Press Release Bansal Pathways Habibganj Private
Total Page:16
File Type:pdf, Size:1020Kb
Press Release 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 1 CARE Ratings Limited Press Release 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. 2 CARE Ratings Limited Press Release 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: