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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| BOND | 50.00 | Provisional | ACUITE AA | Stable | Assigned | - |
| Total Outstanding | 50.00 | - | - |
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Rating Rationale |
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Acuite has assigned the long term rating of 'Provisional ACUITE AA' (read as Provisional ACUITE double A) on the Rs. 50.00 Crore Bond of Nagar Nigam Varanasi (NNV). The Outlook is 'Stable'.
The rating on the Rs. 50.00 Cr. proposed Bond is provisional and the final rating is subject to receipt of pending documentation:
Rationale for Rating
The rating takes into consideration the consistent support from both the state and central government towards development of the city, the stable revenue income and healthy cash surplus. Uttar Pradesh continues to solidify and strengthen its position on the global tourism map, with the number of tourists in Varanasi has gone up to more than thirteen crore in last two years. Varanasi is among top five most populous cities in Uttar Pradesh & considered as one of the most popular tourism place in India for domestic, national and international tourist. Also, the rating derives further comfort from the structured payment mechanism including DSRA, Interest Payment Account and Sinking Fund Account. However, the rating to be constrained by the elevated level of receivables of NNV and high dependence on tourism. |
| About the Company |
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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.
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| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
| Acuité has considered the standalone business and financial risk profiles of Nagar Nigam Varanasi (NNV) to arrive at the rating. |
| 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. Strong Financial Risk Profile The financial risk profile of the NNV is strong marked by net-worth of Rs.1712.56 Crore as on 31st March 2024 against Rs.987.43 Crore as on 31st March 2023. The surplus generated is transferred to municipal funds and the same is utilized for the development purposes as and when required by the corporation. The TOL/TNW ratio stood at 0.56 times as on 31st March 2024 against 1.22 times as on 31st March 2023. Structured Payment Mechanism NNV has access to various income sources out of which Property tax 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 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 NCDs
An amount, as specified in the terms of bonds/loans agreements, will be transferred to IPA from 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 interest servicing day. In case the DSRA Amount (or part thereof) is utilized 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 shortfall is not made good by NNV on T date, the DT shall issue a notice to NNV marking a copy to 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. SFA (Sinking Fund Account) The debenture trustee shall check the amount in SFA at least 25 (T-25) days prior to 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 end of each 12 months’ block. If the corporation fails to cover the shortfall at 14 days (T-14 days) prior to end of each 12 months’ 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 and tax collection efficiency over a period of time
The debtors position as on 31 March, 2024 stood at Rs.173.03 Cr. i.e. 427 days for FY24 against Rs.152.07 Cr. as on 31 March, 2023 i.e. 425 days for FY23 and overall tax collection efficiency is lower in past years and expected to improve in near to medium term on the account of E-governance initiatives taken for reforms in property tax collections. Acuité believes that any significant build-up in receivables beyond existing levels will be a key rating sensitivity factor. |
| Rating Sensitivities |
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| Liquidity Position |
| Adequate |
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NNV has adequate liquidity marked by healthy net cash accruals of Rs.683.45 crore for FY2024. Currently, NNV does not have any repayment in near to medium term. NNV’s cash and bank balances of NNV stood at Rs.681.97 crore as on March 31, 2024. Further, it had investments in fixed deposits of about Rs.236.00 Crore as on 31st March 2024 against Rs.194.92 Crore as on 31st March 2023. NNV did not avail any borrowings. 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 external debt.
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| Outlook: Stable |
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Acuité believes that NNV will maintain a ‘Stable’ outlook given its healthy revenue growth and diversified economic infrastructure. The outlook may be revised to 'Positive' in case there is a significant improvement in cost recovery and service coverage indicators. The outlook may be revised to ‘Negative’ in case there is an increased dependence on grants and further build-up in the debtor levels.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 24 (Actual) | FY 23 (Actual) |
| Operating Income | Rs. Cr. | 714.71 | 469.35 |
| PAT | Rs. Cr. | 654.62 | 197.26 |
| PAT Margin | (%) | 91.59 | 42.03 |
| Total Debt/Tangible Net Worth | Times | 0.43 | 0.54 |
| PBDIT/Interest | Times | 13753.05 | 2526.97 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable |
| Any other information |
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Supplementary disclosures for Provisional Ratings
Risks associated with the provisional nature of the credit rating 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. Rating that would have been assigned in absence of the pending steps/documentation The structure would have become null and void for the instrument. The rating of the instrument would have been equated to the standalone rating of the issuer (ACUITE 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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• Rating Process and Timeline: https://www.acuite.in/view-rating-criteria-67.htm • Urban Local Bodies: https://www.acuite.in/view-rating-criteria-57.htm |
| Note on complexity levels of the rated instrument |
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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
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| Rating History : |
| Not Applicable |
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