By Ankur Rustagi

India Ratings and Research (Ind-Ra) has maintained Dredging Corporation of India Limited’s (DCI) Long-Term Issuer Rating of ‘IND A+’ on Rating Watch Negative (RWN). 

Ind-Ra has maintained DCI’s rating on RWN due to its continued inability to assess the rating impact of the strategic divestment of the government of India (GoI) stake in DCI. The GoI executed a share purchase agreement on 8 March 2019 with a consortium of four ports, namely Visakhapantam Port Trust, Paradip Port Trust, Jawaharlal Nehru Port Trust and Deendayal Port Trust to sell its 73.47% stake in DCI. The entire stake has been sold at a consideration of INR10.5 billion at a share price of INR510. Visakhapantam Port Trust now holds 19.47% stake while the other three ports hold 18% each in DCI.

KEY RATING DRIVERS

Debtor Provisioning: DCI has written off bad debt amounting INR841.4 million pertaining to Sethusamudram Corporation Limited (a GoI entity) which was pending for more than five years. This one-off provisioning caused EBITDA to reduce to INR320 million in 9MFY19 (9MFY18: INR1,007 million) while company reported nominal growth in revenue (9MFY19: INR4,533 million; 9MFY18: INR4,391 million). 

Moderate Credit Profile:
One-off provisioning in 2QFY19 is likely to have deteriorated interest coverage (EBITDA/gross interest expense) and adjusted net leverage (adjusted net debt/EBITDA) to 2.8x in FY19 (FY18: 6.7x) and 14.4x (5.7x), respectively. Adjusting for one-off provisioning, the interest coverage and adjusted net leverage for FY19 are likely to improve to 8.2x and 4.8x, respectively. 

Comfortable Liquidity:
Against the debt repayment of INR1,317 million during FY20, DCI had a cash and cash equivalent of INR447 million as of FYE19. Cash flow from operations largely remained stable during FY15-FY18 and the company is likely to have generated INR1,200 million of same during FY19 (FY18: INR1,475 million; FY17: INR1,105 million; FY16: INR1,317 million). DCI has a debt repayment of INR1,317 million in FY21 which is likely to be met by cash flow from operations. Although DCI does not have any working capital facility, its ability to refinance debt is high, given the healthy margins it generates and the long life of its productive assets. 

Healthy Order Book:
Ind-Ra hitherto factors into the rating the benefit that DCI has in securing nomination-based contracts by being a 73.4% GoI owned entity. The order book of DCI as at FYE19 was INR7,790 million as against INR6,015 million as at FYE18, providing medium term revenue visibility. 

Increased Competition
: Acquisition of new orders and operating margins could be impacted by the inability of company to secure nomination-based contracts and increased competition from private and foreign dredging companies.


RATING SENSITIVITIES

The RWN indicates that ratings may be either affirmed or downgraded on resolution. The RWN will be resolved after Ind-Ra achieves full clarity upon the credit impact of the stake sale on DCI’s business position, and reassessment of the GoI’s support to DCI in light of the change in the structure.


COMPANY PROFILE

DCI was established in the year 1976 and is engaged in capital dredging, maintenance dredging, beach nourishment, reclamation and environment protection services.

FINANCIAL SUMMARY

Particulars

9MFY19

FY18

FY17

Revenue (INR million)

4,533

5,919

5,852

EBITDA (INR million)

320

1,350

1,613

EBITDA margin (%)

7.1

22.8

19.9

Interest expense (INR million)

119

202

182

Interest coverage (x)

2.7

6.7

11.0

Source: Ind-Ra, DCI


RATING HISTORY

Instrument Type

Current Rating/Rating Watch

Historical Rating/Rating Watch/Outlook

Rating Type

Rated Limits (million)

Rating

5 December 2018

14 December 2017

Issuer rating

Long-term

-

IND A+/RWN

IND A+/RWN

IND A+/Stable


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.

ABOUT INDIA RATINGS AND RESEARCH

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies and project finance companies. 

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Applicable Criteria

Analyst Names

  • Primary Analyst

    Ankur Rustagi

    Analyst
    India Ratings and Research Pvt Ltd 601-9 Prakashdeep Building 7 Tolstoy Marg New Delhi 110001
    +91 11 43567230

    Media Relation

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121