Rating Rationale
July 22, 2021 | Mumbai
IRB Infrastructure Developers Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.2559.89 Crore (Reduced from Rs.4200 Crore)
Long Term RatingCRISIL A/Stable (Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A/Stable/CRISIL A1’ ratings on the bank facilities of IRB Infrastructure Developers Limited (IRBIDL).

 

CRISIL Ratings has also withdrawn its rating on Rs 527.75 crore proposed long term bank loan facility and Rs 1,112.36 crore long-term loan facility of IRBIDL. The rating action follows receipt of the required documentation in line with CRISIL Ratings’ policy for withdrawal of ratings. 

 

The ratings continue to reflect the company’s established track record in the roads and highways sector, backed by prudent project selection and strong execution capabilities, and moderate working capital management. The ratings also factor in its ability to fund ongoing projects by unlocking capital through its infrastructure investment trust (InvIT) platforms. These strengths are partially offset by a moderate order book and weakening financial risk profile which are however expected to improve over the near term, significant exposure to under- construction project special-purpose vehicles (SPVs), and susceptibility to intense competition and cyclicality in the roads and highways sector.

Analytical Approach

CRISIL Ratings has fully consolidated the business and financial risk profiles of IRBIDL with that of Modern Road Makers Pvt Ltd (MRMPL), and moderately consolidated with that of the SPVs. MRMPL is the engineering, procurement and construction (EPC) arm of the group and a wholly owned subsidiary of IRBIDL. Furthermore, IRBIDL has extended an unconditional and irrevocable corporate guarantee for the bank facilities availed by MRMPL. IRBIDL has outstanding corporate guarantees for some of its operational and under-construction projects. CRISIL Ratings expects these corporate guarantees to fall-off once the minimum debt service coverage ratios are met or on refinancing of the debt in these projects as seen with other projects in the past.

 

Cost overrun in five of the nine assets that have been transferred to the private InvIT (IRB Infrastructure Trust) resulted in receivables of Rs 3,300 crore as on March 31, 2021. Recovery of the receivables will be through settlement of claims with National Highways Authority of India (NHAI; ‘CRISIL AAA/Stable’), which management is confident of recovering over the course of time. As part of the analytical treatment, CRISIL Ratings has adjusted networth to the extent of 50% of the receivables.

 

Unsecured loans from the subsidiaries have been treated as neither debt nor equity as these loans are subordinate to external debt and repayments are minimal. While some of these loans carry interest in order to reduce tax expense at the group level, the management has confirmed that there will be nil net outgo from IRBIDL towards servicing of loans (payment towards interest will be offset against fresh unsecured loans extended to the company by its subsidiaries).

 

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Established track record in the roads and highways sector

Established in 1998, IRBIDL is one of the largest players in the domestic roads and highways sector. Over two decades of experience has helped the company establish strong relationships with its stakeholders, which include NHAI, Ministry of Road Transport and Highways (MoRTH) and state government departments.

 

The company was one of the early entrants in the build-operate-transfer (BOT) segment of the road sector, and is one of the largest BOT players in India. It has 12,975 lane km of projects in operational (includes projects transferred to InvITs) or under-development stages. Its BOT portfolio comprises 15 projects (12 BOT-toll and 3 hybrid annuity model [HAM] projects) and one toll-operate-transfer (TOT – Mumbai Pune Expressway) project. The BOT segment includes two operational toll projects, nine toll projects transferred to IRB Infrastructure Trust (private InvIT; six operational and three under-construction projects wherein tolling has commenced as these are four- to six-lane projects), one under-construction BOT-toll (awaiting appointed date) and three under-construction HAM projects (two of which are awaiting appointed date). The company also has operations and maintenance (O&M) contracts for the nine projects transferred to private InvIT and seven projects under its public InvIT (IRB InvIT Fund – where it holds 15.97% stake) as  project manager.

 

IRBIDL holds about 20% share in India’s Golden Quadrilateral. A strong in-house EPC division managed by MRMPL undertakes project implementation for all the BOT/HAM road projects. Prudent project selection and strong execution capabilities help the company maintain strong operating margin of over 25% per annum.

 

  • Moderate working capital management 

Despite inherently large working capital requirement in the roads and highways sector, IRBIDL’s working capital cycle is supported by moderate inventory and receivables. Gross current assets (net of cash) stood at 124 days as on March 31, 2021. The company executes only BOT/HAM projects for its SPVs, and hence, all the inventory and receivables are towards or from its SPVs, helping maintain its working capital cycle.

 

  • InvIT platforms to support capital unlocking

The company launched its public InvIT platform-IRB InvIT Fund in 2017, and transferred seven of its operational assets which helped unlock capital. IRBIDL received Rs 2,200 crore of capital from proceeds of the InvIT, post repayment of debt, helping the company fund equity requirement for the ongoing and newly awarded projects.

 

Furthermore, private InvIT set up with GIC affiliates (GIC) in fiscal 2020 helped the company reduce its equity requirement in the under-construction projects. As part of the deal, GIC is committed to bring in Rs 1,400 crore for meeting equity requirement for under-construction projects, of which around Rs 1,000 crore has been received till March 2021. The remaining will come in as per the progress of construction. Any cost overrun in these projects will be funded as per arrangement under Private InvIT.  Additionally, the deal enabled deleveraging of the underlying SPVs through infusion of Rs 3,000 crore from GIC. The InvIT structure helps to upstream surplus cash flow to the sponsors from the beginning of operations, providing flexibility in managing the investment requirement. Moreover, the company has the flexibility to transfer projects to public/private InvITs, which helps unlock capital.

 

Also, IRBIDL and GIC plan to explore BOT opportunities in India together through this platform. The BOT-toll project awarded to IRBIDL in West Bengal will be transferred to the private InvIT, reducing investment required from IRBIDL by 49%. This platform provides financial flexibility to the company while bidding for BOT projects.

 

Weaknesses:

  • Moderate order book position

The company had orders of around Rs 8,800 crore as of March 2021 (including all existing EPC orders and O&M orders to be executed over the next 1.5 years). While order book-to- fiscal 2021 turnover ratio stood at 2.2 times as on March 31, 2021, order book to- turnover (of fiscal 2020) is lower at 1.6 times (as revenue in fiscal 2021 was impacted due to the pandemic and encumbrances on land). This is due to low order inflows and cancellation of three large orders in last two fiscals. Order book position has however improved from Rs 6,900 crore as of July 2020 to Rs 8,800 crore as of March 2021 after securing two large orders from NHAI in March 2021.

 

Two HAM projects with cumulative bid project cost of Rs 3,465 crore were cancelled in November 2019 due to non-availability of land, while the company’s winning bid for a BOT project of ~Rs 2,200 crore was annulled in July 2020 (the same project was however re-awarded to IRBIDL in March 2021).  As a result, the current order book is concentrated around four large projects; slowdown in any of these projects can severely impact the company’s performance. However, IRBIDL is expected to secure new orders over the near term to sustain its revenues for the next 2-3 years. Near term build-up of the order book is a rating sensitivity factor.

 

  • Weakening financial risk profile and large exposure to project SPVs

On account of the pandemic, construction activity witnessed slowdown largely because of shortage of manpower. Issues around encumbrances on land could not be resolved in a timely manner and also impacted construction revenue. In fiscal 2021, revenue de-grew by 28% while operating margin was stable over 26% on account of higher proportion of O&M revenue (which command higher margin). Accrual (excluding dividend outgo) reduced from Rs 905 crore in fiscal 2020 to Rs 354 crore in fiscal 2021.

 

Lower operating performance and increase in debt weakened the financial risk profile. Debt of Rs 3,457 crore as of March 2020 increased significantly to around Rs 7,000 crore by March 2021 (while cash increased from Rs 1,420 crore to Rs 2,253 crore during the same period) owing to high funding requirement for projects (especially for the Mumbai-Pune Expressway project) and incremental working capital. The company has refinanced part of the debt, which was to be repaid in the next 12-18 months, for a longer tenure. The debt-to-EBITDA (earnings before interest, tax, depreciation and amortisation) ratio increased to over 6.7 times as on March 31, 2021, from 2.3 times as on March 31, 2020 (ratio has increased due to higher debt as well as lower EBITDA as a result of lower operating performance in fiscal 2021 due to the pandemic).

 

Debt is however expected to reduce materially in the current fiscal, as the company is in process of implementing various steps for deleveraging. Significant improvement in the capital structure following reduction of debt is a key monitorable and a near term rating sensitivity factor.

 

The company has made large investments in its project SPVs. Its total exposure (in the form of equity investment/unsecured loans) is larger than its networth, and is likely to remain high given the intrinsic holding company structure and large investment requirement. Loans from surpluses of operational SPVs of Rs 2,863 crore as on March 31, 2021 (Rs 2,713 crore as on March 31, 2020) mitigate part of the investment exposure. Although the company undertook HAM projects in 2018 (where the equity requirement is lower than for BOT projects), its focus is on building a BOT portfolio, which will keep equity commitment high. This might come down to some extent on the basis of joint participation by GIC which will be evaluated on a project to project basis.

 

Receivables of over Rs 3,300 crore as on March 31, 2021, from projects transferred to the private InvIT will be recovered through settlement of claims with NHAI. Realisation of these claims will be a key monitorable.

 

Furthermore, one of the BOT project SPVs, IRB Ahmedabad Vadodara Super Express Tollway Pvt Ltd, has been facing stabilisation issues on account of traffic diversion to a competing stretch. The SPV has filed claims but resolution, which was expected in fiscal 2019, has been delayed. Given the non-receipt of resolution, the SPV petitioned for relief on deferred premium payment in the Bombay High Court in March 2019 and received an order in its favour conferring protection from contingency of default in premium payment until July 2019. In August 2019, the petition moved to Delhi High Court and in October 2019, the SPV received an extension for relief until arbitration proceedings are concluded. The arbitral proceedings began in December 2020, and are expected to be completed within one year from the start of the proceedings. A favourable outcome reducing premium payments is critical as the project will not be able to support the original premium payments. However, if cash flow is insufficient to make premium payments, the same will be accrued and paid post completion of debt servicing (as the project has a long tail period post receipt of extension in concession period). Hence, IRBIDL will not extend any support towards this project. Moreover, corporate guarantee extended by IRBIDL towards this SPV has fallen off post the SPV reaching threshold debt service coverage ratio of 1.15 times. Any change in this understanding is a rating sensitivity factor.

 

  • Susceptibility to intense competition and cyclicality in the roads and highways sector

IRBIDL’s outstanding orders are almost entirely from the roads and highways segment. This exposes it to intense competition and sectoral concentration risk. Although the company diversified into the HAM segment in 2018 from a pure-play BOT player, its ability to execute orders, grow revenue, and sustain profitability is susceptible to competition in the sector, changes in government regulations and economic conditions. For instance, subdued awarding of projects by NHAI in fiscals 2019 and 2020 and termination of two HAM projects in November 2019 and one BOT project in July 2020 weakened the order book.

 

Competition in the segment may intensify further due to the recent relaxation in bidding norms by NHAI and MoRTH. However, given IRBIDL’s continued focus in the BOT-toll space where completion is limited, the operating margin is expected to remain stable over the medium term.

Liquidity: Adequate

Total fund based facility of Rs 1,930 crore (including the overdraft (OD) facility of Rs 1300 crore backed by fixed deposits) was utilised to an extent of 80% as on March 31, 2021. Cash and equivalent stood at Rs 2,253 crore as on March 31, 2021, of which unencumbered cash stood at around Rs 700 crore (and Rs 1,300 crore cash is earmarked for the overdraft facility). Furthermore, the company holds 15.97% unencumbered stake in the public InvIT (valued at Rs 497 crore as on March 31, 2021), supporting liquidity.

 

The company has a strong track record of refinancing loans, which will continue to support liquidity. In the last quarter of fiscal 2021, the company raised overseas bonds of Rs 2,184 crore with nil repayments for 7 years and a put option at the end of 3.5 years. Partial proceeds of these bonds were utilised to refinance debt maturing over the next 1-2 years. As a result, debt obligation for fiscal 2022 has reduced to around Rs 300 crore from over Rs 880 crore prior to the refinancing. Cash accrual should comfortably cover debt obligation over the medium term.

Outlook: Stable

IRBIDL will continue to benefit from its healthy business risk profile, supported by an established track record in the roads and highways sector and strong execution capabilities. The financial risk profile will remain constrained on account of low cash accrual and high debt.

Rating Sensitivity factors

Upward factors:

  • Increase in operating income over Rs 5,000 crore in fiscals 2022 and 2023
  • Improvement in the capital structure with debt-to-EBITDA ratio below 2.5 times

 

Downward factors:

  • No significant order inflows before December 2021 to support execution for fiscal 2023 
  • No significant improvement in capital structure with debt-to-EBITDA ratio remaining over 4 times
  • Larger-than-expected investment or working capital requirement towards project SPVs thereby weakening the financial risk profile.

About the Company

Incorporated in 1998 and promoted by Mr Virendra D Mhaiskar, IRBIDL is an infrastructure development and construction company in India with extensive experience in the roads and highways sector. The company is also into other business segments in the infrastructure sector, including maintenance of roads, construction, airport development and real estate.

 

Its portfolio comprises 15 BOT projects (12 BOT and 3 HAM) and 1 TOT project (Mumbai Pune Expressway). Of this, 9 BOT projects have been transferred to IRB Infrastructure Trust. The company also has O&M contracts for seven projects as a project manager for IRB InvIT Fund. The company operates largely as a holding company, while construction activities are carried out through its EPC arm, MRMPL.

 

IRBIDL became a listed company in 2008 by listing its shares on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). In September 2016, IRBIDL received approval from the Securities and Exchange Board of India to set up an InvIT. The company listed six of its operational assets through InvIT on BSE and NSE on May 18, 2017. It then transferred another asset to the InvIT on September 28, 2017. IRBIDL undertakes maintenance of these projects and holds 15.97% of the unit capital in the InvIT.

 

IRBIDL made an announcement of the definitive agreement entered into on August 6, 2019, with GIC for investment in IRBIDL’s road portfolio through a private InvIT. On February 26, 2020, the company set up the InvIT, IRB Infrastructure Trust and transferred nine of its BOT assets into the trust, in which it holds controlling stake of 51%, while GIC holds the remaining 49%. Of the nine projects transferred, five have received commercial operations date (COD), one has received provisional COD, while three are under construction (tolling has commenced as these are four-to-six-lane projects). IRBIDL is responsible for the project management activities of these projects, including maintenance.

Key Financial Indicators

As on / for the period ended March 31*

 

2021

2020

Revenue

Rs crore

3936

5496

Profit after tax (PAT)

Rs crore

323

866

PAT margin

%

8.2%

15.8%

Adjusted debt / adjusted networth

Times

1.38

0.74

Interest coverage

Times

1.69

3.62

*The financials represent the consolidated financials of IRBIDL and MRMPL, adjusted for CRISIL Ratings internal adjustments

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of instrument

Date of allotment

Coupon rate %

Maturity

date

Issue size

(Rs crore)

Complexity

level

Rating assigned

with outlook

NA

Long Term Loan

NA

NA

Mar-29

410.0

NA

CRISIL A/Stable

NA

Long Term Loan

NA

NA

Mar-29

36.25

NA

Withdrawn

NA

Long Term Loan

NA

NA

Jun-23

200.0

NA

CRISIL A/Stable

NA

Long Term Loan

NA

NA

Jun-23

119.94

NA

Withdrawn

NA

Long Term Loan

NA

NA

Sep-20

49.40

NA

Withdrawn

NA

Long Term Loan

NA

NA

Jul-22

240.00

NA

Withdrawn

NA

Long Term Loan

NA

NA

Mar-21

9.73

NA

Withdrawn

NA

Long Term Loan

NA

NA

Mar-21

4.93

NA

Withdrawn

NA

Long Term Loan

NA

NA

Dec-28

249.89

NA

CRISIL A/Stable

NA

Long Term Loan

NA

NA

Dec-28

214.11

NA

Withdrawn

NA

Long Term Loan

NA

NA

Mar-22

298.00

NA

Withdrawn

NA

Long Term Loan

NA

NA

Mar-22

140.00

NA

Withdrawn

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

500.0

NA

CRISIL A/Stable

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

527.75

NA

Withdrawn

NA

Bank Guarantee

NA

NA

NA

1200.00

NA

CRISIL A1

 

Annexure – List of entities consolidated

Entity consolidated

Extent of consolidation

Rationale for consolidation

Modern Road Makers Pvt Ltd

Full

Corporate guarantee extended by IRBIDL

IRB MP Expressway Pvt Ltd

Moderate

To the extent of support towards equity commitment and cash flow mismatches during operations

ATR Infrastructure Pvt Ltd

Moderate

To the extent of support towards cash flow mismatches during operations

IRB Ahmedabad Vadodara Super Express Tollway Pvt Ltd

Moderate

To the extent of support towards cash flow mismatches during operations

Yedeshi Aurangabad Tollway Pvt Ltd*

Moderate

To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations

Solapur Yedeshi Tollway Pvt Ltd*

Moderate

To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations

Kaithal Tollway Pvt Ltd*

Moderate

To the extent of support towards cash flow mismatches during operations

IRB Sindhudurg Airport Pvt Ltd

Moderate

To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations

VK1 Expressway Pvt Ltd

Moderate

To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations

VM7 Expressway Pvt Ltd

Moderate

To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations

IRB Westcoast Tollway Pvt Ltd*

Moderate

To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations

CG Tollway Pvt Ltd*

Moderate

To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations

Udaipur Tollway Pvt Ltd*

Moderate

To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations

Kishangarh Gulabpura Tollway Pvt Ltd*

Moderate

To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations

AE Tollway Pvt Ltd*

Moderate

To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations

IRB Hapur Moradabad Tollway Pvt Ltd*

Moderate

To the extent of support towards equity commitment and cost overrun during construction and cash flow mismatches during operations

* Project transferred to private InvIT as part of GIC deal with IRBIDL holding 51% stake in the InvIT

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 3000.0 CRISIL A/Stable 25-06-21 CRISIL A/Stable 10-09-20 CRISIL A/Stable 27-12-19 CRISIL A+/Watch Developing 29-10-18 CRISIL A+/Positive --
      --   -- 28-08-20 CRISIL A/Stable 14-11-19 CRISIL A+/Watch Developing 01-10-18 CRISIL A+/Positive --
      --   -- 05-03-20 CRISIL A+/Stable 19-08-19 CRISIL A+/Watch Developing   -- --
Non-Fund Based Facilities ST 1200.0 CRISIL A1 25-06-21 CRISIL A1 10-09-20 CRISIL A1 27-12-19 CRISIL A1/Watch Developing 29-10-18 CRISIL A1 --
      --   -- 28-08-20 CRISIL A1 14-11-19 CRISIL A1/Watch Developing 01-10-18 CRISIL A1 --
      --   -- 05-03-20 CRISIL A1 19-08-19 CRISIL A1/Watch Developing   -- --
All amounts are in Rs.Cr.
 
 
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 1200 CRISIL A1 Bank Guarantee 1200 CRISIL A1
Long Term Loan 859.89 CRISIL A/Stable Long Term Loan 1972.25 CRISIL A/Stable
Long Term Loan 1112.36 Withdrawn Proposed Long Term Bank Loan Facility 1027.75 CRISIL A/Stable
Proposed Long Term Bank Loan Facility 500 CRISIL A/Stable - - -
Proposed Long Term Bank Loan Facility 527.75 Withdrawn - - -
Total 4200 - Total 4200 -
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
The Infrastructure Sector Its Unique Rating Drivers
Rating Criteria for Construction Industry
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation
CRISILs Bank Loan Ratings

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CRISIL Ratings uses the prefix ‘PP-MLD’ for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011 to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratiings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: www.crisil.com/ratings/credit-rating-scale.html