Dewas, a leading industrial centre situated on the Malwa plateau in the West-central part of Madhya Pradesh, about 160 km south west from state capital, Bhopal, is known as the Soya capital of India and is a major part of the soya bean processing industry in the country. Dewas is the hub of various industries like textile, pharmaceutical, automobile and agri-based industries, among others. Some of the major companies in the automobile industry include TATA, Gabriel India Limited, Gajra Gears, to name a few. Apart from this there are other major sectors like textile (Arvind Mills, S Kumar), Pharma (Ranbaxy Labs), metal (Steel Tubes of India Limited), chemical (Navin Fluorine International Limited) and agri-based (Ruchi Soya Limited). Further, Dewas also holds India's Bank Note Press, an industrial unit of the Government of India, the Ministry of Finance and the Department of Economic Affairs. Except for DMC's per capita water supply which stands at 65 percent of the benchmark all its service coverage ratios as per the benchmarks. Sewarage and piped water supply coverage remained at 100%, while there is scope for improvement in terms of basic amenities coverage. Dewas has been identified one of the cities under Atal Mission for Rejuvenation and Urban Transformation (AMRUT) mission. The purpose of AMRUT is to ensure every household to have access to tap water and sewerage connection, increase the amenity value of cities, and reduce pollution in the city. Acuité believes that adequate financial and non-financial support from State and Central Government will be made available to DMC for maintaining civic infrastructure at healthy levels under AMRUT mission.

Presence of ESCROW with waterfall mechanism and DSRA
The major revenues driver for the corporation is the tax collected by it and since the same is subjected to large variations based on monthly collection it becomes imperative that DMC maintains an escrow account to safeguard its risk. The wide fluctuations in month to month collections are on account of assigned revenues (revenues received from State Government/Central Government in lieu of Octroi). Further, DMC has to create and maintain upfront Debt Service Reserve Account (DSRA) equivalent to one quarter principal and interest repayment of Rs.30.00 Cr. loan. The DSRA will be utilized only in case of a shortfall in the cash flow for meeting. Also, DMC has to credit all the funds constituting the compensation amount in lieu of octroi from MP state government / Central government to an escrow account. The presence of waterfall mechanism accord higher priority to Rs.30.00 Cr. loan as compared to Rs.27.00 Cr. loan. Since these monthly collections will be pooled in the escrow account, the lender will be in a position to ensure timely servicing of debt obligations. Presence of an escrow mechanism is likely to ensure timely servicing of debt obligation subject to effective enforcement of the escrow discipline by the lenders. Acuité believes that the presence of ESCROW mechanism, DSRA and Waterfall mechanism will be a significant risk mitigating factor from a debt servicing standpoint.

The owned revenues to total revenues of DMC stood at 60.76 per cent in FY2022 (Prov.) as against  61.81 per cent in FY2021. The owned revenues of DMC stood at Rs. 78.63 crores in FY2022 (Prov.) as against Rs. 70.38 crore in FY2021. DMC also has access to revenue and capital grants from State Government and Central Government. The cash balances of DMC stood at Rs. 43.89 crore as on 31 March 2022 (Prov.) as against Rs. 64.34 (Prov.) crore same period last year. However, Acuité believes that these funds would be significantly utilized for the infrastructural development which is required to be carried out in near to medium term. Hence, DMC continues to depend on timely flow of receipts from the government. Thus, the rating of Madhya Pradesh government will remain a key rating sensitivity.

Significant buildup in receivables
The debtor days have increased to 324 days for FY2022 (Prov.) as against 379 days in the last year. DMC has identified additional land under its purview in FY2020. Earlier, DMC used to earlier track its tax collection on a manual basis but since FY2020 DMC started using technology to track its taxes. DMC has accounted for the legacy pending receivables in FY2020 which were identified during the same period. Acuité believes that the any significant build-up in receivables beyond existing levels will be a key rating sensitivity.