Press Release July 13, 2026 NAGAR NIGAM VARANASI Rating Reaffirmed

Product	Quantum (Rs. Cr) (SEBI)	Quantum (Rs. Cr) (Other FSR)	Long Term Rating	Short Term Rating	Regulated By
BOND	50.00	0.00	ACUITE AA | Stable | Reaffirmed	-	SEBI
Total Outstanding	50.00	0.00	-	-	-
Total Withdrawn	0.00	0.00	-	-	-

Note:- For activities or ratings of instruments falling under the purview of Financial Sector Regulators other than SEBI, the grievance / dispute redressal mechanisms and investor protection mechanisms provided by SEBI shall not be available.

Rating Rationale

Acuité has reaffirmed the long term rating of ''ACUITE AA'' (read as ACUITE double A) on the Rs. 50.00 Cr. bonds of Nagar Nigam Varanasi (NNV). The outlook is ‘Stable’. Rationale for Rating The rating takes into consideration the consistent support from both the state and central governments towards the development of the city, the stable revenue income which stood at Rs. 901.78 Cr. in FY26 with the healthy cash surplus. Uttar Pradesh continues to solidify and strengthen its position on the global tourism map. Varanasi is among top five most populous cities in Uttar Pradesh & considered as one of the most popular tourist places in India for domestic, national and international tourists. Also, the rating derives further comfort from the structured payment mechanism, including the DSRA, interest payment account and sinking fund account. However, the rating is to be constrained by the elevated level of receivables of NNV and high dependence on tourism.

About the Company

­Nagar Nigam Varanasi (NNV), is a municipal governing body of Varanasi, Uttar Pradesh, it was established on January 24, 1959, initially as a Nagar Mahapalika under the Municipal Corporation Act of 1959. In 1994, it was upgraded to Nagar Nigam to enhance its administrative capabilities and scope. Varanasi Nagar Nigam administers an area of 82 square kilometres, divided into 90 wards. The city is densely populated and attracts numerous pilgrims and tourists due to its historical and cultural significance. NNV aims to transform Varanasi into a dynamic, vibrant, self-reliant, and sustainable city. The mission focuses on providing all basic amenities and enhancing the quality of life for its citizens. The corporation's responsibilities encompass a range of services and infrastructural developments.

Unsupported Rating

­ACUITE A/Stable

Analytical Approach

­Acuite has standalone business and financial risk profiles of ­Nagar Nigam Varanasi (NNV) to arrive at the rating. Further rating derives comfort from the benefits arising from the structured payment mechanism applicable to the bonds.

Key Rating Drivers

Strengths

­Benefits from Varanasi’s status When assessing Varanasi for a credit rating, its advantages include its historical and cultural importance, which improves investor attractiveness and financial steadiness through tourism. The city benefits from a relentless income stream generated by millions of pilgrims and tourists visiting its religious sites. Significant investments in infrastructure development bolster economic growth and investor confidence, while its strategic location along the Ganges River supports trade and regional integration. The presence of prestigious educational institutions like Banaras Hindu University (BHU) fosters innovation and economic development. Additionally, various government initiatives aimed at urban improvement further boost economic prospects. A diverse economy, encompassing both traditional and emerging industries, contributes to financial stability and growth, creating a strong foundation for a positive credit rating assessment of Varanasi. Healthy Scale of Operations The revenue profile of the NNV includes various tax revenues, fees and user charges, rental income from municipal properties, sales and hire charges, grants and contributions of revenue nature, and non-tax income. The corporation achieved a turnover of Rs. 901.78 Cr. in FY26. On the profitability level, the EBITDA margin of the ULB stood at 20.18% in FY26 against 14.81% in FY25, and the PAT margin stood at 16.70% in FY26 against 10.06% in FY25. The improvement in profitability was supported by enhanced tax collection efficiency, which increased to 76.19% in FY26 from 63.94% in FY25. Acuite expects that the revenue of the corporation will improve over the medium term on the back of healthy revenue collection and improvements in economic activities. Strong financial risk profile The financial risk profile of the entity is strong marked by net-worth of Rs.3182.85 Cr. as on 31st March 2026 against Rs.2779.46 Cr. as on 31st March 2025. The increase in the net-worth is on an account of the accumulations of profits in reserves and increase in the grants given by the central and state government. The Gearing ratio and TOL/TNW stood at 0.02 & 0.11 times as on 31st March 2026 respectively. Acuite believes that the financial risk profile of the corporation is expected to remain strong in the near to medium term. Structured Payment Mechanism NNV has access to various income sources out of which property tax and fees & user charges shall be deposited every month in a separate no-lien escrow account for debt servicing of the bonds. The funds should be first utilized to meet the Minimum Balance in the escrow account, which entails maintenance of a Debt Service Reserve Account (DSRA), Sinking Fund Account (SFA) and Interest Payment Account (IPA) The minimum balance shall not be used for any purpose other than transfer to the DSRA, IPA and SFA. Terms of the Bonds. The DSRA has been created in any event prior to seven days with an amount equivalent to the four coupon payments (2 years’ interest) needed to be maintained. The funds (owned revenue) received in the escrow account will be transferred to IPA and SFA on a monthly basis as per the terms of the bond. As regards the interest payments (to be half yearly), the IPA will be funded on a monthly basis. SFA, which shall be funded monthly, equivalent to the amount as per the terms of bond issuances. IPA (Interest Payment Account) An amount, as specified in the terms of bond/loan agreements, will be transferred to IPA from the escrow account on a monthly basis. The debenture trustee shall check the amount in IPA at least 25 (T-25) days prior to the interest payment date. In case of any shortfall in the amount, the trustee shall intimate the NNV of the shortfall, and NNV shall cover the shortfall prior to 10 days (T-10 days) of the interest payment day. If the corporation fails to cover the shortfall at 09 days (T-09 days) prior to the interest servicing day. In case the DSRA Amount (or part thereof) is utilised to fund the shortfall in the amount required to make payment of the Coupon in respect of any Coupon Payment Date, immediately after the Debenture Trustee has instructed the Bank to utilise the DSRA Amount as above and in any event prior to 7 (seven) days prior to the relevant Coupon Payment Date (T-7). If the shortfall is not made good by NNV on T date, the DT shall issue a notice to NNV marking a copy to Government of Uttar Pradesh (GoUP) following which the GoUP shall remit funds required to replenish the Required DSRA Amount within 15 (Fifteen) days from the relevant Coupon Payment Date i.e. by T+15 days by depositing such amounts in to the IPA. Sinking Fund Account (SFA) The debenture trustee shall check the amount in SFA at least 25 (T-25) days prior to the end of each 12-month block. In case of any shortfall in the amount, the trustee shall intimate the NNV of the shortfall, and NNV shall cover the shortfall prior to 15 days (T-15 days) prior to the end of each 12-month block. If the corporation fails to cover the shortfall at 14 days (T-14 days) prior to the end of each 12-month block, then the trustee shall trigger the payment mechanism and issue a notice to the Issuer (and the GoUP shall be informed by marking a copy to the GoUP). On the issuance of such notice, the GoUP shall remit funds to fund the shortfall into the Sinking Fund Account prior to the end of each 12-month block (T).

Weaknesses

­Significant build-ups of receivables The debtors' position as on 31st March, 2026 stood at Rs.116.19 Cr. i.e. 203 days for FY26 improved against Rs.166.17 Cr. as on 31st March, 2025 i.e. 343 days for FY25. Acuité believes that any significant build-up in receivables beyond existing levels will be a key rating sensitivity factor.

Assessment of Adequacy of Credit Enhancement under various scenarios including stress scenarios (applicable for ratings factoring specified support considerations with or without the “CE” suffix)

­GoUP has created a policy for utilisation of the funds in the IDF (Infrastructure Development Fund) for credit enhancement and other needs of local bodies to promote/ incentivise issuance of municipal bonds. Pursuant to the Governmental Order, the issuer shall approach the GoUP for entering into the Tripartite Agreement with the Debenture Trustee and the Issuer in respect of the Debentures, for agreeing and covenanting to make payment of funds from the IDF in terms of such agreement: (a) into the Interest Payment Account for creation of the upfront Required DSRA Amount; (b) into the Sinking Fund Account on the occurrence of a Sinking Fund Mismatch. The GoUP shall make payment of such amounts as may be required to make good any DSRA Amount Shortfall. In case the DSRA Amount lying in the Interest Payment Account is utilized to fund the shortfall in Interest Payment Account at the time of the Coupon payment, the GoUP shall remit the funds (to the extent that the DSRA Amount utilized to fund the shortfall in the Interest Payment Account for meeting the Coupon payment on such Coupon Payment Date) to replenish the Required DSRA Amount, in terms of the Tripartite Agreement. Further, the GoUP shall make payment of such amounts as may be required to make good any Sinking Fund Mismatch. In case of Sinking Fund Mismatch, the GoUP shall remit the funds to fund the shortfall in the Sinking Fund Account. Stress Case Scenario Acuite believes that if the collection from property tax and fees & user charges are adjusted by 50%, still the corporation would be having sufficient cash flow over and above to make the coupon payments and DSRA. Further, the corporation is required to maintain DSRA for four coupon payments.

Rating Sensitivities

Potential triggers (individual or collective) for an upward rating action:

­Growth in the size of corporation with revenue surplus.

Potential triggers (individual or collective) for a downward rating action:

­Non-adherence to the Structured Payment Mechanism (SPM). Significant reduction in property tax collections resulting in the escrow account balance falling below the stipulated levels

All Covenants

­1. The Issuer shall, at all times till the Debentures are outstanding, ensure that the total amounts collected in the Escrow Account in any financial year shall be at least 2 (Two) times of the Annual Payments Amount. For the purpose of this term sheet, the term ‘Annual Payments’ shall, in respect of any financial year, mean the aggregate of: (a) the Coupon payable in such year (in relation to the present bond issue and any further borrowings); (b) the portion of principal amount of the Debentures which are required to be deposited by the Issuer into the Sinking Fund Account in such financial year (in relation to the present bond issue and any further borrowings), in terms hereof.   2. Debt Service Coverage Ratio (DSCR) shall mean the ratio of operating surplus to total debt servicing, which shall not be less than 1.50 times of operating surplus calculated as on 31st March for each year financial year (starting from 31st March 2026 till the time bonds are outstanding) as below: DSCR = operating surplus / total debt service i. Operating surplus calculated as the below: Operating Surplus = Total Income - Adjusted Expenditure a. Total income = Total income of the corporation as per the audited Income and Expenditure statement. b. Adjusted Expenditure = Total expenditure as per the audited Income and Expenditure statement - Depreciation - Finance charges - Provisions and Write offs - other non-cash expenditures.  ii. Total debt service = interest payment of loans and bonds + transfers made to the sinking fund account towards principal repayment / redemption + principal repayment / redemption (Excluding those made out of the sinking fund account) So long as the Eligibility Conditions are met, the Issuer shall be entitled to raise further financial indebtedness based on its cash flows including the cash flows through the Escrow Account, provided that it is clarified that nothing in this provision should be construed to permit the creation of any encumbrance over the hypothecated property without the express prior written consent of the debenture trustee. For the purpose of this term sheet, the term ‘Eligibility Conditions’ shall mean the following conditions: (a) the Annual Payments Ratio is maintained by the Issuer; (b) the Minimum DSCR of 1.5 times is maintained by the Issuer; (c) there is no shortfall in the contribution to the Escrow Account, the Interest Payment Account (including towards maintenance of the Required DSRA Amount) and/or the Sinking Fund Account which has not been made good by the Issuer in terms of the Transaction Documents; (d) no Event of Default has occurred. 3. Other financial covenants as defined in the Transaction Documents The documents executed in relation to, or which are relevant to the Issue includes: a) Preliminary Placement Memorandum, along with all annexures b) Tripartite Agreement with the Debenture Trustee and the Government of Uttar Pradesh c) Issue Agreement d) Issue Proceeds Agreement e) Debenture Trustee Agreement f) Registrar Agreement, g) Debenture Trust Deed h) Deed of Hypothecation i) Escrow Agreement j) Tripartite Agreements with NSDL and CDSL\ k) Any other agreement or document designated as such by the Debenture Trustee (acting on the instructions of the Majority Debenture Holders). 4. Additional Covenants Default in Payment: In case of default in payment of interest and/or principal redemption on the due dates, the Issuer shall pay an additional interest at the rate of 2% p.a. over the respective Coupon Rates of the Bonds for the defaulting period.  5. Negative Covenants At all times until the Final Settlement Date, the Issuer shall not, without the prior written consent of the Debenture Trustee (acting upon the instructions of the Majority Debenture Holders): a) Create any encumbrance over the Hypothecated Property b) Enter into any agreement or commitment of any sort, the terms of which conflicts with the pro visions of the Transaction Documents c) Close the Collection Accounts and/or collect property tax (or any other tax levied in place of property tax as per Section 173 of the Act) and fees and user charges in any other account d) Abolish, alter or reduce the Property tax and fees and user charges levied by the Issuer. e) Undertake or enter into any transaction of merger, de-merger, consolidation, re-organisation, or compromise with its creditors.

Liquidity Position

Adequate

NNV has adequate liquidity marked by healthy net cash accruals of Rs.198.03 Cr. for FY26. Currently, NNV does not have any repayment in near to medium term. NNV’s cash and bank balances stood at Rs. 741.27 Cr. as on March 31, 2026. Current ratio stood at 6.01 times in FY26. However, the city requires huge investments to improve the quality of its civic services. NNV has cash buffers, which can be utilized to fund capex for the betterment of the city. Acuite expects the liquidity to be adequate considering the NNV has not availed any other external debt.

Outlook: Stable

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Other Factors affecting Rating

­None

Key Financials

Particulars	Unit	FY 26 (Actual)	FY 25 (Actual)
Operating Income	Rs. Cr.	901.78	803.37
PAT	Rs. Cr.	150.62	80.79
PAT Margin	(%)	16.70	10.06
Total Debt/Tangible Net Worth	Times	0.02	0.00
PBDIT/Interest	Times	12361.77	2073.05

Status of non-cooperation with previous CRA (if applicable)

­Not applicable

Any other information

­None

Applicable Criteria

• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Explicit Credit Enhancements: https://www.acuite.in/view-rating-criteria-49.htm • Urban Local Bodies : https://www.acuite.in/view-rating-criteria-57.htm

Note on complexity levels of the rated instrument

­In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.

Rating History

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook 16 Jul 2025 Bond Long Term 12.50 ACUITE AA | Stable (Assigned) Bond Long Term 12.50 ACUITE AA | Stable (Assigned) Bond Long Term 12.50 ACUITE AA | Stable (Assigned) Bond Long Term 12.50 ACUITE AA | Stable (Assigned) 08 Aug 2024 Proposed Bond Long Term 50.00 ACUITE Provisional AA | Stable (Assigned)

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Contacts

Mohit Jain Chief Analytical Officer - Rating Operations Siddharth Garg Associate Analyst - Rating Operations	Contact details exclusively for investors and lenders Mob: +91 8591310146 Email ID: analyticalsupport@acuite.in

List of instruments and names of regulators of the instruments

As required by SEBI Circular (SEBI/HO/DDHS/DDHS-PoD-2/I/4685/2026) dated February 10, 2026, a list of activities or instruments falling under the purview of various Financial Sector Regulators (FSRs), along with the names of respective FSRs, is being disclosed below: A. Rating Activity:   Sr. No. Instrument / activity Name Regulator of the instrument 1 Listed/Proposed to be listed Bonds/Debentures/Preference Shares (all securities) SEBI 2 Unlisted/Proposed to be unlisted Bonds/Debentures/ Preference share (all securities) MCA 3 Listed PTCs / Securitisation Notes (originated by entities regulated by RBI)1 SEBI 4 Listed PTCs / Securitisation Notes (originated by entities not regulated by RBI)1 SEBI 5 Unlisted PTCs / Securitisation Notes (originated by entities regulated by RBI)1 RBI 6 Listed Commercial Paper and NCDs with original maturity less than 1 year RBI 7 Unlisted Commercial Paper and NCDs with original maturity less than 1 year RBI 8 Loan Facilities (Fund/Non-Fund Based) from Bank / NBFCs/ NHB/ FIs 2 RBI 9 External Commercial Borrowings and other similar borrowings RBI 10 Certificates of Deposit RBI 11 Fixed Deposits raised by NBFCs, Banks, HFCs, FIs RBI 12 Fixed Deposits raised by corporates other than NBFCs, Banks, HFCs, FIs MCA 13 Inter Corporate Deposits/Loans extended by Corporates MCA 14 Borrowing programme 3 - 15 Issuer Ratings 4 - 16 Credit Ratings for Capital Protection Oriented Schemes (by Mutal Funds and AIFs) SEBI 17 Credit quality ratings (CQRs) for Mutual Fund Schemes and Schemes of AIFs SEBI 18 Listed Security Receipts SEBI 19 Unlisted Security Receipts RBI 20 Independent Credit Evaluation (ICE) RBI 21 Expected Loss Ratings (For Loan Facilities [Fund/Non-Fund based] from Banks/NBFCs/NHB/FIs) RBI 22 Expected Loss Ratings (Listed / Proposed to be listed Bonds / Debentures / Preference Shares (all securities)) SEBI 23 Expected Loss Ratings (Unlisted / Proposed to be unlisted Bonds/ Debentures / Preference Shares (all securities)) MCA 24 Unlisted PTCs / Securitisation Notes (originated by entities not regulated by RBI) 1 Investor-side Regulator such as IRDAI, PFRDA 5   1 Includes securitisation transactions involving assignee payout, acquirer's payout. 2 Includes bank facilities such as liquidity facility, second loss facility that are part of securitisation transactions. 3 The rated instrument may involve issuance of different instruments such as debt securities (listed or otherwise), bank loans, commercial paper (listed or otherwise), etc. The regulator of the instrument may accordingly be SEBI, RBI or MCA and can only be determined upon issuance. In Press Release(s) subsequent to issuance(s), Acuite shall separately capture the rated quantum details along with names of respective regulators. 4 There is no instrument being rated and hence, Regulator of the Instrument is not applicable. The rating scale and definitions are being followed as stipulated in SEBI Master Circular for CRAs. 5 These ratings were assigned during regulatory regime prior to the introduction of SEBI CRA Circular dated Feb 10, 2026 and accordingly, investor side regulators have been included.   B. Other activities:   Sr. No. Activity Name Regulator of the activity 1 Monitoring Agency SEBI 2 Research activities, incidental to rating, such as research for Economy, Industries and Companies 6 Not applicable 6 permitted by SEBI vide SEBI Master Circular for CRAs. Disclosure on instruments / activities and names of regulators: A list of products/activities or ratings of instruments falling under the purview of various financial sector regulators (FSRs) along with the names of respective FSRs has also been duly disclosed by Acuite on its website. A link to the same has been provided below for ready reference: https://acuite.in/Activities-and-Regulators.html   About Acuité Ratings & Research­ Acuité is a full-service Credit Rating Agency registered with the Securities & Exchange Board of India (SEBI). The company received RBI Accreditation as an External Credit Assessment Institution (ECAI) for Bank Loan Ratings under BASEL-II norms in the year 2012. Acuité has assigned ratings to various securities, debt instruments and bank facilities of entities spread across the country and across a wide cross section of industries. It has its Registered and Head Office in Kanjurmarg, Mumbai. 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