Press Release Jaora Nayagaon Toll Road Company Private Limited
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Press Release Jaora Nayagaon Toll Road Company Private Limited January 07, 2021 Ratings Amount Facilities Ratings1 Rating Action (Rs. crore) CARE AA-; Negative Long Term Bank 319.65 (Double A Minus; Reaffirmed Facilities (Reduced from 367.36) Outlook: Negative ) 319.65 Total Bank Facilities (Rs. Three Hundred Nineteen Crore and Sixty-Five Lakhs Only) Details of facilities in Annexure-1 Detailed Rationale and Key Rating Drivers The ratings assigned to the bank facilities of Jaora Nayagaon Toll Road Company Private Limited (JTCL) continue to derive strength from the established sponsor group, long track record of tolling operations, strategic location of the project stretch, fixed hike in toll rates irrespective of Wholesale Price Index (WPI) movements and stipulated creation of Debt Service Reserve Account (DSRA) as per terms of sanction. The ratings also take note of the continued lower toll collections in 8MFY21 (refers to the period April 1 to November 30) after witnessing a decline in FY20 (refers to the period April 1 to March 31) which was due to on-going construction activity on connecting stretches resulting in vehicles plying through the alternate route. The toll collection was also lower due to impact of Covid-19 from mid of March’20. Subsequently, the tolling was closed from March 27, 2020 to May 3, 2020 due to nationwide lockdown. Though the tolling resumed from May 4, 2020 and toll collections witnessed gradual m-o-m improvement, the same continued to remain affected due to lower traffic movement and construction activity on connecting stretches yet to be completed. Though the lower toll generation has led to moderation in Debt Service Coverage Ratio (DSCR), the same continues to remain adequate. The ratings also factor in the surplus liquidity generated over the years being advanced to group entities in the form of unsecured loans and substantial reduction in liquid investments being maintained in JTCL. These loans are repayable on demand and CARE expects the same to be available to JTCL in case of requirement as enunciated by the management. The ratings continue to remain constrained by inherent revenue risk associated with toll-based road projects, significant dependence on commercial vehicle traffic leading to higher susceptibility of the revenues to economic downturn, Operations and Maintenance (O&M) risk and exposure to regulatory risks. Outlook: Negative The outlook remains ‘Negative’ on the expectation of continued impact of lower movement of traffic and construction activity on connecting stretches on toll collections in the near term, thus impacting the debt coverage indicators. The outlook may be revised to ‘Stable’ on ramp up of collections with completion of construction work on connecting stretches and improvement in traffic flow. Rating Sensitivities Positive factors - Factors that could lead to positive rating action/upgrade: Growth in traffic and toll revenue leading to substantial improvement in debt coverage indicators (DSCR > 1.8x) on a sustained basis. Negative factors - Factors that could lead to negative rating action/downgrade: Inability to ramp up toll collection or movement in O&M and interest rate resulting in DSCR falling below 1.40 times. Non adherence of loan covenants. Detailed Description of Key Rating Drivers Key Rating Strengths Established Sponsor The management control of JTCL rests with Ashoka Concessions Ltd (ACL), being the majority shareholder. The proven track record and technical capabilities of ACL in execution and operation of infrastructure projects (derived through its parentage from Ashoka Buildcon Ltd) along with presence of other experienced promoters is expected to benefit and provide support to JTCL in times of stress, if any. 1Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications. 1 CARE Ratings Limited Press Release Strategic location of the project stretch The project road is a part of Ajmer – Indore SH-31 and is an important highway in the State of Madhya Pradesh (MP) connecting the southern part of the country to north. The project stretch connects commercial cities of Ajmer/ Chittorgarh with commercial capital Indore via Nimach/ Ratlam and provides important links to National Highway (NH)-3 Agra-Indore- Mumbai and NH-59 (Indore-Ahmedabad). The major component of the traffic is freight traffic, comprising Multi-Axle- Vehicles (MAVs), tractors and Light Commercial Vehicles (LCVs). Long track record of toll collection and fixed hike in toll rates irrespective of WPI movements JTCL has an operational track record of around 105 months as on November, 2020 for the entire project stretch, even though the individual sections commenced tolling from September’2009 onwards. As per the Concession Agreement (CA), the company is entitled to hike the toll rates by 7% annually irrespective of the WPI movements. The same decreases the inherent revenue risk associated with traffic movement to an extent. Creation of DSRA and Maintenance Fund JTCL is required to maintain DSRA to cover one quarter’s principal and interest payment in the form of Fixed Deposit, Bank Guarantee or Letter of Credit. JTCL is maintaining DSRA in the form of fixed deposits and the balance stood at Rs.27.77 as on September 30, 2020. Further, the CA specifies creation of maintenance fund which is being maintained in the form of a bank fixed deposit. This fund shall be used by Madhya Pradesh Road Development Corporation (MPRDC) to meet any O&M expenses in the event the O&M contractor does not meet the maintenance specifications. Besides, JTCL has to carry out major maintenance activity as per the CA. It completed the first major maintenance in FY18. However, there is no requirement of maintaining a Major Maintenance Reserve Account as per the latest lender’s agreement and the company expects to meet the major maintenance expenditure from the annual provisions created out of operational cash flows. The company has invested the cash surplus generated over the years in group entities as advances. The advances are repayable on demand and are expected to be available to JTCL for its requirements, if any. Key Rating Weaknesses Lower toll collections The toll collection of the project since commencement of operation has been healthy and has been on an upward trend. However, the toll collection decreased from Rs.201.98 crore in FY19 to Rs.175.43 crore in FY20 with decrease in Average Daily Toll Collection (ADTC) from Rs.0.55 crore in FY19 to Rs.0.49 crore in FY20. The decrease in ADTC was on account of traffic de-growth of 15% despite constant revision of toll rates at 7% p.a. as per the CA. The de-growth in traffic was on account of construction activities on the connecting stretches which has diverted the traffic to a large extent along with shut down of tolling from March 27, 2020 on account of COVID-19. The toll collections continued to remain low with lower traffic movement and have started to improve from September’20 albeit there was a marginal decrease in November’20. The toll collection of JTCL from April’2020 to November’20 was Rs.94.76 crore. The lower toll collection in the stretch has resulted in moderation of debt coverage indicators of the company. Inherent revenue risk associated with toll based project JTCL continues to remain exposed to inherent traffic risk associated with a toll road project due to its linkages with various macro-economic factors. A slowdown in the industrial activity can also hamper the traffic growth especially of commercial vehicles and in turn toll collection. Operation and Maintenance Risk The operation and maintenance risk is an inherent risk for such projects. However, it remains mitigated to a certain extent since the O&M activity of the project has been outsourced to ACL at a fixed price contract. Regulatory risk The stretch is a state highway and is exposed to inherent risk associated with regulations announced by the state government which can affect the liquidity profile of the company. Liquidity: Strong The liquidity position of the company is strong and the toll collection is expected to be sufficient to meet the debt repayment obligations. The company has already made principal repayments of around Rs.41 crore as on September 30, 2020 out of total principal repayment obligations of Rs.82 crore in FY21. Further, the company has also maintained DSRA in the form of fixed deposits of Rs.27.77 crore as on September 30, 2020 which acts as a liquidity support. It had advances of Rs.175.62 crore as on September 30, 2020 extended to group entities which are repayable on demand and expected to be available to 2 CARE Ratings Limited Press Release the company in case of requirement. The company also had free cash and bank balance (apart from DSRA) of Rs.23.39 crore as on September 30, 2020. Analytical Approach: Standalone Applicable Criteria: CARE’s Policy on Default Recognition Rating Outlook and credit watch Rating Methodology - Toll Road Projects Financial Ratios - Non Financial Sector Liquidity Analysis of Non-Financial Sector Entities About the Company JTCL was originally promoted by a consortium of SREI group of Kolkata, PNC Infratech Ltd (PNC, rated CARE AA; Stable/A1+) and SPML Infra Ltd, as a Special Purpose Vehicle (SPV) to undertake the four-laning, strengthening and up-gradation of the Jaora - Nayagaon section of SH-31 (erstwhile NH-79) in the State of MP, on Build, Operate and Transfer (BOT) – Toll basis. ACL (subsidiary of Ashoka Buildcon Ltd.) was inducted as a stakeholder in FY13 and the group gradually increased its stake holding to 48% and has management control of the project. The CA was executed between JTCL (Concessionaire) and MPRDC on August 20, 2007, for a concession period of 25 years from the construction commencement date (i.e.