Continental Warehousing Corporation Credit Rating

Continental Warehousing is going for an IPO and its Credit Rating is in discussion. Through the IPO, Continental Warehousing is planning to raise around Rs.1,000 Crore from the Public. The Company has already filed its DRHP with the SEBI. The Credit Rating of Continental Warehousing is based on CRISIL Report. In the following Credit Rating, Total Bank Loan Facilities Rated are Rs.4768.4 Million. We have already provided Continental Warehousing IPO details in our earlier post.

Continental Warehousing Corporation Credit Rating

Liabilities of Continental Warehousing as on 31st March 2016 (Basis for Credit Rating):

Liability Amount in Rs. Millions
Long-term borrowings 4,087.23
Deferred tax liabilities (Net) 165.99
Other long term liabilities 8.41

 

Continental Warehousing Corporation Credit Rating:

Category Credit Rating
Short Term* A2
Long Term* BBB+

 

Long Term Instruments Credit Rating Details:

  • Rs. 150 million Cash Credit Limit
  • Rs. 518.7 million Proposed Term Loan
  • Rs. 3099.7 million Term Loan Facilities

Short Term Instruments Credit Rating Details:

  • Rs. 400 million Proposed Bank Guarantee
  • Rs. 600 million Letter of Credit and Bank Guarantee

Continental Warehousing Corporation Credit Rating on the Bank Facilities

CRISIL’s ratings on the bank facilities of Continental Warehousing Corporation (Nhava Seva) Limited (CWCNSL; part of the Continental group) continue to reflect the group’s established market presence as a container freight station (CFS) operator, the group’s improving revenue diversity, driven by presence in logistic service segments such as warehousing, air cargo delivery, and private freight terminals (PFT).

The rating also factors in a strong financial risk profile driven by an adequate capital structure, regular private equity infusions over the years, and a prudent mix of debt-to-equity ratio to fund capital expenditure (capex).

These rating strengths are partially offset by the group’s high exposure to project risks related to upcoming capex towards PFTs in Bengaluru and Chennai (accounting for around 65 percent of networth estimated as of March 2016), risks related to timely ramp-up of newly commissioned PFTs at Panipat (Haryana) and Ahmedabad (Gujarat), and susceptibility of CFS business to volatility in export-import trade volumes and intensifying competition.

Group Performance : Continental Warehousing Corporation Credit Rating

The group has a well-established market position in the CFS business, backed by longstanding relationships with large shipping lines. Besides, the group has a pan-India presence and has one of the largest warehousing networks in the private sector, with an area of about 6.5 million square feet at 64 strategic locations across India.

It has also set up India’s first PFT in Hyderabad and subsequently two more PFTs in Ahmedabad and Panipat. Given the expected scaling up of operations at these facilities, the revenue diversity will be further enhanced over the medium term.

The ratings also factor in the weaker-than-expected operating performance in 2015-16 (refers to financial year, April 1 to March 31) on account of delay in commencement of operations at Ahmedabad and Panipat PFTs, coupled with a sharp revenue decline in air cargo handling service segment of the subsidiary, Delex Cargo India Pvt Ltd (Delex), and its impact on key credit metrics.

While the group’s capital structure remains comfortable, with gearing estimated at 0.68 time as of March 2016 (0.65 time the previous year), the debt protection metrics have moderated, with net cash accrual to total debt and adjusted interest coverage ratios estimated at 0.14 time and 3.09 times, respectively, for 2015-16 vis-a-vis 0.16 time and 3.82 times, respectively, in 2014-15.

Debt to earnings before interest, tax, depreciation and amortisation (EBITDA) ratio is also estimated to have increased to 4.3 times in 2015-16 from 3.5 times in 2014-15.

Continental Multimodal Terminals Ltd (CMTL, 94.62 percent subsidiary of CWCNSL) that owns the first PFT took around three years to break even at profit after tax level from the commencement of commercial operations and is currently running over 40 trains per month. With the scale-up in new PFTs expected to be faster, backed by increased number of PFTs, the group’s revenue and profitability are expected to significantly improve over the medium term.

This, along with recovery in Delex operations and fresh equity infusion upfront for future capex, is expected to improve the key credit metrics, especially the debt to EBITDA ratio, correcting to below 3.5 times during this period.

Any decline in the operating performance of the existing PFT and slower-than-expected ramp-up of operations at the newly commenced PTFs and its impact on the expected improvement in the key credit metrics will remain a rating sensitivity factor.

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of CWCNSL, along with those of its wholly-owned subsidiaries, Delex and CMTL. This is because the three companies have a common management and integrated treasury, and operate in similar lines of business. The entities are collectively referred to as the Continental group.

Stable Outlook : Continental Warehousing Corporation Credit Rating

CRISIL believes the Continental group will benefit over the medium term from its established presence in the CFS business, and diversified operations, which are expected to help the group maintain steady cash flows. The financial risk profile is expected to remain adequate over the medium term backed by prudent funding mix of upcoming capex.

The outlook may be revised to ‘Positive’ if faster-than-expected ramp-up in operations of new PFTs leads to substantial growth in revenue and cash flows thereby improving the capital structure, especially debt to EBITDA ratio.

Conversely, the outlook may be revised to ‘Negative’ if the expected improvement in key credit ratios delays, or ramp-up of operations of new PFTs takes longer-than-expected, or in case of significant time or cost overrun in the upcoming capex, weakening the financial risk profile.

Any new significant capex plans or a decline in operating performance because of increased competition, or slowdown in trade volumes may also lead to a revision in outlook to ‘Negative’.