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Bansal Pathways Habibganj Private Limited July 16, 2021 Ratings Amount Facilities Ratings1 Rating Action (Rs. crore) Revised from CARE BBB (CE); CARE BBB- (CE); Stable Long Term Bank Stable [Triple B (Credit 410.00 [Triple B Minus (Credit Facilities Enhancement); Outlook: Enhancement); Outlook: Stable] Stable] CARE BBB- (CE); Stable / CARE A3 Revised from CARE BBB (CE); (CE) Stable / CARE A3 (CE) [Triple Long Term / Short 35.00 [Triple B Minus (Credit B (Credit Enhancement); Term Bank Facilities Enhancement); Outlook: Stable/ Outlook: Stable / A Three A Three (Credit Enhancement)] (Credit Enhancement)] 445.00 Total Bank Facilities@ (Rs. 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 Rating2 CARE BB+ / CARE A4+ [Reaffirmed] 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 Bansal Construction Works Private Limited (BCWPL; rated CARE BBB-; Stable / CARE A3).

Detailed Rationale & Key Rating Drivers of guarantor, BCWPL The revision in ratings assigned to the bank facilities of Bansal Construction Works Private Limited (BCWPL) takes into account high amount of investment requirements of BCWPL towards new HAM project viz. Bansal Pathways (Betul Chicholi) Private Limited (Betul Chicholi) and also towards funding of non-mandatory capex of Bansal Pathways Habibganj Private Limited (Habibganj). CARE takes cognisance of the fact that the company has completed the mandatory part of the Habibganj railway project in March 2021 and the fact that BCWPL is in talks with investors for fund infusion to complete the balance part of the project and the Bansal group is also planning to mobilise funds through securitisation of toll receipts in their stabilised road assets. However, the progress on the above developments was hit was due to second wave of Covid-19. The ratings continue to derive strength from BCWPL’s established presence in construction and operations of road projects, growth in its scale of operations along with adequate revenue visibility, healthy profitability and stable demand outlook for construction sector. The ratings, however, continue to be constrained by its moderate capital structure, large amount of ‘with recourse’ debt in its Special purpose vehicles (SPVs) including SPVs having project implementation and stabilisation risks and investment requirement for project completion in two 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 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. The project is progressing slower than envisaged, however, mandatory portion of the project related to station redevelopment is complete and COD is applied for on March 31, 2021 while the ancillary facilities are at a nascent stage. Habibganj has been granted the approval to shift the commencement of repayment to June 2022. CARE takes note of the company availing moratorium granted by the lender, as a COVID relief measure (as permitted by Reserve Bank of India). 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

1Complete definitions of the ratings assigned are available at www.careratings.com and in 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 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 of the guarantor, BCWPL Positive Factors: . Sustained growth in revenue and cash accruals along with segmental & geographical diversification of order book . Maintenance of overall gearing below unity along with gradual improvement in adjusted overall gearing (adjusted to include guaranteed debt) . Mobilisation of adequate funds to fund the under-construction assets where BCWPL has extended corporate guarantee

Negative factors . Decline in scale of operations on a sustained basis due to delay in execution of orders . Deterioration in financial risk profile with Debt/PBILDT exceeding 3x . Any significant increase in investment requirement in SPVs or increase in working capital intensity adversely, with Gross Current Asset days exceeding 175, affecting liquidity of the company

Detailed description of the key rating drivers of BCWPL Completion of the mandatory part of Habibganj railway station by March 2021 albeit heightened concerns on funding of balance portion: The company has completed the mandatory part of the Habibganj railway project in March 2021. However, the pace of execution in the non-mandatory part of Habibganj project is slower than envisaged with significant delays in construction of ancillary infrastructure within the vicinity of station– hotels, convention center and hospital, largely articulable to concessioning authority coupled with disruptions due to Covid-19. Further, BCWPL is also required to fund 50% of the equity contribution upfront in its under-construction Betul-Chicholi (HAM) project during FY22 (refers to the period April 01 to March 31). However, as confirmed by the management this has been funded in June 2021. Considering the investment requirement in these above under construction assets the management has articulated that it is in talks with investors for fund infusion to complete the balance part of the project and the Bansal group is also planning to mobilise funds through securitisation of toll receipts in their stabilised road assets. However, the progress on the above developments was hit was due to second wave of Covid-19 and has been delayed beyond June 2021.

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 Bansal group is managed by Mr Anil Bansal and Mr Sunil Bansal, who have a longstanding experience in this business. BCWPL is a reputed civil contractor 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).

Stable scale of operations and profitability: BCWPL registered a stable Total Operating Income (TOI) of Rs.590 crore during FY20 (refers to the period April 1 to March 31) along with its healthy profitability. Return indicators dipped in FY20 albeit continued to remain healthy marked by ROCE of 17.27% and RONW of 24.96%. Disruptions in supply chain due to restrictions on movement of people and goods during lockdown led to lower material and labour availability due to reverse migration of labour which led to lower execution in Q1FY21. In light of the same, BCWPL reported PBT of Rs.68.27 crore on TOI of Rs.443.18 crore in 11MFY21.

Adequate revenue visibility albeit with sizeable exposure to own SPVs: BCWPL had unexecuted order backlog of Rs.1,243 crore as on February 28, 2021 translating into 2.14x of BCWPL’s FY20 TOI indicating adequate revenue visibility for the medium term. Majority of the present orders have and in-built price escalation clause, this protecting the company’s profitability from adverse changes in input and labour prices to a certain extent. Around 65% of the outstanding order book is from own SPVs including recently received HAM project awarded by National Highways Authority of India (NHAI; rated CARE AAA; Stable) where appointed date is expected to be received in FY22. All of BCWPL’s orders are concentrated in single state of Madhya Pradesh and belong primarily to roads segment.

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 favourable 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. Furthermore, shift 2 CARE Ratings Limited

Press Release to monthly payments instead of milestone based payments, release of retention money against completed works and several other steps have reduced the working capital intensity for the construction industry. 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 Weaknesses 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 3.53x as on March 31, 2020 (3.84x as on March 31, 2019). Around 69% of BCWPL’s networth was invested in these SPVs as on March 31, 2020 which had reduced from 80% as on March 31, 2019 due to accretion of profits to networth. Of the four SPVs, two are toll + annuity projects, one is annuity project and under construction Habibganj project. As articulated by management, BCWPL plans to extend corporate guarantee for the debt of Betul Chicholi project, considering which, the adjusted overall gearing should continue to remain high in the range of 2.7x-3x in medium term.

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 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 under construction SPVs, apart from cash flow of BCWPL. CARE also notes that the company has availed moratorium on its bank facilities as per relief granted by Reserve Bank of India for the period of March to August 2020. Operating cycle remained stable at 54 days in FY20 against 52 days in FY19 with increase in collection period largely offset by increase in creditors period. Increase in gross current asset days from 105 days in FY19 to 153 days in FY20 was primarily on account of increase in debtors coupled with completed work of around Rs.30 crore as on March 31, 2020 which was settled after closure of accounts due to lockdown. However, operations of BCWPL are working capital intensive with high average utilization of fund based working capital limits at 89% for the past twelve months ended January 2021. 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. Furthermore, the group has high investment requirements for its under construction SPVs, which due to presence of BCWPL’s cash flows and three annuity and one toll project, results in adequate liquidity.

Analytical approach: Unsupported Rating: Standalone alongwith factoring in linkages and track record of the sponsor BCWPL Credit Enhancement (CE) rating: 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), two under construction SPVs viz. Bansal Pathways (Betul – Chicholi) Private Limited and Habibganj. BCWPL, apart from the initial equity infusion in the project funding of its six SPVs, has also extended corporate guarantees to the bank facilities availed by four out of its above five SPVs and is expected to extend for debt of sixth SPV i.e., Bansal Pathways (Betul-Chicholi) Private Limited. Hence, standalone financials of BCWPL, alongwith combined cash flows of these Bansal group entities, are considered for assessment of BCWPL.

Applicable Criteria Criteria on assigning ‘outlook’ and ‘credit watch’ to Credit Ratings CARE's policy on Default Recognition Criteria for Rating Credit Enhanced Debt Rating Methodology - Infrastructure Sector Ratings (ISR) Rating Methodology – Construction Sector Rating Methodology: Notching by factoring linkages in Ratings 3 CARE Ratings Limited

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Financial Ratios – Non-Financial Sector Liquidity Analysis for Non-financial Sector Entities

About the Company, 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, along with all the construction equipment, was transferred to BCWPL. Apart from EPC work in BCWPL, Bansal group had six 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 2021 till December 2022. The sixth SPV, Bansal Pathways (Betul-Chicholi) Private Limited is a HAM project awarded by NHAI for four laning of NH-4 where appointed date is yet to be received.

Brief Financials of guarantor, BCWPL (Rs. crore) FY19 (A) FY20 (A) Total operating income 578.03 590.69 PBILDT 119.62 105.45 PAT 60.64 67.59 Overall gearing (times) 0.90 0.85 Overall gearing including outstanding guaranteed debt for SPVs (times) 3.84 3.53 Interest coverage (times) 7.97 8.15 A: Audited

About the company: Habibganj Incorporated in March 2016, Habibganj is a Special Purpose Vehicle (SPV) sponsored by BCWPL 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 October 22, 2020, around 61% of project cost has been incurred. Physically, around 95% of project progress was achieved as on said date towards mandatory project development and around 15% towards ancillary infrastructure. Further, the mandatory project development (viz. Station Redevelopment) is completed in March 2021, while the commercial project development (viz. Development of ancillary infrastructure) is still at nascent stage.

Brief Financials of Habibganj (Rs. crore) FY19 (A) FY20 (A) Total operating income 4.21 4.74 PBILDT 1.51 1.30 PAT 0.92 1.00 Interest coverage (times) NM NM Overall gearing (times) 1.95 2.18 A-Audited; NM- Not Meaningful

Status of non-cooperation with previous CRA: Not Applicable

Any other information: Not Applicable

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

Complexity level of various instruments rated for this company: Please refer Annexure-3

Annexure-1: Details of Instruments/Facilities Name of the Date of Coupon Maturity Size of the Issue Rating assigned along Instrument Issuance Rate Date (Rs. crore) with Rating Outlook Fund-based - LT-Term Loan - - March 2033 410.00 CARE BBB- (CE); Stable Non-fund-based - LT/ ST-Bank CARE BBB- (CE); Stable - - - 35.00 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 Current Ratings Rating history Name of the Type Rating Date(s) & Date(s) & Date(s) & Sr. Instrument/ Amount Date(s) & Rating(s) Rating(s) Rating(s) Rating(s) No. Bank Outstanding assigned in 2018- assigned in assigned in assigned in Facilities (Rs. crore) 2019 2021-2022 2020-2021 2019-2020 1)CARE BBB 1)CARE BBB 1)CARE BBB (SO); CARE BBB- Fund-based - LT- (CE); Stable (CE); Stable Stable (06-Dec-18) 1. LT 410.00 (CE); Stable - Term Loan (31-Mar-21) (03-Mar-20) 2)CARE BBB (SO);

Stable (04-Apr-18) 1)CARE BBB (SO); CARE BBB- 1)CARE BBB 1)CARE BBB Stable / CARE A3 (SO) Non-fund-based - (CE); Stable (CE); Stable / (CE); Stable / (06-Dec-18) 2. LT/ ST-Bank LT/ST 35.00 / CARE A3 - CARE A3 (CE) CARE A3 (CE) 2)CARE BBB (SO); Guarantees (CE) (31-Mar-21) (03-Mar-20) Stable / CARE A3 (SO)

(04-Apr-18) Un Supported 1)CARE BB+ / 1)CARE BB+ / Rating-Un CARE BB+ / 3. LT/ST 0.00 - CARE A4+ CARE A4+ - Supported Rating CARE A4+ (31-Mar-21) (03-Mar-20) (LT/ST)

Annexure-3: Complexity level of various instruments rated for this company Sr. No. Name of the Instrument Complexity Level 1. Fund-based - LT-Term Loan Simple 2. Non-fund-based - LT/ ST-Bank Guarantees Simple Un Supported Rating-Un Supported Rating (LT/ST) Simple

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

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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.

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