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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Non Convertible Debentures (NCD) | 11317.82 | ACUITE AA | CE | Stable | Reaffirmed | - |
| Non Convertible Debentures (NCD) | 1831.00 | Not Applicable | Withdrawn | - |
| Non Convertible Debentures (NCD) | 11851.18 | Provisional | ACUITE AA | CE | Stable | Reaffirmed | - |
| Total Outstanding | 23169.00 | - | - |
| Total Withdrawn | 1831.00 | - | - |
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Rating Rationale |
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Acuité has reaffirmed its long-term rating to 'ACUITE AA (CE)' (read as ACUITE Double A (Credit Enhancement) on the Rs. 11317.82 Cr. Non Convertible Debentures of 'Andhra Pradesh State Beverages Corporation Limited (APSBCL)'. The outlook is 'Stable'.
Further, the long term rating on the Rs. 11851.18 Cr. proposed Non Convertible Debentures of 'Andhra Pradesh State Beverages Corporation Limited (APSBCL)' has been reaffirmed to 'Provisional ACUITE AA (CE) (read as Provisional ACUITE Double A (Credit Enhancement). The outlook is 'Stable'. Also, Acuité has withdrawn its long-term rating on Rs.1831.00 Cr. Non Convertible Debentures of 'Andhra Pradesh State Beverages Corporation Limited (APSBCL)' without assigning any rating as the NCDs are repaid. The rating withdrawal is in accordance with Acuité's policy on withdrawal of rating as applicable to the respective facility / instrument. The rating is being withdrawn on account of request received from the company and No objection Certificate (NOC) received from the debenture trustee. The conversion of provisional rating of the proposed NCD of Rs. 11851.18 Cr. to final rating is subject to: 1. Final NCD term sheet 2. Executed agreement with debenture trustee and trust deed 3. State government undertaking 4. Any other relevant for the transaction structure Rationale for the rating The rating reaffirmation takes into account APSBCL's position as the authorised nodal agency responsible for the distribution of alcohol as well as implementation of specific socio-economic welfare schemes across the state of Andhra Pradesh. The rating also takes into account the strong revenue visibility over the tenure of the NCDs on account of the special margin accorded to APSBCL by the Government of Andhra Pradesh (GoAP) for undertaking the above-mentioned functions. Acuité has also considered the strength of the structured payment mechanism which involves the creation of a pre-funded two-quarter Debt Service Reserve Account (DSRA) and the presence of a trigger mechanism before the debt servicing dates. Given the distribution and pricing structure of alcoholic beverages in the state along with the proposed cash pooling mechanism, Acuité expects APSBCL to service the rated debt in an adequate manner from its internal cash flows. Substantial portion of APSBCL’s cashflows depends on the liquor distribution policy or the state liquor taxation regime or discontinuance of the special margin change that can likely to have an adverse impact on cash flows and its debt servicing ability. However, this risk is mitigated basis of an undertaking issued by GoAP confirming no policy revisions will be made to an extent, that may reduce the debt service coverage ratio (DSCR) of APSBCL below 1.50 times throughout the tenure of the debentures; such an undertaking is also supported by an irrevocable and unconditional State Government Guarantee. Nevertheless, if such an unexpected scenario is to materialize, APSBCL's ability to service debt will have direct linkages with the credit quality and the fiscal position of GoAP, which therefore, remains a key rating sensitivity. |
| About the Company |
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APSBCL was incorporated in August 2015 in Guntur to engage in the wholesale and retail trade of alcohol and other spirits (including those suitable for industrial use) on behalf of the Government of Andhra Pradesh (GoAP). The Corporation commenced its business operations in May 2016. The Corporation was granted the exclusive privilege of retailing liquor in Andhra Pradesh effective from October 2019. It is the sole liquor distribution agent for the GoAP. As per G.O. No. 211, dated 30.09.2024, the government privatized 3,736 retail outlets across 26 districts while retaining 29 wholesale depots. In December 2021, the GoAP amended the Andhra Pradesh (Regulation of Trade in Indian Made Foreign Liquor and Foreign Liquor) Act, 1993, to grant statutory status to APSBCL, enabling it to undertake the implementation of welfare programs entrusted to it by the state government. Subsequently, in September 2024, through Ordinance No. 6 of 2024, APSBCL was authorized to implement welfare programs entrusted to it by the GoAP from time to time. Mr. Nishant Kumar, IAS, serves as the Managing Director of the Company.
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| Unsupported Rating |
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ACUITE A/ Stable (including notch up for the expectation of support from GoAP)
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| Analytical Approach |
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Acuité has considered the standalone financial and business risk profile of APSBCL which takes into account the entity's position as a fully owned nodal agency of GoAP for distribution of liquor and implementation of certain welfare schemes. Credit enhancement (CE) has been provided on the basis of the structured payment mechanism which involves pooling of net revenues, transfer of a specific share to the bond service account, presence of pre-funded DSRA and also a state government undertaking backed by an irrevocable and unconditional guarantee that ensures the maintenance of a minimum DSCR of 1.5 times.
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| Key Rating Drivers |
| Strengths |
| Strong revenue visibility over the tenure of the NCDs
APSBCL was incorporated in 2015 and since 2016 was involved in supporting liquor distribution across the state of Andhra Pradesh which was then a responsibility of the excise department. For this, it used a earn small percentage of sales as commission. However, in October 2019 GoAP made APSBCL the sole distributor (retail and wholesale) of liquor in the state which it undertook through a network of 13 depots and 2934 restaurant, bars and retailers. Further, since November 2021 by amending the AP (Regulation of Trade in Indian Made Foreign Liquor, Foreign Liquor) Act 1993 GoAP entrusted additional responsibility of implementation of its socioeconomic welfare schemes and the proceeds raised through the rated NCDs will also be used towards the same. For this GoAP, introduced the concept of special margin which is calculated as a percentage of total sale proceeds from liquor sale across the state. This special margin will generate stable operating income for APSBCL and will be used to cover its overhead as well as its repayment obligations. As per the terms of the proposed NCDs, GoAP is also expected to extend an irrevocable undertaking stating that no changes will be made to the liquor distribution policy and special margin will not be reduced to level where the DSCR will go below 1.5 times through the tenure of the NCDs. Further, the revenue from liquor distribution stood at Rs. 13945.22 Cr. in FY2024 against Rs. 13017.06 Cr. in FY2023 and Rs. 6265.83 Cr. in FY2022. Also, the company registered revenue of Rs. 6592.74 Cr. in H1FY2025. Acuité expects APSBCL's revenue to record a steady growth over the medium term on account of it being the sole distributor of liquor across the state. Strength of the structured payment mechanism and other key terms of the NCD issue Sale proceeds from each outlet will be deposited on a daily basis in a suspense account with State Bank of India. Out of this net revenue (which includes Basic price, all margins/ commissions and special margin) will be transferred to the Net Revenue Receipt Account (NRRA) of issuer (APSBCL) based on corresponding challans. Withdrawals out of NRRA will only be allowed after first prioritizing the payments toward bond servicing. 1.67 percent of the total repayment obligations for the particular quarter will be transferred on a daily basis into Bond Servicing Account (BSA) from the first day of the quarter. The transfers during a particular quarter on the above mode will continue till the full build-up of the servicing requirement for that particular quarter is achieved in the APSBCL BSA. In the event of full built up of servicing amount not being achieved in any quarter for whatsoever reason 15 days prior to the relevant servicing date (T-15), the debenture trustee should inform the issuer through written communication to fund the shortfall within the next 12 days. On T-2nd day, if the shortfall still persists, then Debenture Trustee would meet such shortfall by transferring funds from the DSRA account and make the necessary payments to the debenture holders on the due date. An amount equivalent to the servicing obligation (Principal & Interest) of the outstanding bonds for next two quarters would need to be created and maintained by the APSBCL in the Debt Service Reserve Account (DSRA) till the final redemption of the bonds. The DSRA amount would need to be deposited at least 1 day prior to the date of allotment of the bonds. The debenture trustees would have a default escrow right on the funds available in the NRRA. In the event any impairment of DSRA on account of meeting servicing obligation on any bond servicing date - The Debenture Trustee would immediately trigger the default escrow mechanism on the NRRA and immediately transfer the balance lying there-in to the DSRA Account, any further accrual to the said account would also get transferred on a daily basis until the DSRA amount is fully replenished. Acuité believes the structured payment mechanism along with other key features of the issue allows adequate liquidity and protection against inadequacy of the funds on the bond servicing date and any significant change in the same would be a key rating sensitivity. |
| Weaknesses |
| Susceptibility to changes in GoAP liquor policies GoAP has made APSBCL to the sole distributor through changes in the AP (Regulation of Trade in Indian Made Foreign Liquor, Foreign Liquor) Act 1993. APSBCL's operating income is highly susceptible to any changes to the liquor distribution policy. GoAP is expected to extend an irrevocable Guarantee and Undertaking which will ensure no changes to the liquor distribution policies and the reduction in special margin, if any will be only to the extent the DSCR on the rated debt remains above 1.5 times at all times. This undertaking mitigates the risk of susceptibility to the changes in GoAP policies. The government has notified 3736 shops to resume private retail operations under the new policy, with the goal of reducing the demand for illicit alcohol and keeping people from turning to adulterated alcohol, it has launched inexpensive liquor at Rs 99 or less and national suppliers will be urged to launch their brands at the same pricing point. While there is a potential risk of a prohibition by future governments, the unconditional and irrevocable undertaking by the GoAP under the transaction structure addresses such a political risk. Linkages to fiscal position of State of AP The current state of Andhra Pradesh was created in 2014-15 following the bifurcation of the original state into the former and Telangana. The reorganisation led to the conversion of the state into an economy where the share of agriculture was significant. As per Andhra Pradesh State budget, the revenue receipts are estimated at Rs. 1,73,767.01 Cr. for FY2023-24 (Revised Estimates) as against Rs.1,57,768.04 Cr. for FY2022-23. The revenue deficit is estimated at Rs. 38,682.55 Cr. for FY2023-24 (Revised Estimates) which is 4.0% of the GSDP as against 4.5% of GSDP for FY2022-23. Any further adverse changes in the fiscal indicators of GoAP due to factors such as prolonged slowdown in industrial activities or socio-economic challenges faced by AP can have a significant impact on APSBCL and thus will remain as a key monitoring factor. |
| Assessment of Adequacy of Credit Enhancement (Applicable only for CE Ratings) |
| The CE structure has been designed to ensure adequacy and timeliness in the receipt of funds required for debt service. The team has also undertaken a sensitivity analysis to factor in shortfall in revenue and special margin collections. Regular feedback from the trustee is taken to monitor the structured payment mechanism |
| ESG Factors Relevant for Rating |
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Not Applicable
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| Rating Sensitivities |
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| All Covenants (Applicable only for CE & SO Ratings) |
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| Liquidity Position |
| Strong |
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Acuité expects APSBCL’s liquidity position to remain strong given the strong structural features of the payment mechanism like daily transfer of pledged revenue on first priority, pre-funded DSRA equivalent to two quarters of the bond servicing obligation and commitment from GoAP to ensure a minimum DSCR of 1.5 times throughout the tenure of the instrument.
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| Outlook: Stable |
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 24 (Actual) | FY 23 (Actual) |
| Operating Income | Rs. Cr. | 13945.22 | 13017.06 |
| PAT | Rs. Cr. | 1278.69 | 240.26 |
| PAT Margin | (%) | 9.17 | 1.85 |
| Total Debt/Tangible Net Worth | Times | 7.75 | 36.14 |
| PBDIT/Interest | Times | 2.16 | 1.38 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable |
| Any other information |
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Supplementary disclosures for Provisional Ratings
A. Risks associated with the provisional nature of the credit rating. 1. Absence of any structured payment mechanism. 2. In case there are material changes in the terms of the transaction after the initial assignment of the provisional rating and post the completion of the issuance (corresponding to the part that has been issued) Acuité will withdraw the existing provisional rating and concurrently, assign a fresh final rating in the same press release, basis the revised terms of the transaction. B. Rating that would have been assigned in absence of the pending steps/ documentation. The rating would be equated to the standalone rating of the entity: ACUITE A / Stable. C.Timeline for conversion to Final Rating for a debt instrument proposed to be issued. The provisional rating shall be converted into a final rating within 90 days from the date of issuance of the proposed debt instrument. Under no circumstance shall the provisional rating continue upon the expiry of 180 days from the date of issuance of the proposed debt instrument. |
| Applicable Criteria |
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• 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 • Group And Parent Support: https://www.acuite.in/view-rating-criteria-47.htm • Explicit Credit Enhancements: https://www.acuite.in/view-rating-criteria-49.htm • Trading Entities: https://www.acuite.in/view-rating-criteria-61.htm |
| Note on complexity levels of the rated instrument |
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| *Annexure 2 - List of Entities (applicable for Consolidation or Parent / Group / Govt. Support) | ||||||
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