Rationale

 The rating reaffirmation factors in the operational track record of over 10 years, with the project stretch falling on the busy Chennai-Kolkata corridor (part of NH16 and Golden Quadrilateral), which has an established traffic density of commercial vehicles with low alternative route risk. The toll collections witnessed a compounded annual growth rate (CAGR) of ~7.8% during FY2019-FY2024 to Rs. 515.4 crore in FY2024. Further, the toll collections are expected to increase to more than Rs. 550 crore in FY2025, driven by ~3.3% hike in toll rates and moderate traffic growth of 4-5%. The rating notes the strong profile of the sponsor Ashoka Concessions Limited (ACL, rated [ICRA]A(Stable)), which has extensive experience in construction and operation of road projects and financial flexibility arising out of the long tail period of nine years. ICRA takes comfort from the sponsor’s undertaking to fund any shortfall in the debt service reserve account (DSRA), to bring any additional funds required to meet the shortfall in operating expenses and to maintain the minimum DSCR covenant of 1.10 times during the operations period. The presence of DSRA equivalent to one quarter’s repayment obligations and an escrow mechanism provide further comfort. The rating, however, remains constrained by the modest debt coverage metrics owing to high fixed annual premium payment obligation to the authority. The deferment of the National Highways Authority of India’s (NHAI) premium till FY2025 (granted in 2015) reduced the committed obligation and has thereby eased the burden on cash flows. The company has prepaid Rs. 391.3 crore of the NHAI’s deferred premium obligation till March 2024 from the operating surplus generated. The rating remains constrained by the absence of major maintenance reserve, thereby necessitating dependence on the sponsor to meet the periodic major maintenance expenditure falling due over FY2027-FY2028. Timely fund infusion by the sponsor and the company’s ability to undertake routine and periodic maintenance expenditure within the budgeted costs remains important. The rating remains constrained by risks inherent in toll-based projects, which include risks arising from variation in traffic volume over the project stretch, movement in WPI (for toll rate escalation), political acceptability of toll rate hike over the concession period, development/improvement of alternative routes. The profitability and cash flows of the project remain exposed to the interest rate risk, owing to the floating nature of the interest rate for the project debt. The Stable outlook reflects ICRA’s opinion that ADKTL will continue to benefit from the low alternative route risk, the established traffic density supporting the traffic growth and timely support from the sponsor.