- Strategic and economic importance of the ongoing project for Government of Telangana (GoT)
TSWRIDCL is a special purpose vehicle (SPV) created by the Government of Telangana (GoT) with an objective to develop the drought-prone upland and backward areas of Telangana State by providing water for irrigation, drinking, and industrial requirements. The project is expected to provide 200 TMC of water annually to serve 11.18 lakh new Ayacuts and stabilize around 10.47 lakh, other than supplying 10 TMC of water for industrial use. The project further enhances the irrigation potential in Telangana and the upkeep of the existing projects to enhance the agriculture productivity per unit of water with increased water use efficiency. All the available water resources for the benefit of the agricultural sector, the industrial sector, and also providing drinking water for the overall development of Telangana State. The project additionally supports the ‘Mission Kakatiya’ and ‘Mission Bhagiratha’ schemes designed to provide drinking water to many villages while improving the capacities for farmers to sow two crops. TSWRIDCL divided the entire project into three parts based on its coverage area and connectivity. The Telangana government has awarded the project for execution to reputed companies like Megha Engineering & Infrastructures Limited (MEIL), BVSR Constructions Private Limited, and Navayuga Engineering Company Limited (NECL), among others. The project is being undertaken by GoT and is therefore likely to pose implementation challenges like land acquisition, timely execution, and any cost overruns. However, these risks are mitigated by strong government support. Acuite rating is also based on expectations of strong explicit government support for the project through an unconditional and irrevocable state government guarantee.
- Presence of Government Guarantee
The GoT has provided an unconditional, irreversible, and irrevocable guarantee for both principal and interest payments of the term loans until repayment. TSWRIDCL, being its 100 percent owned company, shall also guarantee the funding of cost overruns (if any).
- Strong economic growth of Telangana state
Telangana has shown impressive economic growth since its formation, with a CAGR of 12.8% in GSDP, significantly outperforming the national average. In FY24, its GSDP is projected at Rs. 15.02 lakh crore, up from Rs. 13.12 lakh crore in FY23. The state’s contribution to India’s GDP has risen from 4.1% in FY2015 to 5.1% in FY24, despite having only 2.8% of the national population. The services sector dominates, contributing 68.8% to GSVA, with strong growth in finance, real estate, and professional services. Per capita income has surged from Rs. 91,121 in FY2011-12 to Rs. 356,564 in FY2023-24, placing Telangana third in the nation after Sikkim and Delhi. Revenue growth has been robust, with 15.2% CAGR in the state’s own revenue and the highest growth in tax revenue among Indian states. Telangana ranks second in tax revenue as a percentage of GSDP, at 8.2%. Government spending is moderate, ranking 13th in terms of expenditure to GSDP. Overall, Telangana’s economic momentum reflects strong growth in multiple sectors and improved fiscal health. In terms of per capita income, it has increased from Rs. 91,121 in 2011-12 to Rs. 3, 56,564 in 2023-24, while that of India increased from Rs. 63,462 to Rs. 1, 84,205 in this period. TS’s per capita income has consistently surpassed India’s, with the income gap widening significantly over the years. The average annual growth rate in per capita income is at 12.2 percent against 9.4 percent for India. Telangana stands at the number three position in India in terms of per capita income, only behind Sikkim and Delhi. TS demonstrates the robust revenue mobilization since the formation of the state, achieving the second-highest growth rate of 15.2 percent in the overall state’s own revenue (SOR). In terms of the state’s own tax revenue, TS has registered the highest growth rate of 15.4 percent between FY15 and FY23, outperforming all other states. In terms of state-owned tax revenue as a percentage of GSDP, TS is 2nd highest at 8.2 percent of GSDP, only next to Goa. The overall state’s own revenue stood at Rs. 1.27 lakh Cr, out of which Rs. 1.07 lakh Cr is tax revenue and Rs. 0.2 lakh Cr is non-tax revenue.
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- Exposure to project implementation risk, including time and cost overruns
The project cost of the 3 projects being undertaken by TSWRIDCL is Rs. 47,222.88 Cr, which was proposed to be funded by equity/grant of Rs. 26,708.23 Cr (56.56%) from GoT and debt of Rs. 20,514.67 Cr (43.44%) from commercial banks and financial institutions (FIs). As of September 30, 2024, the total capital expenditure incurred by the company towards the project was Rs. 39,336.91 Cr (~83 percent), funded by Rs. 14,219.69. Cr of debt from commercial banks and FIs and Rs. 24,970.96 Cr of equity/grant from GoT. The physical progress project is around 83 percent completed as on September 30, 2024. The flood flow canal project cost is estimated at Rs. 12624.20 Cr, which is to be funded by an equity/grant of Rs. 7459.4 Cr from GoT and debt of Rs. 5164.80 Cr from commercial banks and FIs. As on September 30, 2024, the total capital expenditure incurred by the company towards the project was Rs. 11,682 Cr (~93 percent), which is funded by Rs. 7,866.4 Cr of equity/grant from GoT and Rs. 3669.34 Cr of debt from commercial banks and FIs. Physical progress is at ~93 percent as on September 30, 2024. All major elements of the project have been completed, and DCCO of the project commenced in March 2022. The Devadula-Tupakulagudem project cost is estimated at Rs. 18,245.90 Cr, which is proposed to be funded by an equity/grant of Rs. 10,858.21 Cr from GoT and debt of Rs. 7387.72 Cr from commercial banks and FIs. As on Sep 30, 2024, the total capital expenditure incurred by the company towards the project was Rs. 17,360.92 Cr (~95 percent) funded by Rs. 12,148.71 Cr (which includes the interest during construction for the delay in DCCO of Rs. 583.43 Cr) of equity/grant from GoT and Rs. 5,212.21 Cr of debt from commercial banks and FIs. Physical progress is at ~95 percent as on September 30, 2024. All major elements of the project have been completed, and DCCO of the project achieved in March 2022. Management is expecting to complete this project in the near term. The Sita Rama Lift Irrigation project cost is estimated at Rs. 16,352.78 Cr, which is proposed to be funded by an equity/grant of Rs. 8390.30 Cr from GoT and debt of Rs. 7962.15 Cr from commercial banks and FIs. As on September 30, 2024, the total capital expenditure incurred by the company towards the Project was Rs. 10,293.99 Cr (~63 percent), funded by Rs. 4955.85 Cr (which includes the interest during construction for the delay in DCCO of Rs. 583.43 Cr) of equity/grant from GoT and Rs. 5338.18 Cr of debt from commercial banks and FIs. Physical progress is at ~63 percent as on September 30, 2024. All major elements of the project have been completed, and DCCO of the project achieved in March 2023. The management is expected to complete it in the near term.. Acuité believes that the ability of the company to execute the project as per timelines and booking revenue will be a key rating sensitivity.
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