CREDIT ANALYSIS & RESEARCH LIMITED 1

Rating

CARE assigned ‘CARE BBB–’ (triple B minus) rating to thelong-term bank loans of Gujarat Road and InfrastructureCompany Ltd. (GRICL) aggregating to Rs 77.80 crore.

The rating factors in improving toll-collections from bothAhmedabad-Mehsana and Vadodara-Halol toll roadprojects, turnaround in profitability during FY08 and strongpromoter support. The rating is constrained due to moderatefinancial risk profile as indicated by high overall gearingand accumulated losses on account of poor performanceof both road projects in the initial years leading to companyundergoing corporate debt restructuring (CDR).Management of traffic risk associated with both road projectsand likely increase in interest cost are the key ratingsensitivities.

Company Background

GRICL was incorporated in 1999, as Gujarat Toll RoadInvestment Company Ltd., for investment into two toll-roadSPVs viz. Vadodara-Halol Toll Road Ltd (VHTRL) andAhmedabad-Mehsana Toll Road Ltd (AMTRL) and waspromoted by the Government of Gujarat (GoG) andInfrastructure Leasing & Financial Services Ltd. (IL&FS).Vadodara-Halol (VH) road project was completed in 2000and Ahmedabad-Mehsana (AM) road project wascompleted in 2002. Due to lower than projected toll-collections and slippage in traffic, financial condition of bothVHTRL and AMTRL started deteriorating and they wereunable to service their debt obligations. This resulted in thecompany resorting to corporate debt restructuring (CDR)in 2004.

CDR scheme and merger of entities

Subsequent to CDR in 2004, as per the proposed scheme,both AMTRL and VHTRL were merged with GRICL into asingle entity with effect from Oct.1, 2003 and all theoutstanding debt obligations were restructured. Interest onall term loans and other outstanding debts was reducedfrom contracted rates to 10% p.a. payable monthly.Currently, this rate has been increased in 11% p.a. GoG

and IL&FS infused Rs 30 crore each as fresh capital inFY05 and FY06 respectively as proposed in the scheme.IL&FS also provided an irrevocable Line of Credit (LoC)facility for an amount of Rs 100 crore to GRICL for meetingany shortfall in funds for debt servicing. Utilized amount isto be repaid as and when funds are available with theGRICL.

Internal restructuring at IL&FS

During FY07, IL&FS, as a part of its internal restructuringexercise, transferred its stake in all toll road SPVs, includingGRICL, to its subsidiary ITNL. IL&FS holds 79% stake inITNL which in turn holds 84% stake in GRICL. Subsequently,all the rights and obligations of IL&FS as per CDR schemewere transferred to ITNL. The LoC facility provided by IL&FSto GRICL was also transferred to ITNL on Sept.28, 2007.Subsequently, the contingent liability pertaining to theundrawn amount under the facility (Rs 71.4 crore as onSept.29, 2007) was also transferred to ITNL and ITNL hasto provide the balance amount to GRICL as and when it isrequired for the purpose of debt servicing. As on Mar.31,2008, the undrawn amount under LoC was Rs 69 crorewhich provided only a partial cushion to the outstandingdebt of Rs 297 crore of GRICL.

Operations of the Company

The actual toll collections for both AM and VH road projectshave been better than projections submitted by the GRICLfor CDR. Toll revenue from both the road projects grew by31% during FY08 compared to FY07. During the year,GRICL auctioned the toll-collection activity to third partieswhich provided stable revenues and decreased the slippagein traffic due to service roads. The contracts awarded byGRICL are generally for a tenor of one year, after which ithas to invite fresh bids from third parties.

During FY08, toll revenue grew by 31% compared to FY07mainly due to auctioning of toll collection to third partiesand improved traffic conditions as a result of various stepstaken by the company to increase toll collection at theseroads. GRICL registered a profit after tax of Rs 0.87 crore

GUJARAT ROAD AND INFRASTRUCTURE COMPANY LTD.

Long-term Bank Loans / Facilities CARE BBB–

CAREVIEW2

in FY08 compared to loss of Rs 4.4 crore in FY07.Depreciation expense increased by 68% in FY08 comparedto FY07 due change in accounting policy with respect tocertain assets where the useful lives of the assets were re-estimated. Interest cost increased by 7% in FY08 comparedto FY07 mainly due to increase in interest cost on termloans and increase in finance charges. The interest rate forall outstanding term loans was raised to 11% from 10%earlier as per CDR. Provision has been made for the shortfallin the assured return which GRICL is entitled to recover forboth toll projects as per terms of concession agreementwith GoG to the extent of Rs 203.3 crore and the same hasbeen recognised in the financial statements as a credit tothe General Reserve account. Since this is only a provisionand not a cash amount, it has not been taken as a part ofnetworth. Networth excludes amount shown as ‘Advancetowards capital / debt’ of Rs 30 crore for FY05 and Rs 105crore for FY06, FY07 and FY08 as GRICL proposes toconvert the same into subordinate debt subject to CDRapproval. However, the same amount has been treated asquasi-equity for the purpose of calculation of gearing ratioas the amount, if converted to subordinated debt, would berepayable after all outstanding loans to banks/FIs are repaid.Overall gearing, though improved marginally, was high at2.61 times as on Mar.31, 2008 compared to 2.75 times ason Mar.31, 2007 due to repayment of term loans. Interestcover improved marginally to 1.03 times in FY08 comparedto 0.87 times FY07. Cash interest coverage improved to1.97 times in FY08 compared to 1.49 times in FY07. Totaldebt / gross cash accruals were significantly high at 11.65times in FY08. GRICL has been given support by ITNL inthe form of an irrevocable LoC facility for an amount of Rs100 crore and any shortfall in the funds for debt servicingwill be serviced by utilizing the irrevocable LoC facility. Ason Mar.31, 2008, GRICL had drawn Rs 30.8 crore from theLoC for repayment of debt.

Prospects

Due to various steps taken by GRICL, like auctioning oftoll-collection activity, the toll revenue has seen a gradual

August 2008

increase. GRICL’s ability to continuously outsource toll-collection activity at appropriate rates would be critical toensure stability in toll-revenue and consequently will alsoaffect its debt servicing capability. Moreover, the LoC facilityprovided by ITNL is also likely to provide partial support todebt repayments in case of insufficient internal cashgeneration.

Financial Results(Rs. In crore)

For period ended Mar.31, 2006 2007 2008[12m,A] [12m,A] [12m,A]

Profitability Toll revenue 37.58 47.00 61.42PBILDT 28.13 37.87 51.74Depreciation 7.77 9.10 15.28Interest and finance charges 38.20 33.14 35.56Profit/(Loss) before tax (17.83) (4.37) 0.90Profit/(Loss) after tax (19.12) (4.40) 0.87Gross cash accruals (4.39) 12.38 25.46

Financial Position Net fixed assets 436.07 432.45 417.28Total capital employed 429.70 421.82 410.16Equity share capital 91.54 91.54 91.54Preference share capital 35.00 35.00 35.00Advance towards share capital 105.00 105.00 105.00Net worth * 12.00 7.64 8.52

Ratio Analysis PBILDT margin (%) 72.56 79.90 83.24PAT margin (%) (49.31) (9.29) 1.41Overall gearing 2.68 2.75 2.61Interest coverage (times) 0.53 0.87 1.03Cash interest coverage (times) 0.90 1.49 1.97Total debt / gross cash accruals N.M. 24.99 11.65

* Networth excludes amount shown as ‘Advance towards capital /debt’ of Rs 30 crore for FY05 and Rs 105 crore for FY06, FY07and FY08 as GRICL proposes to convert the same intosubordinate debt subject to CDR approval

N.M. – Not meaningful

For Further details please contact at :

CREDIT ANALYSIS & RESEARCH LIMITED

4th floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (E), Mumbai - 400 022.Tel.: (022) 6754 3456 � Fax : (022) 6754 3457 � E-mail : care@careratings.com

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