Rationale

 The ratings assigned to VE Electro-Mobility Limited take into consideration its strong parentage, as a wholly-owned subsidiary of VE Commercial Vehicles Limited (VECV; rated [ICRA]AA+(Stable)/[ICRA]A1+), which has a strong market presence in the commercial vehicles segment and enjoys technical support from the AB Volvo Group. VE Electro-Mobility Limited was incorporated in April 2022 as a wholly-owned subsidiary of VECV, to operate as a separate vertical for the parent’s electric vehicle (EV) business. The company is engaged in operating electric buses (9-m and 12-m long) as a service under the Gross Cost Contract (GCC) to private customers/state transport undertakings (STUs). The buses are operated via third-party operators. The company procures electric buses (e-buses) from VECV and leases them out to customers. The presence of VECV as a parent entity provides the company with access to financial and operational support, with VECV committed to infuse incremental funds in the entity to help scale up its operations, while also providing maintenance for the e-buses deployed by the entity. At present, the company’s operations are at a nascent phase, with the entity having deployed ~116 vehicles (as on May 31, 2024) to various private and Government entities. The assigned ratings favourably factor in the limited execution and operational risks, with the company expected to benefit from assured revenue visibility for the deployed buses, irrespective of the actual running of the buses. The healthy credit profile of the counterparties and the criticality of seamless running of the deployed e-buses for its customers are likely to keep VE Electro-Mobility Limited’s counterparty risks limited and prevent an inordinate build up in receivables. VE Electro-Mobility Limited is expected to incur significant capex over the near to medium term for the buyout of the e-buses to ramp up its scale of operations, with the same expected to be funded through a mix of equity support from VECV and term debt. Even as the capital structure of the company is likely to remain moderate over the near term, the coverage indicators are projected to remain adequate, aided by expectation of healthy operating margins in the inked contracts. Moreover, timely equity infusion and short-term liquidity support (in case required) is expected to support the credit profile of the company. Any underperformance in vehicle operations vis-à-vis agreed specifications, especially that which impacts availability and reliability of the e-buses, has the potential to impact the revenues and, hence, would be a key monitorable. Moreover, geopolitical risks remain a sensitivity, as any adverse developments related to import of EV components can impact the availability of components required for its operations. However, comfort is drawn from the long and established track record of VECV in the commercial vehicle (CV) business and its access to technical support from the AB Volvo Group. The Stable outlook on the long-term rating reflects ICRA’s expectation that the company will continue to benefit from access to financial and operational support from VECV, which would help in the running of the vehicles, as per the agreed specifications with customers, and help generate adequate cash flows.