Reliance Infrastructure Limited

Transcription

1 Ratings Reliance Infrastructure Limited Facilities Amount (Rs. crore) Ratings 1 Remarks 2600(Enhanced from Rs CARE A+ (on credit watch) [Single A Long Term Bank Facilities 600 crore) CARE A1+(on credit watch) [A One Short Term Bank Facilities Total 3400(Rupees Three thousand four hundred crores only) Long term Non-Convertible CARE A+(on credit watch) [Single A Debenture -1 Long term Non-Convertible CARE A+(on credit watch) [Single A Debenture-2 Long term Non-Convertible CARE A+(on credit watch) [Single A Debenture-3 CARE A1+(on credit watch) [A One CP issue (Standalone) In March 2015, CARE had placed the ratings assigned to the bank facilities/instruments of Reliance Infrastructure Limited (R-Infra) on credit watch following announcement of the proposed acquisition of 18% stake in Pipavav Defence. In December 2015, the company has completed the acquisition under open offer although the acquisition of 18% stake from existing promoter is yet to be completed. At the same time, R-Infra has entered into non-binding term sheet with PSP Investments of Canada for proposed minority stake sale by Reliance Infrastructure Ltd in its Mumbai power distribution business. While the open offer for Pipavav Defence is closed, we still await clarity w.r.t exact payout by R- Infra for the acquisition of shares from the existing promoters. At the same time, the other divestment announced by R-Infra (in Mumbai Distribution business) is sizeable and the uncertainty regarding its timing as well as impact on the financial profile of R-Infra continues. As such the ratings continue to remain on credit watch. Rating Rationale The ratings continue to be supported by the experience and presence of R-Infra across the power value chain with strong and stable cash flows from the power distribution business in the Mumbai distribution area that is supported by its own generation capacity as well as transmission network. The ratings also positively build in financial support provided by the promoters in the past, recovery of regulatory assets that is likely to translate in increased cash flows in the short to medium term as well as increased cross subsidy surcharge and wheeling charges from migrated consumers which are expected to serve as a deterrent for consumer migration. The ratings are constrained by considerable investments in infrastructure SPVs and the related financial commitments, however, it is noted that most of the large investment projects are now complete. The ratings are also partially offset by the limited revenue visibility in R-Infra s EPC business in the near term with bulk of the own group projects completed in the past. Timely realisation of funds extended to group companies (loans and advances and investments) and financial implication of Pipavav deal and Mumbai Distribution business divestment are key rating sensitivities. Background Reliance Infrastructure Limited (R-Infra), the flagship company of the Reliance Group (controlled by Mr. Anil D Ambani) was formed in Complete definitions of the ratings assigned are available at and other CARE publications 1

2 R-Infra s (along with its subsidiaries) key business areas can be divided into the following three buckets: 1. Power Generation, transmission, distribution and trading (forming 82% of consolidated FY15 revenue) Owns and operates 5 power stations (plants located at Maharashtra, Goa, Kerala, Karnataka and Andhra Pradesh) with aggregate generation capacity of 941 MW; distributes more than 27 billion units of electricity to over 6 million consumers in Mumbai and Delhi. R-Infra subsidiary companies have commissioned three transmission projects; these being the first set of lines commissioned in India by the private sector. 2. Engineering, Procurement Construction (EPC) for power and infra sectors, including R-Infra s own infrastructure projects and for its associate - Reliance Power Limited (R-Power, wherein R-infra has 43.21% holding) (accounted for 13% of FY15 consolidated revenue) 3. Infrastructure and Cement Development of Roads, Metros, Cement, Airports (7% of consolidated revenue in FY15). The company, through its various subsidiaries structured as SPVs, is executing projects in various infrastructure segments such as roads, metros, power transmission and cement. The company owns a metro rail project in Mumbai, eleven road projects with total length of 1,000 kms and cement plants with aggregate capacity of 5.6 million tonnes. Recent developments The company completed the open offer for Pipavav Defence (Pipavav DOC). The total equity stake of R-Infra post acquisition is ~ %. The company has announced its intentions to divest its equity stake in Reliance Cement Company Ltd (100% subsidiary; rated CARE BBB+) and has invited bids for the same. Additionally, the company has recently announced a 49% equity stake sale in its Mumbai Power Distribution business. The power distribution business, which currently resides in the company itself, is first expected to be hived off into an SPV, and the 49% stake would then be divested. The company has signed non-binding term sheet with PSP Investments of Canada. The company is also planning to sell stake in its investments made in Road assets (11 toll roads). Credit Risk Assessment Experience and presence across power sector value chain Incorporated in 1919, R-Infra is the holding company for Reliance Group s power distribution business (Mumbai + Delhi). The Reliance Group has presence across various sectors, such as telecom, cement coal mines, power generation, defence etc. The group has successfully developed toll road assets, cement plants as well executed EPC projects for group companies as well third parties. R- Infra has qualified, professional and experienced management team with significant experience in the power sector across the value chain, giving benefits of integration. The ratings derive comfort from the group s demonstrated ability to develop and operate large projects and financial strength of the promoters. Stable cash flows from Mumbai distribution business; recovery of regulatory assets commenced post approval from MERC R-Infra is responsible for distribution of electricity in Mumbai suburbs and has a favourable consumer mix given the prime urban region in Maharashtra being serviced by it. The distribution business is supported by its own transmission network as well as generation plant at Dahanu (500 MW), which has been operating at a consistently high (>100%) plant load factor. However, PLF for FY15 was lower at 91.20% on account of low demand in western grid, following generation backing down of 173MUs, as per State Load Dispatch Centre (SLDC) instructions. Regulated nature of the business ensures a cost plus tariff structure as well as fixed return on equity, providing stable cash flows, which is a positive. However, any regulatory delay in receiving tariff orders, disallowance of immediate pass-through of expenses leading to creation of regulatory assets calls for interim funding arrangements. The Mumbai distribution business continued to exhibit strong operational efficiencies; with a peak demand of 1,810 MW, reliability of 99.81% and low aggregate technical and commercial loss of 9.4% reported for FY15. For FY16, MERC has allowed 5.2% tariff hike 2

3 R- Infra continues to recover regulatory assets as per earlier tariff order of August This recovery would translate in to additional cash flows and help the company in reducing its debt. Considerable investments in infrastructure SPVs in the past Over the last few years, R-Infra has diversified from its core-regulated business of power distribution towards making large investments in various infrastructure projects such as road projects, power transmission, urban transport and cement. Total investments (current plus non-current) marginally increased from Rs crore as at March 2014 to Rs crore as at March 2015(Increase of Rs.555 crore, primarily in Mumbai Metro One (Rs 249 crore)). Investments further increased to Rs crore as at September 30, Several road and transportation projects that were under implementation last year were completed/commissioned in FY15, thereby reducing the level of project implementation risk and funding support requirement. Continued support extended to group/associate companies impacting the coverage indicators Financial support extended to group companies/associates in the form of ICDs/loans & advances continued to remain high at Rs.9,415 crore as at March 31, 2015 (Rs.7614 crore as at March 31, 2014). The company has been executing, among others, EPC projects undertaken by Reliance Power a gas based power project at Samalkot, financial closure is yet to be achieved due to unavailability of gas. R-Infra has been supporting these projects, by way of ICDs and non-recovery of receivables. The borrowings of R-Infra increased to Rs crore as at March 2015 as compared to Rs crore as at the end of FY14. This impacted the coverage indicators interest coverage ratio moved from 2.6x in FY14 to 2.0x in FY15 while term debt to GCA increased from 4.0x to 5.4x in FY15. The company s free cash balance also lowered from ~ Rs202 crore at end-fy14 to Rs.145 crore as at March 31, However, this increased to around Rs.550 crore as at September 30, As per the management, further support to group companies and investments towards funding the on-going projects is likely to be minimal. Also given, the stake sale announced in various businesses, the borrowings are expected to decline from the current level with substantial reduction by FY17. Stabilisation/asset sale of these projects and timely recovery of funds from group entities and improvement in financial risk profile is a key rating sensitivity. Limited revenue visibility in its EPC business Over the past few years, R-Infra had built its strong presence in the EPC business by undertaking contracts in power and road projects, including R-Infra s own infrastructure projects and for its associate company R-Power. However the EPC order book has declined from ~Rs.5048 crore as on March 31, 2015 to Rs crore as at September 30, 2015, with no new projects being executed by the group, and lack of third party orders, providing revenue visibility for only next three -six quarters. Improving the order book position (esp from third parties) to maintain the company s revenue growth is a key rating sensitivity. Financial Performance (Standalone) (Rs. Cr) For the period ended / as at March 31, (12m, A) (12m, A) (12m, A) Working Results Total Operating income PBILDT Interest Depreciation PBT PAT (after deferred tax) Gross Cash Accruals Adjusted GCA^

4 Financial Position Equity Capital Net worth Total Debt Key Ratios Growth Growth in Total income (%) Growth in PAT (after D.Tax) (%) Profitability PBILDT/Total Op. income (%) PAT (after deferred tax)/ Total income (%) ROCE (%) Solvency Long Term Debt Equity ratio (times) Overall gearing ratio(times)# Interest coverage(times) Term debt/gross cash accruals (years) Liquidity Current ratio(times) Quick ratio(times) Avg. Collection Period (days)& Avg. Inventory (days) Avg. Creditors (days) Op. cycle (days) # Overall gearing is calculated by adding corporate guarantees of Rs 1080 crores & While calculating debtors days, Regulatory asset receivable are excluded ; ^Adjusted GCA is calculated by adding net amount recovered for the past regulatory assets (net of carrying cost) Note: Mr. V. K. Chopra, Rating Committee Member, is a Director on the Board of Reliance Capital Pension Fund Ltd which is subsidiary of Reliance Capital Ltd. To comply with the regulations, the Member has not participated in the rating process and the Rating Committee Meeting. Details of Rated facilities Long term facilities (Term Loan) Banker / lender Type of facility Amount (Rs. Crore) South Indian Bank Term Loan Jammu & Kashmir Bank Term Loan Karnataka Bank Term Loan Corporation Bank Term Loan Yes Bank Term Loan Yes Bank Term Loan Central Bank of India Term Loan Jammu & Kashmir Bank Term Loan Yes Bank Term Loan 1, Proposed Loan Term Loan Total LT

5 Short term facilities (Fund based limits) Banker / lender Type of facility Amount (Rs. Crore) Yes Bank Fund Based United Overseas Bank Fund Based ICICI Bank Fund Based South Indian Bank Fund Based Yes Bank Fund Based Proposed facilities Fund Based Total ST Analyst Contact Name: Mr. Puneet Bhatia Tel: Mobile # puneet.bhatia@careratings.com (This follows our brief rationale for entity published on 01 February, 2016) Disclaimer: CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. 5

6 CONTACT Head Office Mumbai Mr. Sanjay Kumar Agarwal Mr. Amod Khanorkar Mobile: Mobile: sanjay.agarwal@careratings.com amod.khanorkar@careratings.com CREDIT ANALYSIS & RESEARCH LIMITED Corporate Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai Tel: Fax: care@careratings.com Website: REGIONAL OFFICE AHMEDABAD Mr. Mehul Pandya 32, Titanium, Prahaladnagar Corporate Road, Satellite, Ahmedabad Cell: Tel: mehul.pandya@careratings.com BENGALURU Mr. Dinesh Sharma Unit No , 11th Floor, Prestige Meridian II, No. 30, M.G. Road, Bangalore Cell: Tel: , dinesh.sharma@careratings.com CHANDIGARH Mr. Sajan Goyal 2nd Floor, S.C.O , Sector 34-A, Chandigarh Cell: Tel: / 09 sajan.goyal@careratings.com CHENNAI Mr. V Pradeep Kumar Unit No. O-509/C, Spencer Plaza, 5th Floor, No. 769, Anna Salai, Chennai Cell: Tel: / pradeep.kumar@careratings.com COIMBATORE Mr. V Pradeep Kumar T-3, 3rd Floor, Manchester Square Puliakulam Road, Coimbatore Cell: Tel: / pradeep.kumar@careratings.com HYDERABAD Mr. Saikat Roy 401, Ashoka Scintilla, , Himayat Nagar, Hyderabad Cell : Tel: saikat.roy@careratings.com JAIPUR Mr. Rakesh Jayaraman 304, Pashupati Akshat Heights, Plot No. D-91, Madho Singh Road, Near Collectorate Circle, Bani Park, Jaipur Cell: Tel: / 14 rakesh.jayaraman@careratings.com KOLKATA Ms. Priti Agarwal 3rd Floor, Prasad Chambers, (Shagun Mall Bldg.) 10A, Shakespeare Sarani, Kolkata Cell: ; Tel: priti.agarwal@careratings.com NEW DELHI Ms. Swati Agrawal 13th Floor, E-1 Block, Videocon Tower, Jhandewalan Extension, New Delhi Cell: ; Tel: swati.agrawal@careratings.com PUNE Mr. Rahul Patni 9th Floor, Pride Kumar Senate, Plot No. 970, Bhamburda, Senapati Bapat Road, Shivaji Nagar, Pune Cell: ; Tel: rahul.patni@careratings.com CIN - L67190MH1993PLC