rkec projects limitedmarket size india needs rs 31 trillion (usd 454.83 billion) to be spent on...
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RKEC Projects Limited Issuer Profile January 2018
Contact details
Rahul Subrato Kumar Guha
Director - CRISIL Ratings
Tel: 022-40978320
Email:[email protected]
Venkata Kakulavarapu
Associate Director - CRISIL Ratings
CRISIL Limited
Tel: +91 40 4032 8222
Sravya Madhav
Senior Rating Analyst - CRISIL Ratings
Tel: +91 40 4032 8216
3
Index
Company description .......................................................................................................................................... 4
About the promoter ............................................................................................................................................. 5
Organisation structure ........................................................................................................................................ 6
Board of Directors ............................................................................................................................................... 7
Shareholding pattern (as on September 30, 2017) ............................................................................................. 7
Key milestones .................................................................................................................................................... 8
Clientele ............................................................................................................................................................... 9
Ongoing works .................................................................................................................................................. 10
Completed works ............................................................................................................................................... 15
Company profile in a nutshell ........................................................................................................................... 20
SWOT analysis ................................................................................................................................................... 23
Key financials .................................................................................................................................................... 26
4
Company description
About the Company
Established in 1994 as sole proprietorship firm RK Engineers & Contractors was subsequently rechristened as
RKEC Projects Private Limited in 2005, the company is engaged in undertaking civil construction projects
related to construction of bridges and marine works such as construction of jetties. Over years, RKEC Projects
Limited has become Specialist in Construction of Industrial Projects, Marine Works & Bridges. The Company is
a Certified ISO 9001: 2015, ISO 14001: 2015 & OHSAS 18001: 2007 Organization .Based out of Vishakhapatnam
in Andhra Pradesh, RKEC is promoted by Mr. Garapati Radhakrishna and Smt.G.Parvathi Devi. The day to
operations of the company are managed by Mr. Garapati Radhakrishna.
Factsheet
Date of incorporation 01-04-2005
Regd and corporate office 10-12-1,Rednam Alcazar,Rednam Gardens,
Visakhapatnam-530002
Statutory auditors M/s. Brahmananda Reddy & Co.
Bankers and other lenders Vijaya Bank
Bank limits Fund based: Rs 15 crore
Non-fund based: Rs 120 crore
Bank limits
Bank name Consortium role Fund-based
(Rs crore)
Non-fund-based (Rs
crore)
Total
(Rs crore)
Vijaya Bank Sole 15 120 135
Total 15 120 135
Source : Company
5
About the promoter
G Radhakrishna
The promoter, Mr. Garapati Radhakrishna holds a bachelors degree in mechanical engineering from Andhra
University and has over three decades of experience and specialization in civil and mechanical construction
works. Prior to the formation of the Company, he was carrying on the business of civil construction as a sole
proprietor under the name of M/s R. K. Engineers and Contractors, which has transformed finally into a public
company in November 2016.
He is instrumental in taking major policy decisions for the Company and plays a vital role in identifying,
developing and formulating business strategies and effective Implementation of all projects.
Under his able guidance, the company has so far executed 81 Projects successfully worth over Rs. 1400 Crore.
6
Organisation structure
Mr. G. RADHAKRISHNA
Chairman &
Managing Director
C.F.O.
G.M. (ADMINISTRATION & COMMERCIAL)
HR MANAGER
EXECUTIVE HR
ASSISTANTFRONT OFFICE
G.M. (FINANCE & ACCOUNTS)
MANAGER-ACCOUNTS
ASST. MANAGER ACCOUNTS
ASSISTANT
ASSISTANT
COMPANY SECRETARY
DIRECTOR - PROJECTS
AGM (PURCHASE & STORES)
PURCHASE
ENGINEER
STORES
STORE MANAGER -
SITES
SITE PROJECT MANAGERS
QA/AC DIVISION
SURVEYOR
SENIOR PILING
ENGINEER
ENGINEERS
SUPERVISOR
SENIOR FOREMAN
FOREMAN
MARINE CREW
MECHANICAL ENGINEER
SENIOR ENGINEER
CIVIL
ENGINEER
SENIOR ENGINEER -ELECTRICAL
ADM & ACCOUNTS
DIVISON
AGM -TECHNICAL
PROJECT PLANNING &
COST CONTROL MANAGER
DESIGN TEAM
TENDERS & CONTRACTS MANAGER
ASSISTANT
DIRECTOR - POWER DIVISION
ENGINEER
Mrs. G. PARVATHI DEVI
Whole Time Director
7
Board of Directors
Name Designation Experience
Mr. G Radhakrishna Chairman and Managing Director 32 years
Mrs. G Parvathi Devi Whole Time Director 25 years
Vice Admiral Satish Soni, PVSM, AVSM, NM (Retd) Independent Director 40 years
Mr. Peter Lucas, Commissioner of Income Tax
(Retired) Independent Director 40 years
Dr. G Sita Ratnam Director 20 Years
Shareholding pattern (as on September 30, 2017)
Name of shareholder Number of shares Type % shareholding
Mr. G Radhakrishna 1,93,01,700 Promoter 99.94%
Mrs. G Parvathi Devi 10,000 Promoter 0.05%
Mrs. G Naga Pushyami 100 Member 0.0005%
Mrs. G Hima Bindu Sree 100 Member 0.0005%
Mr. G V Ram Mohan 100 Member 0.0005%
Mr. G V Lalith Lochaan 100 Member 0.0005%
Mr.B Srinivasa Rao 100 Member 0.0005%
Mr. C R R Vishnu Kumar 100 Member 0.0005%
Mr. Rama Raju 100 Member 0.0005%
Mr.J Murali 100 Member 0.0005%
Mr.CH Prasad Verma Raju 100 Member 0.0005%
Total 1,93,12,600 100.00%
8
Key milestones
9
Clientele
Director General Naval Projects
Cochin Port Trust
Military Engineering Services
Jawaharlal Nehru Port Trust
Mumbai Port Trust
Indian Railways
Adani Group
Essar Group
SEW Infrastructure Limited
CONCOR
Vedanta Ltd
10
Ongoing works by order value
Sl. No.
Client Description of the work Value of contract (Rs. Crore)
Value of pending contract (Rs. Crore) as on Sep 30 2017
1 Office of Director General Naval Project, Visakhapatnam
Augmentation of shore supply at N-4 to N-26 jetties, dry docks, slipways and degaussing bay including associated works at Naval Dockyard, Visakhapatnam
19.60 12.13
2 Office of Director General Naval Project, Visakhapatnam
Construction of Jetty with loading facility at Visakhapatnam
149.73 64.01
3 Cochin Port Trust, Cochin 682 009
Construction of multi-user liquid terminal at Puthuvypeen, Cochin Port-(re-tender)
217.32 70.41
4 Purvanchal Vidyut Vitran Nigam Limited, Varanasi
Rural electrification works in Pratapgarh district, Uttar Pradesh, under Rajiv Gandhi Grameen Vidyutikaran Yojna (RGGVY) - l2th Plan
120.36 54.70
5 PWD, Puducherry Construction of road over bridge AT LC-43A at Km.38/175 of NH45A in Puducherry
34.96 5.57
6 Chief Engineer, MES, Shillong Zone
Provision of OTM ACCN No 1 at Leimakhong 19.73 5.69
7 Jawaharlal Nehru Port Trust, Mumbai
Construction of coastal berth, Mumbai 143.32 143.32
Total 705.02 355.09
11
Ongoing works site
Construction of multi-user liquid terminal at Puthuvypeen, Cochin Port Client: Cochin Port Trust, Cochin
Construction of jetty with loading facility at VISAKHAPATNAM
Client: DGNP, Visakhapatnam
12
Augmentation of shore supply at N-4 to N-26 jetties, dry docks, slipways and degaussing bay including
associated works at Naval Dockyard, Visakhapatnam
Client: DGNP, Visakhapatnam
13
Construction of road overbridge at LC-43A at KM38/175 of NH45A in PUDUCHERRY
Client: PWD, Puducherry
Provision of OTM ACCN NO1 at LEIMAKHONG
Client: MES, Shillong
14
Rural electrification works of Pratapgarh District, Uttar Pradesh
Client: Purvanchal Vidyut Vitran Nigam Limited, Varanasi
Construction of coastal berth at Jawaharlal Nehru Port
Client : JNPT, Mumbai.
15
Completed works by order value
S. No.
Name of the Project Client Project Value (Rs. In Crore)
1 Construction of 4th multipurpose berth at Hazira Adani Port Pvt Ltd, Hazira 36.52
2 Construction of second liquid chemical/POL berth off Pir Pau, Mumbai
Mumbai Port Trust, Mumbai 129.20
3 Strengthening of alumina silo at Kakinada Sea Port Ltd Vedanta Ltd, Jharsuguda, Odisha
4.75
4 Re-Construction of Uran Patch Beacon, Elephanta Patch Beacon and construction of Pir Pau Beacon in Mumbai Harbour.
Mumbai Port Trust, Mumbai 6.35
5 Construction of mooring dolphins at liquid cargo jetty at JNPort Jawaharlal Nehru Port Trust, Mumbai
9.11
6 Setting up of overhauling facilities for M-36 GTs INS EKSILA, Visakhapatnam
DGNP, Visakhapatnam 10.61
7 Construction of pre-engineered warehouse (PEB structure) along with CC paving around warehouse etc. at proposed MMLP at Visakhapatnam
Container Corporation of India Ltd., New Delhi
7.02
8
Construction of proposed major bridge No63 (open web girder) and No 66 (PSC slab) with pile foundation and RCC substructure, earthwork, blanketing, mechanical compaction etc. in approaches and other allied works in connection with doubling of Delang-Puri section of KUR Division fromkm482.40 to Km 499.180
East Coast Railway, Bhubaneswar-23
14.32
9 Construction of SHTIL preparation hanger at INS Kalinga, Visakhapatnam.
DGNP, Visakhapatnam 8.75
10 Gandhar-Hazira Transmission Project-Narmada river crossing piling and civil works
Essar Projects (India) Limited, Jamnagar
34.50
11 Construction of coal berth and approach for Essar Bulk Terminal Salaya Limited.
Essar Projects (India) Limited, Jamnagar
100.00
12 Intake seawater pump house for Essar Oils Limited at Jamnagar Essar Projects (India) Limited, Jamnagar
2.44
13 Improvement of movement network in Nanded City under JNNURM. Nanded Waghala City Municipal Corporation, Nanded
60.23
16
Completed works site
Construction of multipurpose berth in Hazira Construction of second liquid chemical/POL Berth
Reconstruction of Uran Patch,Elecphanta patch
and Pir Pau Beacon Gandhar-Hazira transmission project
Construction of coal berth and approach for Essar N-14 Jetty at Naval Dockyard,Vizag
17
Slipway facilities at Naval Dockyard (V) Intake seawater pump house at Jamnagar
Fishing harbour at Machilipatnam Port Overhauling facilities at INS EKSILA,
Visakhapatnam
Major Bridge across Godavari River at Nanded Road over Bridge on River Birupa at Cuttack
18
Industry overview
The infrastructure sector is a key driver for the Indian economy as it is responsible for propelling the country’s
overall development. The sector includes power, bridges, dams, roads and urban infrastructure development.
In a bid to create robust domestic infrastructure, the government has been increasing its investing in the sector;
total infrastructure spending is expected to be about 10% of gross domestic product (GDP) during the 12th Five-
Year Plan (2012–17), up from 7.6% during the previous plan (2007–12).
Mr Nitin Gadkari, Minister of Road Transport and Highways, and Shipping, has announced the government’s
target of investing Rs 25 trillion (USD 376.53 billion)in infrastructure over three years, inclusive of Rs 8 trillion
(USD 120.49 billion) for developing 27 industrial clusters and an additional Rs 5 trillion (USD 75.30 billion) for
road, railway, and port connectivity projects.
In August 2016, India jumped 19 places in World Bank's Logistics Performance Index (LPI) 2016, to rank 35th
amongst 160 countries.
Record allocation in Budget 2017-18
The allocation for infrastructure in Budget 2017-18 stands at a record Rs 3,96,135 crore. For 2017-18, the total
capital and development expenditure of the railways has been pegged at Rs 1,31,000 crore. Furthermore, in the
irrigation segment, the Long-Term Irrigation Fund already set up in the National Bank for Agriculture and Rural
Development (NABARD) is likely to be augmented by 100% to take its total corpus to Rs 40,000 crore.
Medium-term outlook
Road and Infra investments are expected to grow at a healthy rate over 2016-17 to 2018-19 as compared with
the past three years. Telangana, Karnataka, and Gujarat are expected to lead investments in the sector. Growth
in irrigation is mainly linked to the status of structural parameters such as current irrigation penetration levels,
relationship of crop yields to monsoon, crop-wise irrigation focus, and the gap between irrigation potential
created and utilized.
Market size
India needs Rs 31 trillion (USD 454.83 billion) to be spent on infrastructure development over the next five years,
with 70% funds required for power, roads, and urban infrastructure segments.
According to the government, the Indian power sector has an investment potential of USD 250 billion in the
next 4-5 years, providing immense opportunities in power generation, distribution, transmission, and
equipment
A report released by the Indian Construction Equipment Manufacturers’ Association pegs the construction
equipment industry to grow to USD 5 billion by fiscal 2020 from its current size of USD 2.8 billion
Foreign direct investment (FDI) received in the construction development sector from April 2000 to March 2016
stood at USD 24.19 billion, according to the Department of Industrial Policy and Promotion (DIPP).
19
Competition
The industry is highly fragmented and dominated by big names such as Larsen & Toubro, the Jaypee Group, GMR
and NCC, and is highly competitive, with global majors also operating. In this highly fragmented industry,
medium-sized players compete for sub-contracts.
Investments
India is witnessing significant interest from international investors in the infrastructure space. Amongst a large
list many Spanish companies are keen on collaborating with India on infrastructure, high-speed trains,
renewable energy, and developing smart cities. Some of the major investments are listed below.
The Asian Development Bank (ADB) has approved a USD 631 million loan to develop the first coastal corridor-
Vishakhapatnam-Chennai industrial corridor.
Silver Spring Capital Management, a Hong Kong-based equity hedge fund, plans to invest over Rs 2,000 crore
(USD 306 million) in Hyderabad-based infrastructure developer Transstroy India Ltd, for construction of
highways in the country.
Altico Capital, the non-banking financial company (NBFC) of Clearwater Capital Partners LLC, plans to invest
around USD 150 million in the commercial office properties and infrastructure sector over the next 12-18
months.
Sovereign wealth funds and global pension funds plan to invest up to USD 50 billion in the Indian
infrastructure sector over the next five years.
Airports Authority of India (AAI) plans to develop city-side infrastructure at 13 regional airports across India,
with help from private players.
The ADB and Government of India (GoI) signed a loan agreement of USD 80 million, which is the third tranche
of a USD 200 million financing facility under the North Eastern Region Capital Cities Development
Investment Programme, and will be invested for improving water supply, solid waste management, and
sanitation in Agartala and Aizwal.
Maharashtra state government plans to launch infrastructure projects worth Rs 73,367 crore (USD 10.78
billion) in Mumbai and neighbouring areas, which include coastal road, trans-harbour link, metro rail,
airport, and road projects.
The Government of India (GoI) has earmarked Rs 50,000 crore (USD 7.34 billion) to develop 100 smart cities
across the country.
Private equity giant Carlyle Group is planning to invest Rs 500 crore (USD 73.36 million) in Feedback Infra,
which could make the US firm a major shareholder in the Gurugram-based infrastructure services company.
France has announced a commitment of EUR 2 billion (USD 2.17 billion) to convert Chandigarh, Nagpur, and
Puducherry into smart cities.
The Construction Industry Development Board (CIDB) of Malaysia has proposed to invest USD 30 billion in
urban development and housing projects in India.
GoI has unveiled plans to invest USD 137 billion in its rail network over the next five years.
GoI has announced highway projects worth USD 93 billion, which include government flagship National
Highways Building Project (NHDP) with total investment of USD 45 billion over next three years.
Source : CRISIL research
20
Company profile in a nutshell
Market position Resources
Established presence with operations across
India
Extensive experience of the promoters and
established relationship with clients
Large portfolio of projects executed, and a
healthy order book of Rs. 355.9 Crore as on
Sep 30,2017
Focus on varied segments such as marine
works, roads and bridges, building and infra
works, and electrification
Healthy increase in scale
Orders from diversified customers like Cochin
Port Trust, PWD, JNPT with current large order
being Rs.143.32 Crore
Strong execution capabilities and healthy
saleability
Established counterparty relationships
Abundant availability of labour and quality
equipment
Experienced and well-qualified team of engineers
Owned machinery with minimal dependence on
leasing /hiring
Moderate reliance on bank debt supported by
adequate cash accrual
Low gearing, providing access to external debt
Operating efficiency Order book
Increasing scale resulting in improved
operating efficiency
Operating margin of 12-17% in the four fiscals
through 2017
Healthy return on capital employed of 55% as
on March 31,2017
Large orders of Rs 355.9 crore as on Sep 30,2017
The orders are to be executed over the next 24
months
Financial profile Liquidity
Healthy capital structure with sub-1 gearing
in the four fiscals ended March 31, 2017
Comfortable debt protection metrics with net
cash accrual to total debt ratio (NCATD) of
0.66 time and interest coverage ratio of 3.72
times for fiscal 2017
Strong net worth of Rs. 36 crore as on March
31, 2017
Debt mainly consists of working capital borrowing
More-than-adequate cash accrual to service
negligible debt obligation.
Healthy cash balance of Rs. 4.51 crore as on March
31, 2017
Moderate current ratio of 1.33 times as on March 31,
2017
Management
Prudent debt-funding policy as reflected in sub-1 gearing in the four fiscals ended March 31, 2017
Extensive experience of the promoters and management team
Strong execution capabilities demonstrated by diverse projects executed across geographies and
segments.
21
Established player with strong revenue visibility
The company has an established presence in the civil construction segment and its operations are spread across
geographies. There has been a healthy compound annual growth rate (CAGR) of 53% in revenue over the four
fiscals through 2017. Growth is supported by an ability to bid for large projects, and an extensive bidding
experience has resulted in a healthy success rate. There were orders of Rs. 355.9 crores in hand as on Sep 30,
2017.
Tender-based nature of operations
Orders are mainly acquired through bidding for tenders floated by various government authorities. Hence, the
top line depends upon successful bidding for such tenders.
Presence across segments; however order concentration in marine works
Operations are spread across four major segments: marine structures, roads and bridges, building and
infrastructure works, and electrification.
123
197
112
7157
0
50
100
150
200
250
H1 FY18 2016-17 2015-16 2014-15 2013-14
Revenues in Rs. Crore
22
Operating efficiency
Margin benefits from scale, but is susceptible to the tender-based business model
Operating capability is strong and the scale has been growing in the past four fiscals. However, the operating
margin is susceptible to the nature of orders executed and the tender-based business model. The margin has
been at 12-17% in the four fiscals through 2017. The management has a policy of bidding for projects with a
healthy margin based on its project feasibility analysis.
Working capital-intensive operations inherent in the infrastructure industry
Gross current assets were 151 days, as on March 31, 2017, attributable to large work-in-progress (WIP) of
ongoing projects along with high earnest money deposits (EMD) and retention money. During fiscal 2017,
payments from Cuddalore Port Company Ltd were stretched on account of the cyclone as the work was stalled
and payments were stuck.
Financial profile
The gearing is low, debt protection metrics are strong and the net worth is comfortable. The gearing was below
only one during the four fiscals ended March 31, 2017, as the company does not borrow aggressively for large
capital expenditure, with most debt been taken for meeting working capital requirement. The net worth was Rs
36 crores as on March 31, 2017. The NCATD and Interest Coverage were 0.66 times and 3.72 times for the Fiscal
2017.
Liquidity
There is no major long-term debt. Net cash accrual was Rs. 10 crores in fiscal 2017, and has been growing over
the years. The cash and bank balance was Rs. 4.51 crores, as on March 31, 2017. Liquidity is supported by the
ability and willingness of the promoters to infuse funds on a need basis. The current ratio was healthy at 1.33
times as on March 31, 2017.
23
SWOT analysis
Strengths
Strong execution capabilities and adequate access to resources
Extensive experience of the promoters and efficient management team
Healthy orders which keep increasing every year
Weaknesses
Working capital- intensive operations
Moderate scale of operations
Opportunities
Allocation of Rs 4 lakh crore to infrastructure development in Budget 2017
Various opportunities from state governments to build irrigation canals, drinking water
pipelines, and others
Scope of partnering with international infrastructure companies in expansion
Threats
Intense competition from fragmented and unorganised players in the industry
Tender-based nature of operations; orders dependent on successful winning of tenders
24
Strengths
Extensive experience of the promoters and efficient management team
Promoter, Mr G Radhakrishna, has an experience of more than three decades in the civil construction industry.
He is a graduate in mechanical engineering and started his own work in 1985 through a proprietorship firm. The
company is professionally managed with various functional heads.
Strong execution capabilities and healthy orders
Steady growth over the years has improved the ability to bid for larger projects and resulted in healthy success
rates. The company depends on its own fleet for 90% of its machinery requirement. The management has
experience in diverse segments, thus enhancing execution capabilities.
Healthy orders
The company is a mid-sized player in the infrastructure segment and hence, growth in scale of operations is vital
to make its presence felt and gain market position. There were healthy orders of Rs 355.9 crores as on Sep 30,
2017.
Weaknesses
Working capital-intensive operations
Gross current assets were 151 days as on March 31, 2017, and have remained high at 150-258 days over the four
fiscals ended March 31, 2017. That is because of high WIP, EMD, retention money, and other deposits. Owing to
the nature of industry, the working capital cycle is expected to remains streched over the medium term as well.
Opportunities
Rapid urbanisation and favourable investments
The infrastructure sector includes power, bridges, dams, roads and urban infrastructure development. In India,
total infrastructure spending is expected to be about 10% of the GDP during the 12th Five-Year Plan (2012–17),
up from 7.6% during the previous plan (2007–12). Rapid urbanisation in India will continue to propel demand for
infrastructure spend over the medium to long term.
Government initiatives and significant interest from international investors in the infrastructure space
GoI has made a record allocation of Rs 3,96,135 crores for several infrastructure projects in Union Budget
2017-18, which is expected to provide a significant boost to the Indian infrastructure sector. India is also
witnessing significant interest from international investors in this sector. Many Spanish companies are keen on
collaborating with India on infrastructure – high-speed trains, renewable energy, and developing smart cities.
25
Threats
Intense competition from fragmented and unorganised players
The construction and civil works sector is highly fragmented with the presence of very large companies such as
Larsen & Toubro Ltd (L&T) and Gammon India Ltd (Gammon), as well as smaller local players. While large players
such as L&T and Gammon operate in several sectors including roads; hydroelectric projects; thermal plants; and
urban infrastructure, smaller players specialise in one or two business segments.
RKEC specialises in civil works related to infrastructure, mainly marine works, roads and bridges, building and
infrastructure works and electrification The Company faces competition from major players, as well as many
local and small unorganised players.
Tender-based nature of operations
Operations are predominantly tender-based and revenue is dependent on the ability to bid successfully for
tenders. The operating margin is susceptible to the competitive pricing nature of the industry. Profitability on
each project is subject to pricing, availability of labour, machinery mobilisation, weather and geological
conditions, and other factors.
26
Key financials
Year ended
30-Sep-17
31-Mar-17 31-Mar-16 31-Mar-15 31-Mar-14
Audited Audited Audited Audited
Operating income Rs crores 123 197 112 71 57
OPBDIT Rs crores 23 28 13 9 10
PAT Rs crores 10 9 3 3 2
Net cash accrual Rs crores 12 10 6 5 5
Cash flow from operations (CFO) Rs crores (1) 5 5 (2) 8
Free operating cash flows (FOCF) Rs crores (4) 3 4 (2) 6
Adjusted net worth Rs crores 47 36 28 26 23
Total debt Rs crores 16 15 25 11 22
Exposure to group companies Rs crores - - - - -
OPBDIT / Operating income % 18.7 14.4 11.9 12.5 17.4
PAT / Operating income % 8.7 4.4 3.0 3.9 3.5
Adjusted RoCE % 78.9 55 26 18 17
Adjusted PBDIT interest coverage Times 9.8 3.72 2.54 3.02 2.49
Cash flow from operations / Total
debt
Times (0.07) 0.35 0.20 (0.15) 0.33
Net cash accruals / Adjusted debt Times 1.48 0.66 0.23 0.50 0.22
Total debt / Tangible net worth Times 0.34 0.43 0.89 0.41 0.96
Adjusted debt / Adjusted net
worth
Times 0.34 0.43 0.89 0.42 0.96
Current ratio Times 1.46 1.33 1.16 1.35 1.14
Gross Current Assets Days 160 151 258 153 278
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Last updated: April 2016