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Bansal Pathways Habibganj Private Limited March 03, 2020 Ratings Amount Facilities Ratings1 Rating Action (Rs. crore) CARE BBB (CE); Stable Long term Bank Facilities 410.00 [Triple B (Credit Enhancement); Reaffirmed Outlook: Stable] CARE BBB (CE); Stable/ CARE A3 (CE) Long term/Short term [Triple B (Credit Enhancement); 35.00 Reaffirmed Bank Facilities Outlook: Stable/ A Three (Credit Enhancement)] Total Facilities@ 445.00 (Rupees Four Hundred Forty Five crore only) Details of facilities in Annexure-1 @backed by unconditional and irrevocable corporate guarantee of Bansal Construction Works Private Limited (BCWPL, rated CARE BBB; Stable/CARE A3) Unsupported Rating 2 CARE BB+ /CARE A4+ (Double B Plus/ A Four Plus) Note: Unsupported Rating does not factor in the explicit credit enhancement

Detailed Rationale & Key Rating Drivers for the credit enhanced debt The ratings assigned to the bank facilities of Bansal Pathways Habibganj Private Limited (Habibganj) are based on the credit enhancement in the form of an unconditional and irrevocable corporate guarantee extended by BCWPL.

Detailed Rationale & Key Rating Drivers of BCWPL The ratings assigned to the bank facilities of Bansal Construction Works Pvt Ltd (BCWPL) continue to derive strength from its established presence in construction and operations of road projects, growth in its scale of operations along with healthy revenue visibility, healthy profitability, adequate liquidity and stable demand outlook for construction sector. The ratings, however, continue to be constrained by its moderate capital structure with high debt repayment obligations in the near to medium term, large amount of ‘with recourse’ debt in its SPVs (Special purpose vehicle) including SPVs having project implementation and stabilisation risks and investment requirement for project completion in one of its under- construction SPVs. The ratings are further constrained on account of susceptibility of BCWPL’s profitability to volatile raw material prices and geographical and sectoral concentration of its revenue stream.

Key Rating Drivers of Habibganj for unsupported ratings: The ratings assigned to the bank facilities of Habibganj are constrained by nascent stage of project completion with delays in project execution mainly due to delays in approvals from the authority, saleability risk associated with the commercial space being developed, exposure to interest rate fluctuations and pending creation of Debt Service Reserve Account (DSRA). The ratings, however, continue to derive strength from its experienced promoters and long tail period post repayment of debt. Revenue stream from station comprises parking, leasing and advertisement fee, while shops / offices in trade centres are expected to be leased out for a long term. Revenue from hotels shall comprise Room rents, restaurants charges, room service and banquet hall charges, while lease rentals are expected to be earned from the hospital. Convention centres are expected to fetch revenue through catering services.

Rating Sensitivities (BCWPL) Positive: - Sustained growth in revenue and cash accruals alongwith segmental & geographical diversification of order book - Completion of Habibganj project under one SPV within envisaged time and cost parameters and commencement of envisaged revenue thereof from the same - Maintenance of overall gearing below unity alongwith gradual improvement in adjusted overall gearing (adjusted to include guaranteed debt)

1Complete definition of the ratings assigned are available at www.careratings.com and other CARE publications 2 As stipulated vide SEBI circular no SEBI/ HO/ MIRSD/ DOS3/ CIR/ P/ 2019/ 70 dated June 13, 2019

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Negative: - Decline in scale of operations on a sustained basis due to delay in execution of orders - Any significant increase in investment requirement in SPVs or increase in working capital intensity adversely , with Gross Current Asset days exceeding 200, affecting liquidity of the company - Delay in execution of Habibganj project or any delay in meeting the equity commitments resulting in lower than envisaged TOI and profitability

Detailed description of the key rating drivers: BCWPL Key Rating Strengths Experienced promoters and established track record in road construction and operations: Bansal group has an established track record of over three decades in road and civil construction in the state of Madhya Pradesh through its erstwhile firm Bansal Construction Works (BCW) and its flagship entity BCWPL. BCW was engaged in road and civil construction since 1980 and had a sizeable fleet of construction equipment. Subsequently, in 2010, the group established its flagship entity BCWPL to undertake large-sized construction projects and in July 2017, the entire construction equipment fleet of BCW was transferred to BCWPL. Bansal group is managed by Mr Anil Bansal and Mr Sunil Bansal, who have a longstanding experience in this business BCWPL is registered as an ‘A-5’ (highest) class contractor for civil construction with Government of Madhya Pradesh (GoMP), which enables it to bid for high value tenders. Apart from the flagship entity BCWPL, the group also includes five project SPVs including three annuity / toll + annuity SPVs, one toll SPV and one station redevelopment SPV (Habibganj).

Growth in scale of operations with healthy profitability and revenue visibility: The total operating income (TOI) of BCWPL grew y-o-y by over 65 % in FY19 to Rs.578 crore with sustained order execution. PBILDT margin of the company also remained healthy at around 20% in FY19 which also resulted in a 52 % y-o-y growth in gross cash accruals in FY19 to Rs.83.00 crore. Furthermore, BCWPL has an unexecuted order backlog of around Rs.1464 crore as on September 30, 2019. The order book translates to over 2.5x of BCWPL’s FY19 TOI; indicating healthy revenue visibility for the medium term. Majority of the present orders have an in-built price escalation clause, thus protecting the company’s profitability from adverse changes in input and labour prices to a certain extent. During 9MFY20 (provisional), BCWPL reported TOI of Rs.391 crore and PAT of Rs.47 crore.

Stable demand outlook due to thrust of government on infrastructure development; albeit execution challenges persist: Government of India through NHAI has taken various steps in terms of land acquisition, premium rescheduling and arbitration award norms to improve the prospects of the road sector. Furthermore, NHAI has also made some favorable changes in the clauses of model concession agreement and introduced HAM projects to reduce the equity commitment of the developers. Announcement of road development plan through Bharatmala project and fund raising plans of NHAI through Toll-Operate-Transfer (TOT) model is also expected to offer sizeable opportunity to the sector. However, challenges beleaguering the segment such as delays in financial closure, clearances and land acquisition, shifting of utilities, lowest price-based tendering and high interest rates persist and need to be addressed for smooth order execution. Also, timely tie- up of funding in a challenging fund raising scenario remains crucial for order procurement and execution.

Key Rating Weakness High investment requirement required in Habibganj alongwith sizeable off-balance sheet exposure through guaranteed debt: BCWPL has significant amount of off-balance sheet exposure through corporate guarantees extended for bank facilities availed by four of its SPVs, which results in a high adjusted overall gearing, including outstanding guaranteed debt of SPVs, of around 3.82x as on March 31, 2019 (3.70x as on March 31, 2018). Also, around 80% of BCWPL’s networth as on March 31, 2019 was invested in these SPVs. Out the above four guaranteed SPVs, three are operational - two are operational toll + annuity projects and one is toll project. The fourth SPV viz. Habibganj is under construction, which is established to undertake redevelopment of Habibganj Railway Station (mandatory construction), alongwith development of associated ancillary facilities such as trade centres, convention centre, hotels and hospital in the vicinity of station. Execution of project has been delayed mainly due to delays in approvals from the authority and the project is also exposed to risks associated with revenue stream from its ancillary facilities. Furthermore, in the near to medium term, Bansal group has high funding requirement of around Rs.120-125 crore for project execution of Habibganj. This is expected to result in moderate debt coverage indicators of the group. Presence of assured annuity cash flow from three of the group’s SPVs provides some comfort from credit perspective; however timely completion of Habibganj project and generation of envisaged revenue from the recently commenced toll project and Habibganj project shall remain crucial from credit perspective.

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Geographical and sectoral concentration of revenue: The entire order book of BCWPL is to be executed in Madhya Pradesh, which exposes the company to geographical concentration. Furthermore, a large number of orders are for road construction, which also exposes the company to risks associated with sectoral concentration. Thus, the fortunes of the company remain largely depend on the incremental road development work undertaken in the state. Nevertheless, the company also benefits from its established base and local expertise required for execution of projects in any particular region.

Liquidity: Adequate; albeit working capital intensive operations: Liquidity remains adequate with moderate operating cycle of BCWPL, adequate GCA to cater to debt servicing requirements and presence of annuity projects in the group generating adequate cash flows to aid the high investment requirement of Habibganj, apart from cash flow of BCWPL. Operating cycle improved to around 30 days in FY19 as against 91 days in FY18 with improvement in average collection period to 32 days in FY19 against 85 days in FY18. Further, BCWPL registered GCA of Rs.83 crore in FY19 as against scheduled debt repayment of around Rs.33 crore in FY20. However, operations of the BCWPL are working capital intensive with high average utilization of the working capital limits at 95% for the 12 months ended December 2019 and GCA days of 154 in FY19. This is inherent in the Engineering, Procurement and Construction (EPC) business which requires higher fund requirement due to construction period of around two years and funds blocked in retention money and security deposits. Also, group has a high investment requirement for execution of Habibganj project, which, due to presence of BCWPL’s cash flows and three annuity projects, results in adequate liquidity.

Analytical approach: Unsupported rating: Standalone alongwith factoring in linkages with and track record of the sponsor BCWPL Credit Enhancement (CE) Rating: Assessment of the Guarantor, Bansal Construction Works Private Limited CARE has analyzed the credit profile of Habibganj by considering credit enhancement in the form of unconditional and irrevocable corporate guarantee extended by BCWPL for the rated bank facilities of Habibganj. Standalone financials of BCWPL, alongwith combined cash flows of Bansal group entities having presence in road and civil construction, is considered for assessment of BCWPL. The entities include BCWPL, three annuity projects viz. Bansal Pathways Private Limited (rated CARE BBB+; Stable), Bansal Pathways (Guna-Sironj) Private Limited (rated CARE BBB+; Stable) and Bansal Pathways (Damoh-Katni) Private Limited (rated CARE BBB+; Stable/CARE A2), one toll project viz. Bansal Pathways (Mangawan-Chakghat) Private Limited [rated CARE BBB (CE); Stable] and Habibganj. BCWPL, apart from the initial equity infusion in the project funding of its five SPVs, has also extended corporate guarantees to the bank facilities availed by four out of its above five SPVs.

Applicable Criteria Criteria on assigning Outlook and Credit Watch to Credit Ratings CARE's Policy on Default Recognition Criteria for Short Term Instruments Rating Methodology – Construction Sector Financial ratios - Non- Financial Sector Factoring linkages in Ratings Rating Methodology – Infrastructure Ratings

About the Credit enhancement provider: BCWPL BCWPL was promoted by Mr Sunil Bansal and Mr Anil Bansal of the Bansal group of Bhopal and is presently engaged in civil and road construction. It was incorporated in 2010 to undertake construction projects under engineering, procurement and construction (EPC) and build-operate-transfer (BOT) routes in the state of Madhya Pradesh. Bansal group has an established presence of over three decades in road and civil construction through a partnership firm Bansal Construction Works (BCW) which was established in 1980. BCW owned a sizeable fleet of construction equipment and executed the group’s contracts, majorly procured by BCWPL. Subsequently, in July 2017, the EPC business of BCW, alongwith all the construction equipment, was transferred to BCWPL. Apart from EPC work in BCWPL, Bansal group had five SPVs. Out of these, four are fully operational, comprising three BOT- toll+annuity projects and one BOT-toll project. The fifth SPV is established to undertake redevelopment of Habibganj railway station and ancillary infrastructure around it in Bhopal; likely to commence phase-wise operations by March 2020 till December 2021.

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Brief Financials (Rs. crore) FY18 (A) FY19 (A) Total operating income 347.80 578.03 PBILDT 80.38 119.62 PAT 48.94 60.64 Overall gearing (times) 1.18 0.88 Overall gearing including outstanding guaranteed debt for SPVs (times) 3.70 3.82 Interest coverage (times) 5.99 7.97 A-Audited

About the company: Habibganj Incorporated in March 2016, Habibganj is a Special Purpose Vehicle (SPV) sponsored by BCWPL (BCWPL; rated CARE BBB; Stable/ CARE A3) and technical support provided by Prakash Asphaltings & Toll Highways India Ltd [PATH; rated CARE BBB+/ CARE A2 (under credit watch with developing implications)] which are amongst the oldest construction groups of Madhya Pradesh. This project is on Design, Build, Finance, Operate and Transfer (DBFOT) to undertake an integrated project for development/ redevelopment of a railway station (i.e. mandatory project development) along with development of ancillary infrastructure comprising two trade centres, one convention center, two hotels (one luxury and one budget) and one hospital (all together called commercial project development) in the vicinity of the station, on a land available on lease for 45 years. The present Habibganj railway station was the first station of India with ISO 9001 certification. The development agreement (DA) between Indian Railway Stations Development Corporation Ltd (IRSDC; Concessioning Authority) and Habibganj (Developer) was signed on July 14, 2016. IRSDC is a joint venture company of Ircon International Limited (rated CARE AAA; Stable / CARE A1+); a Govt. of India Undertaking, under Ministry of Railways) and Rail Land Development Authority (RLDA), a statutory authority under the Ministry of Railways. The concession tenure of the mandatory and the commercial projects is 8 years and 45 years respectively, from the date of DA. Habibganj achieved financial closure on January 12, 2017. Total envisaged project cost of Rs.600 crore is expected to be funded through sanctioned term loan of Rs.410 crore and balance through promoter contribution and customer advances. As on August 21, 2019, around 57% of project cost has been incurred. Physically, around 83% of project progress has been achieved as on said date towards mandatory project development and around 9% towards ancillary infrastructure. The mandatory project development (viz. Station Redevelopment) is expected to be completed by March 2020 (as against original estimates of June 2019), while the commercial project development (viz. Development of ancillary infrastructure) is expected to be completed by December 2021, in phase wise manner. Particulars FY19 (A) Total Operating Income 4.21 PBILDT 1.51 PAT 0.92 Interest Coverage (times) NA Overall Gearing (times) 1.95 A: Audited

Status of non-cooperation with previous CRA: Not applicable

Any other information: Not applicable

Rating History for last three years: Please refer Annexure-2

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Annexure-1: Details of Instruments/Facilities

Name of the Date of Coupon Maturity Size of the Issue Rating assigned along with Instrument Issuance Rate Date (Rs. crore) Rating Outlook Fund-based - LT-Term Loan - - December 410.00 CARE BBB (CE); Stable 2031 Non-fund-based - LT/ ST- - - - 35.00 CARE BBB (CE); Stable / Bank Guarantees CARE A3 (CE)

Un Supported Rating-Un - - - 0.00 CARE BB+ / CARE A4+ Supported Rating (LT/ST)

Annexure-2: Rating History of last three years

Sr. Name of the Current Ratings Rating history No. Instrument/Bank Type Amount Rating Date(s) & Date(s) & Date(s) & Date(s) & Facilities Outstanding Rating(s) Rating(s) Rating(s) Rating(s) (Rs. crore) assigned in assigned in assigned in assigned in 2019-2020 2018-2019 2017-2018 2016-2017 1. Fund-based - LT- LT 410.00 CARE - 1)CARE BBB 1)CARE - Term Loan BBB (CE); (SO); Stable BB+; Stable Stable (06-Dec-18) (03-Jul-17) 2)CARE BBB 2)CARE (SO); Stable BB+; Stable (04-Apr-18) (27-Apr-17)

2. Non-fund-based - LT/ST 35.00 CARE - 1)CARE BBB 1)CARE - LT/ ST-Bank BBB (CE); (SO); Stable BB+; Stable Guarantees Stable / / CARE A3 / CARE A4+ CARE A3 (SO) (03-Jul-17) (CE) (06-Dec-18) 2)CARE 2)CARE BBB BB+; Stable (SO); Stable / CARE A4+ / CARE A3 (27-Apr-17) (SO) (04-Apr-18)

3. Un Supported LT/ST 0.00 CARE - - - - Rating-Un BB+ / Supported Rating CARE (LT/ST) A4+

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.

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