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1 CARE Ratings Limited
Press Release
Orange City Water Private Limited
December 13, 2017
Ratings
Facilities/Instruments Amount# (Rs. crore)
Rating1 Rating Action
Long term Bank Facilities 232.64
CARE BB-; (Double B Minus)
(Under Credit watch with Negative
Implications)
Revised from CARE BBB- (Triple B Minus)
(Under Credit watch with Negative Implications)
Short term Bank Facilities 40.00
CARE A4; (A Four)
(Under Credit watch with Negative Implications)
CARE A3; (A Three)
(Under Credit watch with Negative Implications)
Total
272.64 (Rs. Two hundred seventy two crore and sixty four
lakh only)
# Details of instruments/facilities in Anneuxre-1 Detailed Rationale & Key Rating Drivers The revision in the ratings assigned to the bank facilities of Orange City Water Private Limited (OCWPL) factor in liquidity stress on account of delay in receipt of dues from Nagpur Municipal Corporation (NMC) during FY17 (refers to the period from April 1 to March 31). However comfort is derived from available debt service reserve account (DSRA) in form of fixed deposits (FD) with the lead bank. The ratings continue to be placed on the credit watch with negative implications on account of the uncertainty pertaining to the extension sought for Initial Performance Improvement Plan (IPIP) phase from Nagpur Municipal Corporation (NMC) as against initial deadline ending March 31, 2017. Any delay in or non-extension of the IPIP phase by NMC would negatively impact the physical progress of the project including the work relating to the completion of house service meter connections (HSC) which is crucial for achievement of the envisaged contractual technical efficiency (CTE) as per the concession agreement (CA) and which has a direct bearing on income level as well as profitability of the company going ahead. Furthermore, the receipt of the project specific grant is also dependent on the sought extension, thus affecting the completion of the project. CARE will closely monitor the progress relating to the extension sought for IPIP phase from NMC and resolve the credit watch after receipt of extension related to IPIP phase. The ratings, continue to derive strength from the experience of sponsors in executing water supply projects,minimum revenue guaranteed during IPIP phase i.e. till March 31, 2017, presence of price escalation clause relating to the construction cost incurred during IPIP phase and the revenues being delinked from the tariff charged to the customers post implementation of phase-I. The ratings further take cognizance of the presence of debt service reserve account (DSRA) in the form of fixed deposits and the improvement in the financial risk profile of the company during FY16 (refers to the period from April 01 to March 31) marked by increase in the total operating income and improvement in the profitability. The ratings are constrained by the project implementation risk emanating from lower than required HSC connection on account of the delay in handling over of various facilities by NMC to OCWPL resulting in lower than required project technical efficiency. Further, NMC has received Rs. 95.0 crore from the State Government towards funding the project. The rating also takes note of non-inclusion of the project in the any of the government notified schemes raising concerns regarding the availability of the grant in a timely manner albeit partially mitigated by the assertion of the NMC to provide the requisite grant. The ability of the company to implement the project within the estimated time and cost parameters and to meet the technical and commercial efficiency parameters post implementation phase as prescribed in the concession agreement are the key rating sensitivities. Further, sustaining the improvement in the profitability coupled with the increase in the total operating income is also crucial from the credit perspective. Timely completion of project, timely receipt of dues from NMC, improvement in operating parameters and maintenance of DSRA are key rating monitorables. Detailed description of the key rating drivers
1Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications
2 CARE Ratings Limited
Press Release
Key rating strengths: Experience of sponsors in executing water supply projects OCWPL has been incorporated as a SPV by VEPL and VIPL. VEPL is a wholly owned subsidiary of VIL, whereas VIPL is a step down subsidiary of Veolia Environment SA(VESA)headquartered at Paris, France. VESA provides environmental management services through three divisions: water management, waste management and energy management across the globe. VESA along with its subsidiaries manages about 5,176 water production plants and 3,140 water treatment plants across the globe.
Minimum fixed revenue during implementation phase (i.e. March 2012 to March 2017) resulting in steady stream of revenues The project is being implemented in two phases: Phase-I – Initial performance Improvement Program (IPIP; from March 2012 to March 2017) and Phase-II – Operation and Maintenance (O&M, from March2012to March 2037) as per the concession agreement (CA). During Phase I, the implementation phase, the CA provides for a remuneration for 2,50,000 m
3 units of volume billed and collected per day at Rs.10.71 per m
3for FY17 ensuring fixed revenue for the OCWPL.
Moderate financial risk profile of the company During FY17, OCWPL registered a total operating income (TOI) growth of 6.54% of Rs.107.97 crore (FY16: Rs.101.34 crore). The PBILDT margin of OCWPL improved to 22.53% in FY17 as compared to 18.08% in FY16. The company reported a PAT of Rs.4.73 crores in FY17 as compared to PAT of Rs.2.63 crores in FY16.
Comfort from the creation of the DSRA Company had created DSRA to the tune of Rs. 5.32 Crores on July 30, 2014 in the form of fund based fixed deposits.
Further, the balance as on November 30, 2017 was at Rs 5.17 Crore. The creation of the DSRA provides comfort in the
case of the short fall or in case of any exigencies.
Key rating weakness: Liquidity stress in FY17 OCWPL witnessed liquidity stress during FY17 (refers to the period from April 1 to March 31) on account of delay in receipt of funds from NMC. However comfort is derived from available debt service reserve account (DSRA) in form of fixed deposits (FD) with the lead bank.
Project implementation risk The implementation of the project commenced on March 1, 2012 and Phase I (up-gradation and rehabilitation) has to be completed over a period of five years ending March 2017. Till December 31, 2016, the company has incurred a cost of Rs.471.18 crore against a total project cost of Rs.578 crore indicating 81.34% of the financial progress.
Non-inclusion of the project in the AMRUT scheme or SMART city scheme raising concerns regarding the availability of the grant, albeit partially mitigated by the commitment of NMC to provide the grant The 24 x 7 water supply project on PPP basis was conceptualised under Phase I of JNNURM scheme which ended on March 31, 2012 and the timeframe for availing the grant had been till March 2014. However, the JNNRUM scheme has been terminated and the incomplete projects under the scheme are included either in AMRUT scheme or SMART city projects scheme. Till date this project has not been included in either of the schemes above as indicated by the management. However, OCWPL has got assurance letter from the honourable commissioner of NMC reiterating their commitments towards the grant and same has been disbursed to OCWPL based on the work done, albeit with pending grant to be received by NMC from State Government/ Central Government.
Analytical approach: Stand alone
Applicable Criteria Criteria on assigning Outlook to Credit Ratings CARE’s Policy on Default Recognition Criteria for Short Term Instruments Financial ratios – Non-Financial Sector About the Company Company Background Incorporated in the year 2011, OCWPL is a special purpose vehicle (SPV) sponsored by Vishvaraj Environment Private Limited (VEPL; 50% stake; a wholly owned subsidiary of Vishvaraj Infrastructure Limited [VIL; rated CARE BB+/CARE A4+], reaffirmed in May 2017 ) and Veolia India Private Limited (VIPL formerly known as Veolia Water India Private Limited; 50% stake, a wholly owned subsidiary of Veolia Water AMI]. OCWPL was floated by the promoters to undertake contract
3 CARE Ratings Limited
Press Release
under a public private partnership (PPP) with Nagpur Municipal Corporation (NMC)/Nagpur Environment Services Limited (NESL) to supply potable water 24x7 to the Nagpur city on Build–Own–Transfer (BOT) basis under the JNNURM scheme. During FY17 (Audited), OCWPL registered total operating income (TOI) of Rs.107.97 crore (FY16: Rs.101.34 crore) and profit after tax (PAT) of Rs.4.73 crore (FY16: Rs. 2.63 crore).
Brief Financials (Rs. crore) FY16 (A) FY17 (A)
Total operating income 101.34 107.97
PBILDT 18.32 24.33
PAT 2.63 4.73
Overall gearing (times) 0.63 0.61
Interest coverage (times) 7.51 9.25
Any other information: Not Applicable
Rating History for last three years: Please refer Annexure-2
Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity.
This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome
to write to [email protected] for any clarifications.
Analyst Contact: Name: Mr. Aniruddha Mate Tel: 020-40009007 Mobile: 9970613934 Email: [email protected]
**For detailed Rationale Report and subscription information, please contact us at www.careratings.com
About CARE Ratings:
CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices.
Annexure-1: Details of Instruments/Facilities
Name of the Instrument
Date of Issuance
Coupon Rate
Maturity Date
Size of the Issue
(Rs. crore)
Rating assigned along with Rating Outlook
Fund-based - LT-Term Loan
- - October 2025 210.64 CARE BB- (Under Credit watch with Negative Implications)
Fund-based - LT-Cash Credit
- - - 22.00 CARE BB- (Under Credit watch with Negative Implications)
Non-fund-based - ST-Letter of credit
- - - 40.00 CARE A4 (Under Credit watch with Negative Implications)
4 CARE Ratings Limited
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Annexure-2: Rating History of last three years Sr. No.
Name of the Instrument/Bank
Facilities
Current Ratings Rating history
Type
Amount Outstanding (Rs. crore)
Rating
Date(s) & Rating(s)
assigned in 2017-2018
Date(s) & Rating(s)
assigned in 2016-2017
Date(s) & Rating(s)
assigned in 2015-2016
Date(s) & Rating(s)
assigned in 2014-2015
1. Fund-based - LT-Term Loan
LT 210.64 CARE BB- (Under Credit watch with Negative Implications)
- 1)CARE BBB- (Under Credit watch with Negative Implications) (27-Mar-17) 2)CARE BBB- (19-Apr-16)
1)CARE BBB- (27-Apr-15)
1)CARE BBB- (22-Apr-14)
2. Fund-based - LT-Cash Credit
LT 22.00 CARE BB- (Under Credit watch with Negative Implications)
- 1)CARE BBB- (Under Credit watch with Negative Implications) (27-Mar-17) 2)CARE BBB- (19-Apr-16)
1)CARE BBB- (27-Apr-15)
1)CARE BBB- (22-Apr-14)
3. Non-fund-based - ST-Letter of credit
ST 40.00 CARE A4 (Under Credit watch with Negative Implications)
- 1)CARE A3 (Under Credit watch with Negative Implications) (27-Mar-17) 2)CARE A3 (19-Apr-16)
1)CARE A3 (27-Apr-15)
1)CARE A3 (22-Apr-14)
5 CARE Ratings Limited
Press Release
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CIN - L67190MH1993PLC071691