RATING RATIONALE

Kochi Municipal Corporation

03 Feb 2020

Brickwork Ratings assigns the ratings for the Bank Loan Facilities of ₹ 34.40
Crores of Kochi Municipal Corporation.

Particulars
Limits
Facility Tenure Rating*
(₹ Crs)

Fund Based
34.40 Long Term BWR BBB/Stable
Term Loan

Total 34.40 INR Thirty-Four Crores and Forty Lakhs Only

*Please refer to BWR website w ​ ww.brickworkratings.com​ for definition of the rating assigned
Note: Details of bank wise facilities is as per Annexure-I

RATING ACTION / OUTLOOK

The rating assigned inter-alia factors the economic importance of the city, growth in revenues
with adequate surplus income, improvement in collection efficiency for property tax, water tax
and Sewerage tax, etc, and improved civic service parameters. It is further supported by
comfortable financial profile with low loans to reserve ratio of 0.01x as on 31 March 2019 as per
unaudited financials, overall improvement in the proportion of tax income in overall revenues
(~38.41% of total revenues), healthy generation of cash accruals of Rs.41.55 Crs in FY19. The
rating is however constrained by the high receivables (increasing Y-o-Y basis), which is largely
comprising of arrears from earlier years, and implementation risk associated with the ongoing
projects being implemented under various schemes.

The Outlook for the corporation, remains Stable, considering the stable revenue generation from
tax revenues, assigned revenues and compensations and revenues grants, contribution and
subsidies, steady progress in ongoing capital expenditure plans and generation of adequate net
cash surplus before depreciation for repayment of debt obligations

KEY RATING DRIVERS

Credit Strengths:
● Economic importance of the city: ​Kochi being the state economic center of Kerala,
KMC is strategically important to the State ensuring adequate support from the State
Government. The city is well connected with other economic centres and has good
infrastructure in place.

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 ● Strong financial risk profile with moderate revenues surplus: ​KMC has been
witnessing growing revenue receipts since the last few years with gradual increase in
both, property tax revenue and non-tax revenue components. The property tax revenue
which has a positive growth during FY19 has shown an increase of 21.44% for FY19 and
professional tax has shown a growth of 19.16% in FY19. In FY19, KMC reported
improvement in net surplus to Rs. 20.30 crs from Rs. 6.18 crs in FY18 due to increase in
total income on account of increase in revenues grants, contributions and subsidies and
increase in collection of tax revenues. The Loans to Reserve ratio considering the secured
HUDCO loans of KMC as debt works out to 0.01X as on 31 March 2019.

● Improved coverage of civic services: ​Improvements in the service levels for the water
and sanitation sector against the service level benchmarks for urban local bodies set by
the Ministry of Urban Development. The Household-level coverage of water supply
connections is at 95.00%(FY19). Coverage of toilets stood at 100% and Household-level
coverage of solid waste management services stood at 87%.

Credit Risks:
● Increasing Receivable levels: ​Total o/s receivables stood at ₹91.8 Crores as on FY19 as
against ₹76.1 Crores as on FY18

ANALYTICAL APPROACH AND APPLICABLE RATING CRITERIA

BWR has taken a consolidated view on the operational and financial performance of the
corporation while arriving at a rating. For arriving at its ratings, BWR has applied its rating
methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of
this rationale).

RATING SENSITIVITIES
The ability of the Corporation to improve the tax revenues, collection efficiency, ensuring
adequate timely availability of cash flows and continued support from the State Government will
remain the key rating sensitivities.

Positive: Improvement in the tax collection efficiency, monthly collection of property taxes &
fees and user charges and a substantial reduction in the receivables position.

Negative: Reduction in the monthly collection of property tax and fees and user charges or any
sharp reduction in the available surplus in the Municipal Corporation.

Liquidity Position: Adequate

The average cash surplus before depreciation generated in the last three years (FY17-FY19) is at
Rs. 29.68​ Crores. KMC has outstanding borrowings of ₹4.20 Crores as on 31 March 2019. For
the fresh term loan of Rs. 34.40 Crs, the tenor of the loan is 15 years including 8 months

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moratorium period, the repayment obligations per year will be approx at Rs. 2.4 Crs for which
the KMC is generating adequate cash surplus before depreciation. Also as of 31 March 2019,
KMC has reported cash and bank balances of ₹156.30 Crores.

About the Company

Kochi Municipal Corporation (KMC) is the second largest Urban Local Body (ULB) by area and
population after Thiruvananthapuram Municipal Corporation. KMC is primarily responsible for
the basic civic services and amenities to the residents. The key services managed by the KMC
are construction and maintenance of roads and drains, solid waste management, street lights and
amenities such as community hall, playgrounds, parks/gardens. The Kerala Municipality Act
1994 (KM Act) governs all functions in KMC. KMC has jurisdiction over 94.88 square
kilometers and is divided into 74 wards for ease of administration. The Kochi Municipal
Corporation falls within the Greater Kochi Region which comprises 6 municipalities of
Kalamasseri, Angamaly, Aluva, Paravoor, Perumbavoor and Thripunithira and 33 panchayats
spread over an area of 732 sqkm. The municipalities within the region are mostly Class II towns
having populations of less than a lakh, Kochi is the only Class I. The main decision-making body
of KMC is the Council, comprising elected representatives and the administrative wing, headed
by the Secretary which manages day-to-day operations.

Key Financial Indicators

Key Parameters Units 31-Mar-2018 31-Mar-2019

Result Type Audited Unaudited

Total Income ₹ Cr 313.89 475.72

Total Expenditure ₹ Cr 297.50 432.93

Surplus Before Interest and ₹ Cr

16.40 42.78
Depreciation
Net Surplus ₹ Cr 6.18 20.30

Municipal Fund and Reserves ₹ Cr 419.6 512.1

Complexity levels of the instruments

For more information, visit www.brickworkratings.com/download/ComplexityLevels.pdf

Key Covenants of the Facility Rated - The terms of sanction include standard covenants
normally stipulated for bank loan facilities

NON-COOPERATION WITH PREVIOUS RATING AGENCY IF ANY : NA

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RATING HISTORY FOR THE PREVIOUS THREE YEARS

S.No Facility Current Rating Rating History

Type Amount
Rating 08 Mar 2019 10 Nov 2018 8 Feb 2017
(₹ Crs)

Fund
BWR
Based Long
1 34.40 BBB -- -- --
Term Term
/Stable
Loan

Withdrawal of BWR BBB

Issuer Long
2 -- -- BWR (Notice of BWR BBB/Stable
Rating Term
BBB/Stable Withdrawal)

Total 34.40 ₹ Thirty-Four Crores and Forty Lakhs Only

COMPLEXITY LEVELS OF THE INSTRUMENTS

For more information, visit ​www.brickworkratings.com/download/ComplexityLevels.pdf

Hyperlink/Reference to applicable Criteria

● General Criteria

● Approach to Financial Ratios

● Public Finance - Municipal & Urban Local Bodies

Analytical Contacts Investor and Media Relations

Kiran P N
Senior Analyst
B :+91 80 4040 9940 Ext :326
[email protected] Liena Thakur
Assistant Vice President - Corporate Communications
Vipula Sharma +91 84339 94686
Director - Ratings [email protected]
B: +91 80 4040 9940
[email protected]

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 Kochi Municipal Corporation

Annexure-I
Bank Loan Facilities

Name of the Bank Facilities Tenure Amount

(₹ Crores)

Union Bank of India Term Loan Long Term 34.40

Total 34.40

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