Capacit'e Infraprojects Limited — Capital/Financing Update 2021

Aug 21, 2021

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Ref Date : August 21, 2021

To

The Secretary, The Secretary, BSE Limited National Stock Exchange of India Limited Corporate Relation Dept, Plot No. C/1, G Block, P.J. Towers, Bandra Kurla Complex Dalal Street, Fort, Bandra (East) Mumbai-400 001 Mumbai-400 051 Scrip Code – /Scrip Id: 540710/CAPACITE Scrip Symbol: CAPACITE

Dear Sir/ Madam,

Sub: Intimation of Downgrade in Credit Rating

Pursuant to Regulation 30 read with Schedule III of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended, we wish to inform that India Ratings & Research (Ind-Ra), Rating Agency vide its letter dated August 20, 2021 has assigned Capacit'e Infraprojects Limited’s (CIL) Long Term Issuer Rating at ‘IND D’, from ‘IND A’ (Negative Outlook).

The report from the credit rating agency covering the rationale for credit rating is enclosed.

This is for your kind information and records.

Thanking you,

Yours faithfully,

For Capacit’e Infraprojects Ltd

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Varsha Malkani
Company Secretary
Encl: As above
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RAC

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India Ratings Downgrades Capacite Infraprojects to ‘IND D’

India Ratings and Research (Ind-Ra) has downgraded Capacite Infraprojects Limited’s (CIL) Long-Term Issuer Rating to ‘IND D’ from ‘IND A’. The Outlook was Negative. The instrument-wise rating actions are as follows:

CURRENT RATINGS

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Instrument Date of Coupon Maturity Rated Limits
Rating Rating Action
Type Issuance Rate Date (million)
Long-Term
- - - - IND D Downgraded
Issuer Rating
INR1,248
Term loans
- - Up to FY26 (increased from IND D Downgraded
(Long term)
INR1,242.7)
Proposed
Term Downgraded and
- - - INR675 IND D
loans(Long assigned [$]
term)
Proposed Withdrawn (the
non- company did not
convertible - - - INR1,000 WD proceed with the
debentures instrument as
(NCDs) envisaged)
Fund-based
working INR1,250
capital limits (increased from IND D
- - - Downgraded
(Long INR1,150)
term/short
term)
Sales
invoice/bill
INR325 (reduced
discounting IND D
- - - from INR750) Downgraded
limits (Long
term/short
term)
Proposed
non-fund-
based
working Downgraded and
- - - INR3,000 IND D
capital limits assigned [$]
(Long
term/short
term)
Non-fund-
based
working INR9,070 (reduced IND D
capital limits - - - from INR15,550) Downgraded
(Long
term/short
term)
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• The provisional rating of the proposed bank facilities has been converted to final rating as per Ind-Ra’s updated policy. This is because the agency notes that debt seniority and general terms and conditions of the proposed limits tend to be uniform across lenders, and are not a rating drive. $Downgraded to Provisional IND D before being assigned.

RAC

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The downgrade reflects CIL’s challenges with liquidity, which led to default in the servicing of its debt obligations. The liquidity situation worsened during the time of the pandemic as the execution profile of the company deteriorated significantly, resulting in cash flow mismatches. While the company availed of the Reserve Bank of India (RBI)-prescribed moratorium in the 1HFY21, the liquidity challenges continued in the 2HFY21. Although the company’s execution profile improved slightly in 2HFY21, it was not able to generate sufficient cash flows due to the severity of the pandemic-led lockdown in Mumbai Metropolitan Region (accounted for 91.8% of the unexecuted order book including a MHADA project at FYE21; 91.9% without MHADA project).

While the agency was informed that the company had applied for enhancements from all the lenders under Emergency Credit Line Guarantee Scheme (ECLGS) 2.0 scheme, these loans were disbursed with a time lag, majorly on account of availing internal approvals from various lenders; this resulted in the company delaying on its repayment obligations. These delays were also commented on by the auditor in the independent audit report for FY21 where the extent of delays (61-90 days) were regularised post the disbursement of the ECLGS 2.0 loans.

The agency was receiving No-Default Statement from the company, as per SEBI requirement (circular number SEBI/HO/MIRSD/MIRSD4/CIR/P/2017/71, as on August 10, 2021) from November 2020 to July 2021 and a management certificate confirming no irregularities for the period between June 2020 and May 2021. Furthermore, the agency was informed that CIL had average monthly liquidity (cash balances in various current accounts along with unencumbered fixed deposits) to the tune of INR594.2 million against an average monthly repayment obligation (principal+ interest component of the equipment loans) of INR52.1 million over October 2020 - July 2021

The agency had also considered the guidance made by RBI that dispensation in the default recognition is provided only during the period of moratorium and is not available during the sanction and final disbursement of ECLGS scheme. Furthermore, the RBI had also opined that there should not be delay in honouring the payment with any lender anticipating disbursal of additional funds.

KEY RATING DRIVERS

Liquidity Indicator – Poor : CIL's net working capital cycle surpassed Ind-Ra’s expectation of high slippages and elongated to 177 days in FY21 (FY20: 95 days, FY19: 103 days) on account of an increase in unbilled revenue and increased payments to creditors, and lower execution.

To address the liquidity stress, the company availed of the RBI-prescribed moratorium and also secured interchangeability of non-fund-based limits (LC limits) to fund-based limits to some extent till March 2021, while the overall sanctioned limits remained unchanged. The fund-based limits available to CIL ranged between INR2.1 billion and INR3.2 billion over May 2020-March 2021 with an average maximum utilisation of 86%. Over the last 12 months ended July, CIL on an average had maximum utilisation of around 83% of its fund-based limits, around 70% of its non-fund-based limits and 60% of its LC limits.

CIL’s liquidity is also largely contingent on the additional financing that would be required by the company in FY22. The company’s repayment obligation is INR424 million in FY22. The promoters have infused unsecured loans of INR470 million in 1QFY22 and the management is planning to raise equity to the tune of INR3 billion. However, Ind-Ra believes, the timely inflow of cash is necessary to alleviate concerns originating from the company’s stressed liquidity profile.

Deterioration in Credit Profile: CIL's credit profile came under stress in FY21 with net leverage (debt less unrestricted cash/EBITDA) increasing to 2.03x at FYE21 (FY20: 0.78x) and interest coverage (gross interest expense/EBITDA) declining to 1.94x (3.98x) Though the debt levels declined to INR2.86 billion in FY21 (FY20: INR3.08 billion) the company’s leverage was high on account of a steeper deterioration in the EBIDTA.

RATING SENSITIVITIES

Timely debt servicing for at least three consecutive months could result in a positive rating action.

RAC

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RATING CRITERIA Corporate Rating Methodology, Short-Term Ratings Criteria for Non-Financial Corporates

COMPANY PROFILE

Incorporated in August 2012, CIL provides engineering, procurement and construction/turnkey solutions for housing, high rises, super high rises, speciality buildings and urban infrastructure. The company has recently forayed into development of projects for the public sector.

FINANCIAL SUMMARY

	Particulars(INR million)	FY21	FY20
	Revenue	8,797	15,290
	EBITDA	1,365	2,567
	EBITDA margins(%)	15.5	16.8
	Total debt	2,863	3,082
	Interest coverage(x)	1.9	4.0
	Net leverage(x)	2.0	0.8
	Source: CIL and Ind-Ra
RATING HISTORY

	RATING HISTO	RY
	Instrument	Current Rating			Rating History/Outlook
	Type	Rating Type Rated Limits (million)	Rating	12 June 2020	3 May 2019	2 April 2019	22 November 2018
	Issuer rating	Long-term -	IND D	IND A/Negativ e	IND A/Stable	IND A/Stable	IND A/Stable
		Long- INR15,568 (reduced		IND	IND	IND	IND
	Bank facilities	term/Short from	IND D	A/Negativ	A/Stable/IN	A/Stable/IN	A/Stable/IN
		-term INR22,367.7 )		e/IND A1	D A1	D A1	D A1
				Provisional
	Proposed NCDs	Long-term INR1,000	WD	IND A/Negativ	-	-	-
				e

COMPLEXITY LEVEL OF THE INSTRUMENTS

Instrument Type	**Complexity Indicator **
Term loans	Low
Fund-basedlimits	Low
Non-fund-based limits	Low

• For details on the complexity levels of the instruments, please visit https://www.indiaratings.co.in/complexity indicators.

Contacts: Primary Analyst Devika Malik Senior Analyst

RAC

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+91 40 67661911 Senior Analyst

India Ratings and Research Pvt Ltd 36 Urban Center, Level 4,Road no.36, Jubilee Hills, Hyderabad - 500 033, India

Secondary Analyst Harsha Rekapalli Associate Director +91 40 67661922

Committee Chairperson Abhishek Bhattacharya Senior Director +91 22 4000 1700

Media Relations: Namita Sharma, Mumbai, Tel: +91 22 4035 6121, Email: namita.sharma@indiaratings.co.in.

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings.

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market.

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies, and structured finance and project finance companies.

Headquartered in Mumbai, Ind-Ra has six branch offices located in Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad and Kolkata. Ind-Ra is recognised by the Securities and Exchange Board of India, the Reserve Bank of India and National Housing Bank.

Ind-Ra is a 100% owned subsidiary of the Fitch Group.

For more information, visit www.indiaratings.co.in.

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