Ind-Ra Assigns Dredging Corporation ‘IND AA’

India Ratings & Research (Ind-Ra) has assigned Dredging Corporation of India Limited (DCI) a Long-Term Issuer Rating of ‘IND AA’ with Stable Outlook.

The rating reflects DCI’s moderate to strong operational linkages with the government of India (GoI; 78.56% shareholder) and strong market position in the domestic dredging market. DCI’s ownership by GoI has facilitated large contracts on a nomination basis in the past. Till FY13 (year end March), DCI earned about 50% of its revenue from the contracts provided on a nomination basis.

The support of GoI is also likely to help DCI to realise its overdue of INR3,089.7m from Sethusamudram Corporation Ltd. by 1HFY16.

The rating also reflects the company’s recent steps taken to improve its operational and thus financial performance. It added three new dredgers during FY13 and FY14 to replace over 30-year-old dredgers. This resulted in operating EBITDAR margins improving to 24.1% in FY14 from 18.8% in FY12. DCI plans to induct one more dredger over the next two years to further modernise its fleet.

However, debt funding for the new dredgers also increased the net leverage of the company (FY14: 6.5x; FY13: 6.3x), despite the higher margins. Ind-Ra expects DCI to deleverage below 4.5x by end-FY15 due to expected improvements in the EBITDA margins.

DCI is in the advanced stages of discussions with various ports on part financial support for acquiring more dredgers with a commitment to meet their dredging requirements for a prescribed period. Funding an additional dredger through internal sources, including realisation of dues from Sethusamudram Corp and also part financial support from ports will lead to a further increase in cash inflow as well as will lower the leverage to below 3.0x by FY17.

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