Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A/Stable/CRISIL A1’ ratings on the bank facilities of Navi Mumbai International Airport Private Limited (NMIAL).

 

CRISIL Ratings has also withdrawn its rating on bank loan facilities of Rs 30 crore at the company's request. The withdrawal is in line with the CRISIL Ratings policy on withdrawal of bank loan ratings.

 

The ratings continue to reflect NMIAL’s strong parentage as part of the Adani group, wherein it is expected to benefit from need-based managerial, operational, and financial support. The ratings also factor in a ring-fenced business structure with the presence of City and Industrial Development Corporation of Maharashtra (CIDCO) as the concession authority, strong regulated business model supporting aeronautical (aero) revenue and mitigating offtake risk once the project gets operational, and low revenue share.

 

The ratings also factor in satisfactory progress in terms of completion of construction milestones, financial progress, and infusion of required equity by the sponsors.

 

However, the ratings are constrained by implementation and regulatory risks associated with first tariff order and susceptibility to ramp-up in non-passenger revenue in the long term.

Analytical Approach

CRISIL Ratings has considered the standalone business and financial risk profiles of NMIAL. Furthermore, CRISIL Ratings has used the group notch-up framework to factor in available financial flexibilities and strong managerial and operational support from being part of the Adani group.

 

Mumbai International Airport Ltd (MIAL; ‘CRISIL AA-/ Stable’) holds 74% equity shareholding in NMIAL. However, the cash flow of MIAL is expected to be ring-fenced from NMIAL. This is because of the management philosophy and financing agreements wherein any support required by NMIAL will be directly met by Adani Enterprises Ltd (AEL, part of Adani Group) without any impact on MIAL.

Key Rating Drivers & Detailed Description

Strengths

• Strong managerial and financial support being part of the Adani group

NMIAL is expected to benefit from operational, managerial, and financial support from the Adani group during the implementation and stabilisation phase of the project as well as during operational phase, if required. The Adani group is a large business conglomerate and has strong foothold in the infrastructure domain in India. The group has established Adani Airport Holdings Ltd (AAHL; ‘CRISIL A+/ Stable’), a wholly owned subsidiary of AEL, for the management and development of airport infrastructure assets. AAHL (including NMIAL) is developing a targeted core growth vertical of the group, with proposed investment outlay of over Rs 25,000 crore in the next 2-3 years. This focus is expected to support the platform in terms of implementation (including construction, equity funding and debt funding tie-ups), stakeholder engagement and real estate monetisation. Furthermore, the group is expected to support the venture under the establishment phase and in case of any adverse scenario.

 

NMIAL is critical for the Adani group on account of a strong catchment area, synergies available with other airports within the group, size of the overall project and the strategic importance for growth. The group shall also provide financial support to NMIAL, if required. AEL has provided sponsor undertaking (as part of financing agreements) for funding shortfall in termination payment, equity commitment and cost overruns.

 

• Regulated business model providing relative certainty to aero revenue, once operational

The revenue of airport operators is split between aero and non-aero streams. The former segment, which comprises passenger fees and landing, parking, and fuelling charges, is more certain and stable. It is regulated by the Airports Economic Regulatory Authority (AERA), which allows for pre-determined return on aero assets and debt servicing. Regulation also provides for true-up of aero revenue in case of any variations in traffic or change in capital expenditure (capex), aero operating expenditure and aero tax. Additionally, the group has planned to develop its city side development business and invest in various non-aero initiatives which will generate additional revenue streams in future. This lends stability to the company's revenue base.  

 

• Relatively low offtake risk

Offtake risk is assessed to be low given the project is expected to be critical for the Mumbai Metropolitan Region since the current airport operated by MIAL has capacity constraints on account of infrastructure limitations and limited scope for further expansion. Additionally, ramp up is expected to be supported by linkages/ synergies and support from other Adani group airports, including MIAL.

 

Weaknesses

• Exposure to regulatory and project risks given the early stages of project development

The concession agreement was signed with CIDCO in January 2018. Land acquisition and clearances have been obtained and pre-development works such as land filling, river diversion and re-routing of transmission lines have been completed. Other pre-development work by CIDCO such as a portion of hill cutting is under progress with around 84% progress till date. These preliminary works were under the scope (both cost and execution) of CIDCO and are already under advanced stages. All key approvals for the project, including stage 2 forest clearance, environment clearance and permission for clearance of mangroves and development plan, have been obtained. NMIAL has already awarded two engineering, procurement, and construction (EPC) contracts and various other contracts for completing the construction, design, and development works. The project has achieved overall cumulative physical and financial progress of around 20% by end of December 2022. However, given the early stages of project implementation, NMIAL is exposed to risks of delay in construction, which can result in cost and time overruns. Although, the risk is mitigated to an extent by the facts that reputed EPC contractors have been awarded the construction work and predevelopment works by CIDCO are in their final stages of completion.

 

Scheduled commercial operations date (SCOD) of the project is December 30, 2024, with capacity of 20 million passengers per annum. The total project cost is estimated at Rs 15,981 crore, excluding predevelopment works of Rs 3,665 crore. The project cost has been vetted by an independent engineer appointed by CIDCO. Project cost assessment for evaluation of regulatory asset base (RAB) shall be done by AERA closer to SCOD. Hence, timing of tariff orders and variations in admissibility of RAB (which can lead to cash flow mismatches) are open to regulatory risks and remain key monitorables.

 

• Susceptibility to ramp-up in non-passenger revenue in the long term

Offtake, after commissioning, is expected to be supported by availability of time slots, traffic movement from currently uncatered international destinations and cargo handling facilities at the new airport, which will cater to pent-up demand from the Mumbai Metropolitan Region on account of operational constraints at the current airport. However, once the airport is operational, development of non-aero revenue streams will be subject to demand and pricing risks. CRISIL Ratings expects non-aero revenue to contribute ~15% of overall revenue over debt tenor of 23 years including the construction and moratorium period.

Liquidity: Adequate

Operations are expected to start by fiscal 2025. The company has already achieved financial closure by tying up entire debt portion of the capex through long-term loan. AAHL through MIAL and as intercompany deposits has invested around Rs 1,800 crore towards equity commitment as on October 16, 2022. The group is likely to provide timely support, if required, during the implementation and stabilisation phases.

Outlook: Stable

NMIAL is expected to benefit from support from the Adani group during its implementation and stabilisation phases.

Rating Sensitivity factors

Upward factors

• Commissioning within budgeted time (scheduled operating date is December 2024) and cost of Rs 15,981 crore along with reduction in regulatory risk around assessment of RAB
• Faster-than-expected ramp-up in cash flow because of adequate traffic and non-aero revenue ramp-up

 

Downward factors

• Material delay in execution of the project (scheduled operating date is December 2024) within the budgeted cost of Rs 15,981 crore
• Increase in regulatory risk around assessment of RAB
• Change in stance of support or weakening of the credit profile of the Adani group

About the Company

NMIAL is a 74% subsidiary of MIAL. The remaining stake is held by CIDCO, which is the concessioning authority for the project. NMIAL won the bid for developing, operating, and maintaining the greenfield Navi Mumbai airport in Maharashtra under a 40-year concession (additional 20 years subject to a re-bid, with NMIAL having right of first refusal within 5% of the winning bid). Phase I is expected to be implemented at a cost of Rs 19,648 crore (including cost of pre-development works of Rs 3,665 crore funded by CIDCO as a soft loan), with a capacity of 20 million passengers per annum.

Key Financial Indicators

Particulars	Unit	2022	2021
Revenue	Rs crore	NA	NA
Profit after tax (PAT)	Rs crore	NA	NA
PAT margin	%	NA	NA
Adjusted debt/adjusted networth	Times	NA	NA
Adjusted interest coverage	Times	NA	NA

Not applicable, as the project is under implementation.

Any other information: Not applicable