Press Release - CARE’s Ratings

1 1 CARE Ratings limited Press Release G R infraprojects limited (Revised) January 5, 2018 Ratings Facilities Amount (Rs. crore) Rating1 Rating Action Long-term Bank Facilities CARE AA-; Positive (Double A Minus; Outlook: Positive) Revised from CARE AA-; Stable (Double A Minus; Outlook: Stable) Long-term/ Short-term Bank Facilities 1, CARE AA-; Positive / CARE A1+ (Double A Minus; Outlook: Positive / A One Plus) Revised from CARE AA-; Stable / CARE A1+ (Double A Minus; Outlook: Stable / A One Plus) Total Facilities 1, (Rupees One Thousand Nine Hundred Sixty Four Crore and Fifty Eight Lakh Only) Non-Convertible Debenture Issue 1 (NCD I) Tranche 1* (Rs. One Hundred crore only) CARE AA-; Positive (Double A Minus; Outlook: Positive) Revised from CARE AA-; Stable (Double A Minus; Outlook: Stable) Non-Convertible Debenture Issue 2 (NCD II)* (Rs.)

2 One Hundred Fifty crore only) CARE AA-; Positive (Double A Minus; Outlook: Positive) Revised from CARE AA-; Stable (Double A Minus; Outlook: Stable) *Outstanding as on June 30, 2017 Details of instruments/facilities in Annexure-1 Detailed Rationale & Key Rating Drivers The Ratings of G R infraprojects Ltd. (GRIL) continue to derive strength from its experienced management, established track record in road construction with proven execution skills and healthy revenue visibility marked by a strong order book and its comfortable liquidity underlined by its efficient operating cycle and low utilization of its fund based working capital limits along with expected benefit arising from the Government s thrust on increased road construction in the country. The Ratings also continue to be underpinned by its comfortable capital structure and debt coverage indicators on the back of its healthy growth in scale of operations and profitability during FY17 along with sale of investment in two of its special purpose vehicles (SPVs).

3 The Ratings also take cognizance of the fact that during FY17 and H1FY18, GRIL has taken up four new BOT road projects under the hybrid-annuity mode (BOT HAM) and extended corporate guarantee to one of the aforesaid projects. A large part of GRIL s investment in these SPVs is likely to be adequately met through its sizeable free cash & bank balance as on March 31, 2017. GRIL s long-term rating, however, continues to remain constrained by its inherent project execution risk and GRIL s limited segmental revenue diversification as its prospects are heavily linked to the fortunes of the road sector which is also marked by an intensely competitive environment. GRIL s ability to sustain and further grow its scale of operations along with protecting its profitability while efficiently managing its working capital requirements would be the key rating sensitivities.

4 The nature and extent of further addition of BOT projects in its portfolio, its impact on its cash flows and realizing envisaged benefits from such investments shall also be key rating monitorables. Outlook: Positive The Positive outlook is on the expectation of increase in GRIL s scale of operations on the back of its strong order book and expected new order inflow in the road construction sector; along with improvement in its profitability and capital structure. The outlook may be revised to Stable if the company is unable to increase its scale of operations and improve its profitability and capital structure as envisaged. Detailed description of the key rating drivers Key Rating Strengths 1 Complete definition of the Ratings assigned are available at and other CARE publications 2 CARE Ratings limited Press Release Significant increase in total operating income along with improvement in leverage and debt coverage indicators: GRIL s total operating income increased by 70% y-o-y in FY17 as per its audited financials on the back of strong execution for cash contracts for road construction from central and state government instrumentalities.

5 PBILDT margin also improved to , aided by some favourable movement in raw material prices. Increase in scale of operations and better operating profitability, along with gain on sale of investments in Shillong Expressway Ltd. (SEL) and Jodhpur Pali Expressway Ltd. (JPEL), resulted in a PAT of crore in FY17, compared with crore in FY16. Consequently, GRIL s tangible networth more than doubled as on FY17 end, compared to that as on previous year end. This, along with largely stable outstanding debt resulted in significant improvement in overall gearing to as on March 31, 2017 as against as on previous year end. Its PBILDT interest coverage and Total Debt/GCA also improved significantly to a comfortable level of and years respectively during FY17. As per provisional results, GRIL s total operating income improved y-o-y by 15% to ,175 crore along with improvement in its PBILDT margin to during H1FY18.

6 Sale of two operational road SPVs at a healthy profit resulting in improved financial flexibility: As of end-FY16, GRIL had three road projects on BOT basis, all of which were operational, with a total investment of crore as on March 31, 2016. On March 31, 2017, GRIL sold majority of its investment in SEL and JPEL to IDFC Alternatives Fund (IAF) earning healthy profit on its investment. The sale of GRIL s stake in these two SPVs has resulted in significant increase in its net worth and build-up of sizeable free cash & bank balance. With the conclusion of this transaction, GRIL s investment in its SPVs reduced substantially to crore as on March 31, 2017. Further, Reengus Sikar Expressway Ltd. (RSEL; rated CARE AA-), its remaining operational SPV, continues to receive regular annuity payments from NHAI and has now established a track record of 5 semi-annuity payments till March 2017.

7 Efficient working capital cycle and comfortable liquidity: GRIL s working capital intensity remained low, marked by a healthy working capital turnover during FY17. Its collection period was stable during the year, despite significant growth in scale of operations. Also, majority of GRIL s outstanding receivables was from NHAI or state public works departments (for road projects funded directly by MoRTH) which carry low credit risk. GRIL s operating cycle shortened by 6 days in FY17, with lower inventory holding as on the year end. Utilization of the working capital limits also remained comfortable at a very low level of 10% during the last 12 months ended October 2017. Also, GRIL had a sizeable free cash balance (incl. liquid investments) of crore as on September 30, 2017 ( crore as on March 31, 2017), which was partly aided by sale of investment in SEL and JPEL.

8 Strong order book resulting in good revenue visibility: GRIL continued to maintain a strong order book of ,498 crore as on October 31, 2017 ( of FY17 TOI), translating into good revenue visibility in the medium term. This was higher than the outstanding order book of ,968 crore as on March 31, 2017 ( of FY16 TOI). The orders from own SPVs comprised around 61% of its order book while major portion of the balance order book was by way of orders from NHAI and MoRTH which are prime employers in the domestic road sector responsible for development of national highways, which has been a priority area for the present government. Further, all these orders are with price variation clause, shielding GRIL s profitability from adverse movement in prices to a large extent. Investment requirements for new BOT-HAM projects expected to be funded comfortably: In July 2016, GRIL was declared L1 for four-laning of 88 KMs of Phagwara Rupnagar section of NH 334A under concession from NHAI on hybrid annuity mode.

9 Further to this, in January 2017, it was declared as the winning bidder for a package of upgradation of state highways in Rajasthan under concession from Public Works Department, Rajasthan. The said project has been extended corporate guarantee by GRIL. In March 2017 it secured contract for Varanasi Handia section of NH 2 and in June 2017 for Porbandar Dwarka section of NH 51 under concession from NHAI. GRIL would be required to invest around crore in these projects over the next four years starting FY18, in addition to crore already invested in FY17. GRIL is expected to comfortably meet the balance investment requirement in these projects, given its free cash balance and liquid investments of crore as on September 30, 2017, along with the envisaged cash accruals over the medium term.

10 Further, HAM projects are shielded from cost over-run to a certain extent, as the Concessioning Authority provides for escalation in construction costs linked to inflation, both in the initial capital grant and project cost annuity provided over the 15 year operational period as well as for O&M expenses. Established track record in road construction: GRIL has an established track record in road construction spanning over four decades and has executed projects in various states across the country. It has a sound track record in road construction with most of its projects being completed on time. The construction of roads for its earlier road SPVs was completed well ahead of their respective schedules, underlining the strong execution capabilities of the company. GRIL also owns a sizeable fleet of construction equipment, which provides the company with required flexibility in execution of its projects.