important cities in the state like Madurai, Kanyakumari, Rameswaram, Coimbatore & Kodaikanal. Key financial indicators AEPL FY2019 FY2020 Operating Income (Rs. crore) 49.1 49.8 PAT (Rs. crore) -5.5 -8.0 OPBDIT/OI (%) 38.2% 24.2% PAT/OI (%) -11.2% -16.1% Total Outside Liabilities/Tangible Net Worth (times) 6.2 13.9 Total Debt/OPBDIT (times) 6.9 10.3 Interest Coverage (times) 1.4 1.2 PAT: Profit after Tax; OPBDIT: Operating Profit before Depreciation, Interest, Taxes and Amortisation Status of non-cooperation with previous CRA: Not applicable Any other information: None Rating history for past three years Chronology of Rating History Current Rating (FY2022) for the past 3 years Amount Date & Date & Date & Date & Rating in Instrument Outstanding Rating in Rating in Amount Rating in FY2019 Type Rated as of March FY2021 FY2020 (Rs. crore) 31, 2021 August 06, June 11, March 25, April 05, - (Rs. crore) 2021 2020 2019 2018 1 Term Loan Long-term 118.01 118.01 [ICRA]D [ICRA]D - [ICRA]D [ICRA]D www.icra .in Page | 2 Complexity level of the rated instruments Instrument Complexity Indicator Term Loan Simple The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated. It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument's credit rating. It also does not indicate the complexity associated with analyzing an entity's financial, business, industry risks or complexity related to the structural, transactional, or legal aspects. Details on the complexity levels of the instruments, is available on ICRA’s website: Click Here www.icra .in Page | 3 Annexure-1: Instrument details ISIN Instrument Date of Issuance / Coupon Maturity Amount Rated Current Rating and No Name Sanction Rate Date (RS Crore) Outlook March NA Term Loan December 2012 13.00% 118.01 [ICRA]D 2023 Source: Company Annexure-2: List of entities considered for consolidated analysis Not applicable www.icra .in Page | 4 ANALYST CONTACTS Shubham Jain Rajeshwar Burla +91 124 4545 306 +91 40 4067 6527 [email protected] [email protected] Vinay Kumar G Sahithya Nekkanti +91 40 4067 6533 +91 40 4067 6524 [email protected] [email protected] RELATIONSHIP CONTACT Jayanta Chatterjee +91 80 4332 6401 [email protected] MEDIA AND PUBLIC RELATIONS CONTACT Ms. Naznin Prodhani Tel: +91 124 4545 860 [email protected] Helpline for business queries +91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm) [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 www.icra .in Page | 5 ICRA Limited Registered Office B-710, Statesman House, 148, Barakhamba Road, New Delhi-110001 Tel: +91 11 23357940-45 Branches © Copyright, 2021 ICRA Limited. All Rights Reserved. Contents may be used freely with due acknowledgement to ICRA. ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to a process of surveillance, which may lead to revision in ratings. An ICRA rating is a symbolic indicator of ICRA’s current opinion on the relative capability of the issuer concerned to timely service debts and obligations, with reference to the instrument rated. Please visit our website www.icra.in or contact any ICRA office for the latest information on ICRA ratings outstanding. All information contained herein has been obtained by ICRA from sources believed by it to be accurate and reliable, including the rated issuer. ICRA however has not conducted any audit of the rated issuer or of the information provided by it. While reasonable care has been taken to ensure that the information herein is true, such information is provided ‘as is’ without any warranty of any kind, and ICRA in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. Also, ICRA or any of its group companies may have provided services other than rating to the issuer rated. All information contained herein must be construed solely as statements of opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication or its contents. .