Press Release Chettinad International Bulk Terminal Private Limited
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Press Release Chettinad International Bulk Terminal Private Limited November 13, 2020 Ratings Facilities Amount Rating1 Rating Action (Rs. crore) CARE BBB- / CARE A3 (Under Credit watch with Developing Placed on Credit watch Long Term / Short Term 7.00 Implications) with Developing Bank Facilities (Triple B Minus / A Three) (Under Credit Implications watch with Developing Implications) CARE BBB- (Under Credit watch with Developing Long Term Bank Facilities 20.00 Implications) Assigned (Triple B Minus) (Under Credit watch with Developing Implications) 27.00 Total Facilities (Rs. Twenty seven crore only) Details of instruments/facilities in Annexure-1 Detailed Rationale & Key Rating Drivers CARE has placed the ratings of Chettinad International Bulk Terminal Private Limited (CIBTPL) on ‘Credit Watch with Developing Implication’ on account of the proposed acquisition of the company by JSW Infrastructure Limited (JSWIL). Chettinad group of companies have entered into sale transaction with JSWIL wherein JSWIL has proposed to acquire shares of Chettinad Builders Private Limited (CBPL) along with its stake in three terminals namely i) Chettinad International Coal Terminal Private Limited ii) Chettinad International Bulk Terminal Private Limited (CIBTPL) and iii) Chettinad Mangalore Coal Terminal Private Limited (CMCTPL). The transaction is expected to be completed on the closing date or any other extended date on or before the long stop date as may be mutually agreed by parties. CARE will closely follow the developments in this regard and will consider taking appropriate rating action in due course. The ratings continue to factor in the benefits derived by CIBTPL from being part of the Chettinad group including demonstrated funding support, experience of the promoter & management team in operating port terminals, diverse cargo profile and favorable location with connectivity by both rail and road. The ratings are, however, constrained by relatively high revenue share payable to the port, limited track record of the company, highly competitive nature of industry and inherent risk of cargo volumes being susceptible to economic cycles. Rating Sensitivities Positive Factors Growth in the scale of operations marked by increase in total operating income along with improvement in the profitability margins on sustained basis Negative Factors Decrease in volume of cargoes handled i.e. capacity utilization level below 70% on a continuous basis Significant decline in realizations impacting operating margin and gross cash accruals (GCA) Detailed description of the key rating drivers Key Rating Strengths About the proposed transaction Chettinad group of companies have entered into sale transaction with JSWIL wherein it is proposed to acquire shares of Chettinad Builders Private Limited (CBPL) along with following terminals which are held by Chettinad group companies. 1. Chettinad International Coal Terminal Private Limited 2. Chettinad International Bulk Terminal Private Limited 3. Chettinad Mangalore Coal Terminal Private Limited On the date of agreement CBPL held 100% stake in CICTPL, 90% stake in CIBTPL and 74% stake in CMCTPL. Post completion of the transaction, JSW infrastructure and its nominees will hold 100% stake in CBPL. Effectively, promoter for all above three terminals will change from ‘Chettinad group’ to ‘JSW group’. As part of the acquisition, CIBTPL will be raising term debt of Rs.20 crore in its books which will be utilized to repay part of unsecured loan from existing promoter group companies. Unsecured loans from existing promoter group companies stood at Rs.151 crore as on March 31, 2020. 1Complete definition of the ratings assigned are available at www.careratings.com and other CARE publications 1 CARE Ratings Limited Press Release Demonstrated funding support from promoter group CIBTPL is part of the Chennai-based Chettinad group, which was formed in 1935. Chettinad group has diversified businesses with interests in cement, construction, logistics, engineering, education, transportation, hospitals etc. One of the flagship companies of Chettinad Group is Chettinad Cement Corporation Private Ltd (CCCL, rated ‘CARE AA+; Stable/CARE A1+’). Other notable companies of the group include Chettinad Logistics Private Ltd (CLPL, rated ‘CARE A; Stable/ CARE A1’), South India Corpn Private Limited (SICPL. rated ‘CARE A; Stable/ CARE A1’), Chettinad International Coal Terminal Private Limited (CICTPL, rated ‘CARE A-; Stable/CARE A2+’) and Chettinad Mangalore Coal Terminal Private Limited (CMCTPL, rated ‘CARE BBB; Stable’). The project was entirely funded through interest-free unsecured loans from the group companies. Experienced promoters and management team in operating port terminals Chettinad group has long standing experience in stevedoring and cargo handling. One of the group companies CICTPL operates a coal terminal at Kamarajar Port, Chennai on BOT basis. The terminal had commenced operations in September 2010 with fully automated equipment, conveyor systems, storage yards and evacuation system with a capacity to handle 8 million tonne of coal per annum (MMTPA) which was later augmented to 10 MMTPA. CICTPL has a total experience of more than 8 years in handling coal terminal. Further, SICPL (around 70 years) and CLPL (around 19 years) have long track record of operations in providing end-to-end logistics solution for coal handling. SICPL is mainly into stevedoring, clearing and forwarding (C&F) operations. CLPL apart from doing C&F/stevedoring, it has two other divisions namely Lorry and Coal Trading Division. Since SICPL, CLPL, CBPL, CICTL and CMCTPL are under the same promoter and are into similar line of business it providing synergies in the operations between the group companies. Established infrastructure to handle diverse cargo profile Being a multi cargo terminal, CIBTPL handles diverse cargo mix catering both imports and exports. CIBTPL is allowed to handle any bulk cargo (excluding coal, iron ore, liquids, automobiles and containers) such as cobble stones, food grains, granite, steel, timber logs, bagged and project cargoes, etc. During FY19, major cargoes handled include barite, gypsum, river sand, metal sheets and urea. The berth is 270m in length, 22m in width and 16m in depth and is capable of handling Panamax vessel. The terminal deploys harbor mobile cranes (2 Nos.) for the discharge of cargoes from/ to the vessels at the rate of 400-800 tonnes per hour, depending on the cargo. Terminal includes open storage yard measuring 80,000 sq. m for dry /break bulk cargo and covered warehouses measuring 8,400 sq. m for food grains and bagged cargo. Favorable location with connectivity by both rail and road The terminal is situated at Ennore which is in close proximity to Chennai city. The terminal is well-connected by roads through National Highways NH4, NH5 & NH45 and by two dedicated railway sidings. The sidings are within 1km to the berth area. The nearest railway station is Athipattu situated at approximately 8km from the terminal. It is to be noted that the Athipattu railway station is located 22km north of the Chennai Central railway station. CIBTPL majorly targets customers across North & Central Tamil Nadu, south Andhra Pradesh and Bangalore & Hosur regions. Key Rating Weaknesses Relatively high revenue share payable to the port As per the Concession Agreement, CIBTPL required to pay a royalty/revenue share of 36% of the gross revenue per month and license fee to Kamarajar Port Ltd (KPL). The license fee is towards the lease rentals for the land allotted by KPL for the development of the terminal and it is to be paid in half-yearly installments with 5% escalation every year. CIBTPL is free to fix a market-linked tariff for providing the terminal facilities, higher or lower than the Reference tariff notified by KPL each year. However, the tariff applicable for determining the royalty payable to KPL shall be higher of the two tariffs i.e., Reference tariff notified by KPL and actual tariff charged by CIBTPL. It is to be noted that the total tariff including port charges at Kamarajar port for cargo handling is relatively high when compared to nearby ports. Therefore, CIBTPL offers a favourable tariff in order to attract customers. On account of the same, actual revenue share paid as a proportion of total income is higher than contracted revenue share of 36% (as per Concession Agreement). CIBTPL is required to achieve a minimum annual cargo throughput every year as prescribed in the Concession Agreement till the tenure of the license period. It is to be noted that in the event of CIBTPL’s inability to achieve minimum cargo throughput for a consecutive period of three years then the agreement is liable to be terminated by KPL. However, same is mitigated to an extent given the track record of group in the logistics business. Limited track record of the operations CIBTPL commenced operations in August 2017 and has limited track record. For FY20, the company reported after tax loss of Rs.2 crore (PY: loss of Rs.8 crore) on a total income of Rs.31 crore (PY: Rs.32 crore). Improvement in the profitability and accruals is contingent upon increase in traffic growth and tariffs. It is to be noted that the group has been maintaining 2 CARE Ratings Limited Press Release common administrative staff for all the three terminals operated by it (CIBTPL, CICTPL and CMCTPL) thereby providing synergies and cost savings. Highly competitive nature of the business CIBTPL faces competition from the other multi-cargo terminals located