RATING RATIONALE 27 Nov 2019

Kashipur Highways Pvt Ltd

Brickwork Ratings assigns ratings for the Bank Loan Facilities of ₹422 Crores of Kashipur Sitarganj Highways Pvt Ltd

Particulars

Amount Facility/ Rating* ( Cr) Tenure Instrument** ₹

Fund based 422.00 Long Term BWR D

Total 422.00 Rupees Four Hundred and Twenty Two Crore only

*Please refer to BWR website www.brickworkratings.com/ for definition of the ratings ​ ​ ** Details of Bank facilities is provided in Annexure-I ​

RATING ACTION/OUTLOOK

The rating has factored in the stressed liquidity position of the company due to shortfall in the toll collections. This has resulted in continued delay in the payment of dues to the bankers by the company. The rating draws strength from the sponsor’s track record, advantage from the road being in close proximity to key industrial zones and mitigation of price risk. The loan is also secured by a corporate guarantee from the sponsor i.e. Galfar Engineering and Contracting Pvt Ltd.

Credit Risks: (1) Shortfall in toll collections: The Company had achieved Provisional COD (PCOD) with only 82.26% of the project being completed on 18th August, 2017. Due to the partial completion of the project, the traffic as well as the toll rates are lower than projected levels leading to lower toll revenues which are inadequate.

(2) Continued Delay in debt servicing obligations: Shortfall in toll collections have resulted in a ​ shortfall in the toll revenues. Although the promoters have been infusing funds by way of unsecured loans, there have been continuous delays in timely servicing of the debt obligations.

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Credit Strengths (1) Sponsors track record: The rating factors in the technical expertise of the sponsor's management ​ ​ and its four decades of experience in the infrastructure construction space.

(2) Locational Advantage The road is close to the industrial area developed by the State Industrial ​ Development Corporation of Limited at Rudrapur and Integrated Industrial Estate at , Sitarganj and . The traffic of , multi-axle vehicles from these areas are expected to provide some fillip to the revenue.

(3) Lower price risk: The company has entered into a concession agreement with NHAI and it provides for annual escalation in toll rates based on inflation indices (40% of the wholesale price index), in addition to a fixed escalation of 3%. This will enable timely increase of the toll rates over the years

ANALYTICAL APPROACH AND APPLICABLE RATING CRITERIA

For arriving at its ratings, BWR has applied its rating methodology on a standalone basis, as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

The Company’s ability to achieve the projected toll income by completion of the project, ensuring the projected traffic, timely infusion of funds by the sponsor and improve the servicing of debt obligations in a timely manner would be the key rating sensitivities.

Positive: The rating will be upgraded in case of improvement in the toll collections and timely repayment ​ of debt obligations by the company. Improvement in the overall financial profile of the company will also be positive

Negative: Continued delay in the debt obligations. ​

LIQUIDITY POSITION (Poor) The liquidity position of the company is poor. The net cash accruals are (Rs. -24.74 Crs) and cash and ​ cash equivalents are at Rs. 1.50 Crs as on FY19. Total long term liabilities as on FY19 are Rs.394.33 Crs out of which CPLTD for FY19 is Rs.18.14 Crs. Net cash accruals are not sufficient to meet debt servicing requirements. Galfar India has provided some liquidity support vis USLs of Rs. 38.44 Crs as on FY19 to meet the shortfall in toll collection. Liquidity is likely to remain poor over the medium term on account continuing shortfall in toll collection for meeting debt service obligation until full COD is not achieved by www.brickworkratings.com Page 2 of 6 ​ the company COMPANY PROFILE Kashipur Sitarganj Highways Pvt Ltd (KSHPL) is an SPV incorporated by Galfar Engineering & Contracting India Pvt Ltd which in turn is a wholly owned subsidiary of Galfar Engineering & Contracting SAOG. Kashipur Sitarganj Highways Pvt Ltd (KSHPL) was incorporated to implement a 77.2km lane expansion project (two-to-four laning) between Kashipur and Sitarganj in Uttarakhand on NH-74, under a 21-year concession from National Highways Authority of India on design, build, finance, operate and transfer (DBFOT) Toll Basis. Scheduled COD was in 31st August, 2016. The project was delayed due to non-availability of hindrance free land and shifting of balance utility over existing road from NHAI. The company had successfully completed highway section of 65.38 km (84.69%) including bypass of 5.23 KM out of total length of 77.200 KM (incl. Bypass of 13.65 KM) and thereby achieved Provisional COD (PCOD) in 18th August, 2017. Toll collection was started from 19th August, 2017.

KEY FINANCIAL INDICATORS

Key Parameters Units 2018 2019 Result Type Audited Audited

Net Contract Income ₹ Cr 21.55 32.03

EBITDA ₹ Cr 16.16 19.68 PAT ₹ Cr (16.34) (31.45) Tangible Net worth* ₹ Cr (412.20) (443.66) Total Debt/Tangible Net worth* Times (0.98) (0.98)

Current Ratio Times 0.34 0.24 *includes concessionaire rights and under development cost. Total Net Worth is Rs. 96.08 and Rs. 64.63 Crs ​ respectively for FY18 and FY19 and Total Debt/NW is at 4.22 times and 6.70 times respectively for FY19.

NON-COOPERATION WITH PREVIOUS RATING AGENCY, IF ANY: Rated IND D by India ​ Ratings and migrated to the Issuer Not Cooperating category on 13th Oct, 2017.

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RATING HISTORY

Instrument / Current Rating (2019) Rating History Facilities

Tenure Amount Rating 2018 2017 2016 (₹ Cr)

Fund Based Long Term 422.00 BWR D N.A N.A N.A

Total 422.00 Rupees Four Hundred and Twenty Two Crore only

COMPLEXITY LEVELS OF THE INSTRUMENTS

For more information, visit www.brickworkratings.com/download/ComplexityLevels.pdf ​

Hyperlink/Reference to applicable Criteria

● General Criteria

● Approach to Financial Ratios

● Infrastructure Sector

Analytical Contacts Investor and Media Relations

[Anshul Nagar] Primary Analyst [Board: +91 11 23412232 ] [[email protected]] Liena Thakur

Assistant Vice President - Corporate Communications [Vipula Sharma] +91 84339 94686 [Director – Ratings and Head - Infrastructure ​ [email protected] Ratings] ​ [Board: +91 080 40409940] [[email protected]]

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ANNEXURE I Details of Bank Facilities rated by BWR

Sl. No. Name of the Type of Long Term Short Term Total Bank* Facilities (₹ Cr) (₹ Cr) (₹ Cr)

1 Central Bank of Term Loan 100.00 - 100.00 India

2 Bank of India Term Loan 100.00 - 100.00

3 Corporation Term Loan 74.00 - 74.00 Bank

4 Bank of Term Loan 148.00 - 148.00 Baroda***

TOTAL 422.00**

Total Rupees Four Hundred and Twenty Two Crore only. *Consortium finance with Central Bank of India as lead bank. **Total amount disbursed till date is Rs. 385.16 Crs. ***includes limits of Rs. 74 Crs each sanctioned by Dena Bank and Vijaya Bank

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