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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 325.71 | ACUITE A- | Stable | Reaffirmed | - |
| Total Outstanding | 325.71 | - | - |
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Rating Rationale |
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Acuite has reaffirmed the long-term rating of ‘ACUITE A-’ (read as ACUITE A minus) on the Rs 325.71 Cr bank facilities of Palma Gumla Highway Private Limited (PGHPL). The outlook is ‘Stable’.
Rationale for rating reaffirmation The rating continues to reflect strong financial and operational support from RKD Construction Private Limited (RKD) (rated at Acuité A/Stable/A1) to PGHPL. The rating also factors in low revenue and funding risk in the project. The counterparty risk is also minimal as issuing authority for the project is NHAI which is a central government agency. Further, PGHPL has achieved 65 percent physical progress as of 31st October 2023 and is expected to achieve 3rd milestone (75% completion) by early December 2023. |
| About the Company |
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PGHPL was incorporated in September 2020 by RKD (99.9% stake) and Bharat Road Network Limited (0.1% stake). PGHPL is a special purpose vehicle to undertake 4 laning of Palma Gulma section of NH 23 in the state of Jharkhand on Hybrid Annuity Model (HAM). The project covers a length of 63.17 Km at a project cost of Rs 1034.65 Cr.
The project was awarded by National Highway Authority of India (NHAI) for a concession period of 17-years including construction period of 2 years. The project’s EPC contractor is RKD. PGHPL is managed by Mr. Rohan Kumar Das who is the current Managing Director of RKD. The appoint date for the project is 1 April 2022. |
| Unsupported Rating |
| Acuite BB/Stable |
| Analytical Approach |
| Acuité has considered the standalone business and financial risk profile of Pamla Gumla Highway Private Limited (HAM Project) and notched up the standalone rating by factoring in the financial and operational linkages with RKD Construction Pvt Ltd. |
| Key Rating Drivers |
| Strengths |
| Established track record in EPC business
PGHPL was promoted by RKD Construction Private Limited and Bharat Road Network Limited in September 2020. RKD is the lead sponsor and EPC Contractor for Palma Gulma project. RKD is a reputed EPC player in Odisha and has almost four decades of experience in construction of roads and highways. RKD has executed similar kinds of road projects in Odisha in EPC mode. This reduces implementation risk partially. Further, RKD has strong financial flexibility as reflected from its healthy financial risk profile and adequate liquidity profile. EPC cost for the project is around Rs 869.27 Cr which is funded through Rs 101 Cr of promoter contribution, Rs 443 Cr of grant from NHAI as per concession agreement and remaining Rs 325 Cr from external borrowing which has been guaranteed by RKD. As of October 31, 2023 company has incurred 69 percent of the project cost i.e. Rs. 869.27Cr, which has been funded by promoter infusion of Rs.93.78 Cr in the form of equity and unsecured loans. Rs. 349 Cr in the form of grants and advances received form NHAI and balance Rs.158.83 Cr vide term loan. Low Revenue Risk PGHPL has signed a concession agreement with NHAI for contractual payment in the form of grants and annuities. PGHPL will receive 40 percent of project cost in form of grants during the construction period. The remaining 60 percent of project cost shall be payable in the form of 30 semi-annual annuities spread over a period of 15 years post achievement of COD. PGHPL has availed mobilization advance which is around 10% of the project cost. The same is being adjusted against grants which will be paid in five equal instalments. The annuities are linked to bank rate hence additional financial burden due to hike in interest rate can be partially passed on to the principal. PGPL will undertake O&M for the project during operational phase as financial assistance from NHAI. In addition, annuities calculation will consider the current price index which will mitigate the price fluctuation risk to a certain extent. Strong counter party The project is issued by NHAI which is a central government agency. NHAI is a nodal agency for awarding road and highway contracts in India. The Government of India (GoI) had established by NHAI in 1989 for the improvement of road transit infrastructure in India which will help the central government to achieve its economic and welfare functions. NHAI is strategically important to GoI. Repayment mechanism PGHPL is maintaining an escrow account as per concession agreement to track all cashflows from NHAI and expenses incurred related to project execution. Moreover, both principal and interest of sanctioned term loan will be deducted from the escrow account. The repayment of term loan will commence after 12 months from scheduled COD. The term loan will be repaid through 28 structured half yearly instalments. Further company is also required to maintain a DSRA equivalent to one half instalment and 6 months of interest. |
| Weaknesses |
| Moderate Implementation Risk
PGHPL has achieved 65% physical progress as of 31st Oct 2023 and will achieve the 3rd milestone by early December 2023 against scheduled date of October 3rd, 2023 which is within the grace period (up-to 90 days) allowed in the agreement. Further, the implementation risk is also mitigated to some extent considering RKD’s established experience of over four decades in construction of roads and highways and strong operational and funding support. |
| Rating Sensitivities |
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| All Covenants |
| Not Applicable |
| Liquidity Position |
| Adequate |
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The company has adequate liquidity profile marked by strong resource mobilization from its parent entity. Promoter has infused substantial amount of funds to execute the order. In addition, company received cash inflow of Rs 103 Cr from NHAI as mobilization advance against Bank Guarantee which is sublimit of sanctioned term loan. The said amount is being adjusted against grant. The repayment of term loan will commence from 31st March 2025 that is one year from the scheduled COD which helps to mitigates liquidity mismatch.
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| Outlook: Stable |
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Acuité believes the outlook on company will remain ‘Stable’ over the medium term backed by expected steady cash flow of annuity from the project along with strong sponsor support. The outlook may be revised to ‘Positive’ in case of significant progress in the project. Conversely, the outlook may be revised to ‘Negative’ in case of any time or cost overrun due to delay in getting requisite approvals.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Provisional) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 6.56 | 3.72 |
| PAT | Rs. Cr. | (0.40) | (0.26) |
| PAT Margin | (%) | (6.09) | (7.12) |
| Total Debt/Tangible Net Worth | Times | 0.35 | 0.11 |
| PBDIT/Interest | Times | (123.17) | (377.00) |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Infrastructure Sector: https://www.acuite.in/view-rating-criteria-51.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.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. |
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