Rationale

The rating upgrade for NKC DH Expressway Private Limited (NDHEPL) favourably factors in the commencement of annuity and operations and maintenance (O&M) payments as well as partial creation of stipulated reserves as per sanctioned terms, following the receipt of provisional commercial operation date (PCOD) for the sixlane national highway construction project executed by the company under the hybrid annuity model (HAM). The Positive outlook reflects ICRA’s opinion that its credit profile will further improve with the full creation of its debt service reserve (DSR) and timely receipt of annuities and O&M payments, without any material deductions. The PCOD was declared in July 2025 for 21.84 km – covering almost the entire project length – barring punch‑list items, with the project achieving ~100% completion by the time of receipt of the first annuity. The company has already applied for final commercial operation date (COD) and is expected to receive it from the National Highways Authority of India (NHAI; rated [ICRA]AAA (Stable)) by March 2026. While the first annuity was received within 16 days of the annuity due date [vis-à-vis 15 days as per the concession agreement(CA)], ICRA anticipates the subsequent annuities to be received in a timely manner, given the strong counterparty. Consequently, the credit profile is likely to improve with stability of cash flows on full annuity payments. The rating continues to factor in the credit support provided by the structural features of the debt, including presence of an escrow account, cash flow waterfall mechanism, provision for a six-month DSR (to be created from the first four annuities), creation of a major maintenance reserve (MMR) and restricted payment clause with a minimum debt service coverage ratio (DSCR) of 1.13 times. ICRA draws comfort from the buffer of around 50 days between the annuity due date and the scheduled debt-servicing date, which provides a cushion in case of any delay in annuity receipts. Further, the rating notes the healthy credit profile of NDHEPL’s sponsor, NKC Projects Private Limited (NPPL; rated [ICRA]A (Stable)/ [ICRA]A2+), which has provided sponsor undertakings towards any shortfall in O&M expenses for the project and debt-servicing obligations for the entire tenor of the facility. Given that the DSRA is not fully funded at present (~25% created, in line with sanctioned terms), NPPL is expected to bridge the funding gap, if any, to ensure timely debt-servicing obligations. The rating, however, remains constrained by the exposure of NDHEPL’s cash flows to inflation risks, as O&M receipts, though linked to the inflation index [70% Wholesale Price Index (WPI) and 30% Consumer Price Index (CPI)], may not be adequate to compensate for the actual increase in O&M/ periodic maintenance expenses. ICRA also notes the single-asset nature of the project, making the debt metrics sensitive to any deductions in annuity and O&M receipts. The O&M works are being currently undertaken by NPPL, as per the fixed-price O&M and major maintenance (MM) agreement. The company will have to undertake O&M for the project stretch as per the CA to avoid any deductions from annuities. Any such significant deductions or an increase in routine maintenance or MM from the budgeted level could impact its DSCR and therefore remain a key monitorable.