By Rabin Bihani

India Ratings and Research (Ind-Ra) has assigned Pristine Mega Logistics Park Private Limited (PMLPPL) a Long-Term Issuer Rating of ‘IND A-’. The Outlook is Stable. The instrument-wise rating actions are as follows: 

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Term loan*

-

-

-

INR1,500

IND A-/Stable

Assigned

Fund-based limit

-

-

-

INR350

IND A-/Stable/IND A2+

Assigned

Non-fund-based limit

-

-

-

INR150

IND A2+

Assigned

*Yet to be availed

Analytical Approach: Ind-Ra has excluded short-term loans extended by Pristine Logistics & Infraprojects Private Limited (PLIPL; holds 100% stake in PMLPPL), as such loans are interest-free and do not have a repayment schedule. Ind-Ra derives strong comfort from the healthy financial flexibility of PLIPL, in which Global Infrastructure Partners India is a major shareholder. This financial flexibility has enabled PLIPL to raise funds at regular intervals and support PMLPPL’s operations.

KEY RATING DRIVERS

Extensive Experience of Promoters: PMLPPL is promoted by Mr. Rajnish Kumar and Mr. Amit Kumar, who have an experience of over two decades in the domain of rail logistics and setting up of logistics parks. Through different subsidiaries (holding company – PLIPL), the promoters have set up inland container depots (ICD) and private freight terminals (PFT) operations across different locations in India, including Kanpur, Patna and Ludhiana within the span of less than 10 years. Furthermore, the group plans to set up ICD and PFT assets across the eastern regions; these projects are under different stages of execution. The promoters enjoy an established business relationship with its clientele like Reliance Industries Limited (‘IND AAA’/Stable) and reputed customers in the shipping business, including Maersk and Emirates Shipping Line. Ind Ra believes the business profile of PMLPPL would benefit from the promoters’ extensive experience in the logistics business.

The promoters have raised growth capital over the years, enabling PLIPL to support its expansion plans. India Infrastructure Fund II, a fund managed by Global Infrastructure Partners India, invested INR5500 million in PLIPL in FY18. Of this, INR3850 million was utilised as fresh capital, while the balance was used for secondary transactions, primarily for providing an exit to UTI Capital. At present, the promoter group holds a stake of 42.5% in PLIPL, while India Infrastructure Fund II holds 57.5%.

Adequate Business Profile: PLIPL, through PMLPPL, has set up an ICD and PFT at Ludhiana and operates container trains along the western route of Mundra port-Ludhiana and Pipavav port-Ludhiana and Jawaharlal Nehru Port Trust (JNPT)-Kanpur with a rake fleet of 18 trains. Of these, 17 trains are on a lease basis, both short-term and long-term, and one rake is owned by the company. In addition to normal container trains,  PMLPPL also operates dwarf container trains that have been designed specifically by the company for carrying light weight commodities such as polymers, FMCG products, amongst others. PMLPPL has a rake fleet of 320 dwarf containers as on date.

The company has entered into an agreement with Reliance Industries Limited for movement of polymers through dwarf containers. The agreement also provides for guaranteed offtake, which supports the business profile of the company. By including other services such as storage, warehouse services and last mile transportation of the cargo, the company focuses on providing end-to-end (port to door-step) services to its clientele. PMLPPL’s presence across the western ports also benefits its business profile, as the Western Rail Corridor accounts for the highest share of India’s container traffic, which would further enable the company to derive large export-import (EXIM) volumes.

Moderate Operating Performance: Post commencement of commercial operations in January 2016, the company has significantly scaled up its operations. Revenue from operations increased by 35% yoy to INR2,787 million in FY19, supported by growth in sales volumes, while the EBITDA margin improved to 7.4% (FY18: 7.0%) on account of better absorption of fixed costs. Revenue increased at a CAGR of 43% over FY17-FY19, while EBITDA margins have witnessed an improvement from the levels of 3.4% in FY17 owing to the increase in scale of operations and better absorption of fixed cost.

During FY19, EXIM volumes accounted for about 96% of the total volumes handled by the company, while the domestic volume accounted for the balance 4%. The container train business remains the main revenue driver for the company, with a total contribution of 84% in FY19. The balance was contributed by  terminal revenue and freight revenue earned from road transportation. Ind-Ra expects the scale of operations to witness a healthy improvement over the medium term, driven by an increase in volume levels, while profitability margins would improve on account of economies of scale.

Moderate Credit Metrics: PMLPPL’s debt levels have increased over the years. However, the debt mainly consists of the interest-free short-term borrowings extended by PLIPL. PMLPPL’s overall debt level stood at INR1,955 million as on 31 March 2019 (INR1,248 million as on 31 March 2018) compared INR910 million as on 31 March 2016. Of the total debt, short-term loans extended by PLIPL stood at INR1,614 million as on 31 March 2019 vis-à-vis INR964 million as on 31 March 2018. The adjusted net leverage (excluding the short-term loan from PLIPL) stood at 1.37x in FY19 (FY18:1.82x; FY17: 6.95x). As on 30 September 2019, the overall debt stood at INR2,450 million, out of which loans from PLIPL amounted to INR2,031 million. The company has envisaged a further capex of about INR 900 million in FY20, which is likely to be primarily funded through borrowings.

Liquidity Indicator - Adequate: At a standalone level, PMLPPL’s liquidity profile remains stretched. However, Ind-Ra derives strong comfort from the parent, which has infused funds to meet business requirements in the past five years. PMLPPL had modest unencumbered cash and bank balances of INR12.9 million as on 30 September 2019 (INR57.4 million as on 31 March 2019). The company also has access to bank lines of INR150 million, the average utilisation of which stood at 88% during the 12 months ended September 2019. PMLPPL has a scheduled repayment of INR101 million during FY20, of which the company paid about INR7 million during 1HFY20.

PMLPPL’s capex plans in the near term will be funded majorly through debt, which has been sanctioned. The liquidity profile draws strength from the cash and bank balances of INR236 million with PLIPL as on 30 September 2019 (INR792 million as on 31 March 2019).  Ind-Ra believes PMLPPL will continue to have access to need-based funding support from PLIPL, given that the company remains the major revenue driver for the group. The liquidity profile is further augmented by the healthy financial flexibility of the group, which has a demonstrated track record in raising growth capital.

Intense Competition: PMLPPL faces intense competition from players such as Gateway Rail, Adani Logistics Limited and Container Corporation of India Limited, which operate their rail-linked ICDs in the nearby regions. The intense competition exerts pressure on the company’s realisations, and hence, its profitability. Besides, the company also remains exposed to competition from road transportation of containers. On an all-India basis, the road sector accounts for 80% of the transportation, while railways account for the balance 20%. However, in the case of long haul routes like Ludhiana to western ports and Kanpur to western ports, such competition from roads is partially mitigated by the higher cost involved in road transportation. Nevertheless, PMLPPL’s ability to ramp up volumes and increase its scale of operations amidst high competitive intensity remains a key rating monitorable.

Susceptibility to Economic Cycles; Exposure to Regulatory Risk: PMLPPL’s volume growth is linked to global EXIM volumes, which is dependent on global macro-economic conditions. Additionally, imbalances in EXIM could lead to an increase in the unit operation cost, thereby affecting the business performance. Slowdown in global growth, and consequently, EXIM volumes could impact the operating performance of the company. Furthermore, the company continues to be exposed to regulatory risk. PMLPPL has to pay haulage charges to the Indian Railways for running the container trains to the ports from inland container and back. Haulage charges form a major cost for container train operators and it accounts for more than 80% of the total operating cost. Haulage charges have seen revision several times over the last decade. Therefore, inability to pass on higher haulage charges could impact the profitability of the company. The risk, though, is partially mitigated through quarterly escalations, which enables the company to pass on the cost to the customers and thereby protect its EBITDA margins.


RATING SENSITIVITIES

Positive: Future developments that could, individually or collectively, lead to a positive rating action include:

-          - Stronger-than-expected improvement in revenue and profitability, leading to a substantial improvement in credit metrics
 Effective management of working capital, leading to an improvement in the liquidity profile.

Negative: Future developments that could, individually or collectively, lead to a negative rating action include:

-         -  Decline in the revenue and profitability or stretch in working capital, leading to deterioration in the liquidity profile
- Higher-than-expected debt-funded capex, leading to deterioration in the net leverage beyond 3.5x
- Dilution in the shareholding by Global Infrastructure Partners or higher-than-expected cash outflow in the form of withdrawal of promoter loan and interest payment.


COMPANY PROFILE

Incorporated in 2012, PMLPPL operates container train services and an ICD and PFT at Ludhiana with an installed capacity of 473400 TEU. The company commenced its commercial operations in January 2016. The company holds Category I licence for carrying out the business of container train operations.

As per the provisional numbers, during 1HFY20, PMLPPL reported EBITDA of INR150 million and revenue of INR1,824 million.

FINANCIAL SUMMARY

Particulars

FY19

FY18

Revenue (INR million)

2,787

2,069

EBITDA (INR million)

206

145

EBITDA margin (%)

7.4

7.0

Interest coverage (x)

6.3

4.4

Net leverage (x)*

1.4

1.8

Source: PMLPPL, Ind-Ra

*excluding the borrowings from PLIPL



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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Applicable Criteria

Analyst Names

  • Primary Analyst

    Rabin Bihani

    Senior Analyst
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th Floor, West Wing, Bandra Kurla Complex, Bandra East,Mumbai - 400051
    +91 22 40356170

    Media Relation

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121