By Venkati Muttappa

India Ratings and Research (Ind-Ra) has upgraded IRB Infrastructure Developers Ltd’s (IRB Infra) Long-Term Issuer Rating to ‘IND A+’ from ‘IND A-’. The Outlook is Stable. The instrument-wise rating actions are given below:

Instrument Type

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Non-fund-based bank facilities

-

-

-

INR11,000

IND A+/Stable/IND A1+

Upgraded

Term loan

-

-

March 2019 -March 2035

INR21,066 (increased from INR20,410)

IND A+/Stable/IND A1+

Upgraded

Ind-Ra has taken a consolidated view of IRB Infra and its subsidiaries while arriving at the ratings.

KEY RATING DRIVERS

Improvement in Credit Metrics: The upgrade reflects improvement in IRB Infra’s credit metrics post movement of projects to the Infrastructure Investment Trust (InvIT). Consolidated net leverage (net debt/EBITDA) was 4.9x in FY17 (FY16: 5.1x) with adequate gross interest coverage (operating EBITDA/gross interest coverage) of 2.29x (2.5x). Ind-Ra expects the net leverage to improve to 4x in FY18 owing to the movement of six operational projects to the InvIT and receipt of cash in lieu of the same. However, the company expects the net leverage to improve to 3.5x in FY18, post movement of Amritsar-Pathankot project to the Infrastructure Investment Trust (InVIT).

 

Deleveraging through InvIT: IRB successfully launched the first ever infrastructure InvIT, IRB InvIT Fund in India in May 2017. Six operational projects were acquired by the fund from IRB’s portfolio at a book valuation of around INR59 billion. IRB received INR16.81 billion in cash and units in IRB InvIT fund worth INR8.89 billion. The InvIT route results in releasing equity for deployment in other ongoing projects and also reduction in project debt levels. IRB intends to add three to four projects to its portfolio on an annual basis and expects to add one project to InvIT on an annual basis.

 

Change in Project Portfolio: Six operational projects have been moved to the InVIT till July 2017. Currently the ratio of operational to under construction projects (in terms of lane kms) stands at 43:57. With the further addition of operational projects by end-FY18, the ratio is estimated to be around 60:40. IRB intends to have a healthy mix of operational and under construction projects, at least 60% operational projects of the total portfolio. Any further addition of under construction projects to this ratio would be a key rating sensitivity.

 

Strong EPC Revenue Visibility: IRB Infra had eight under construction projects as of 30 June 2017. It had an order book of INR89.1 billion at end-June 2017, providing construction revenue visibility for two to three years. Strong execution track record led by an in-house fully integrated engineering procurement construction (EPC) division and healthy order book will help IRB maintain the business risk profile over the medium term.

 

Robust Operating Performance: Revenue grew to INR58.46 billion in FY17 (FY16: INR51.3 billion) buoyed by construction revenue, which increased to INR34.86 billion (INR30.29 billion). Consequently, absolute EBITDA increased 14.59% yoy to INR30.48 billion in FY17. IRB’s operating performance in the medium term will be aided by healthy order book position, resulting in strong EPC revenue visibility,

Equity Commitment: The company had an equity commitment of INR18.89 billion as on 30 June 2017 for under construction projects. Besides equity infusion, Ind-Ra expects IRB Infra to provide cash flow support to its special purpose vehicles (SPVs) which are in the initial phase of operations, as well as Ahmedabad-Vadodara project. Despite the significant equity commitment and a consolidated debt maturity of INR9.38 billion, INR10.06 billion and INR7.28billion in FY18, FY19 and FY20, respectively, IRB Infra is likely to have sufficient cash reserves to service the same, with limited recourse towards debt refinancing. The company had strong free cash and cash equivalents of INR15.1 billion at FYE17 (FYE16: INR15.81 billion). Management expects to maintain an annual cash balance of around INR15 billion over the next three years.


RATING SENSITIVITIES

Positive: The ratings could be upgraded once the company’s portfolio of  BOT projects shifts to mature tollways with stable cash flows.

Negative: Future developments that may lead to a negative rating action include net leverage sustaining above 4.5x due to underperformance in toll collection at the key toll roads and/or an undertaking of greater-than-expected number of BOT projects, along with a significant deterioration in the cash balance on consolidated books.


COMPANY PROFILE

Incorporated in 1998, IRB Infra is an established integrated surface transportation infrastructure company with expertise in development of BOT toll road projects. The company’s business segments are toll roads, construction, airport development and real estate. As on 30 June 2017, it held a portfolio of 15 BOT projects, of which seven are operational and eight are toll roads projects under implementation, with all toll roads structured into separate SPVs. Such SPVs are wholly-owned subsidiaries of IRB Infra, and the construction, and operation and maintenance activity is carried out in-house through Modern Road Makers Pvt. Ltd.

As of 30 June 2017, the company had a cumulative length of 8,087 lane kms*, including operational and under implementation projects. The above includes share of 11.64%* on the Golden Quadrilateral under NHDP Phase-I of the National Highways Authority of India (‘IND AAA’/Stable). In September 2016, IRB Infra became the first Indian company to get an approval from the Securities and Exchange Board of India for setting-up an InvIT, whereby six operational assets of the company were transferred to the IRB InvIT Fund. This InvIT was listed on the Bombay Stock Exchange and National Stock Exchange in May 2017.

*Post transfer of six operational projects to IRB InvIT.

FINANCIAL SUMMARY

 

Particulars

FY17

FY16

Revenue (INR million)

58,459

51,279

EBITDA (INR million)

30,483

26,603

EBITDA margin (%)

52.1

51.87

Interest coverage (x)

2.29

2.49

Net leverage (x)

4.94

5.06

Source: IRB, Ind-Ra


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook/Rating Watch

Rating Type

Rated Limits (million)

Rating

30 December 2016

3 March 2015

2 April 2014

Issuer rating

Long- term

-

IND A+/Stable

IND A-/RWP

IND A-/Stable

IND A-/Stable

Term loan

Long-term/Short-term

INR21,066

IND A+/Stable/IND A1+

IND A-/RWP/IND A1/RWP

 IND A-/IND A1

 IND A-/IND A1

Non-fund-based limits

Long-term/Short-term

INR11,000

 

IND A+/Stable/IND A1+

IND A-/RWP/IND A1/RWP

 IND A-/IND A1

 IND A-/IND A1


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

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