Rationale

 The rating upgrade for NKC Alewa Pandwa Expressway Private Limited (NAPEPL) factors in the successful completion of the highway construction project with the achievement of the final commercial operation date (COD) w.e.f. November 06, 2025, thereby eliminating any residual execution risks. Further, the rating positively notes the receipt of two semi-annual annuities and operations and maintenance (O&M) payments, without any material deductions (excluding statutory deductions and a one-time adjustment for certain changes of scope), eliminating the uncertainty around the final completion cost with which the future annuities will be linked. While the first annuity payment was received with a delay, the second annuity payment was received timely. Moreover, ICRA draws comfort from the buffer of ~35 days between the annuity due date and the scheduled debt-servicing date and also expects the subsequent annuities to be received in a timely manner, given the finalisation of cost and presence of a strong counterparty – the National Highway Authority of India (NHAI, or the authority; rated [ICRA]AAA (Stable)). The rating continues to favourably 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 debt service reserve (DSR), creation of a major maintenance reserve (MMR) and a restricted payment clause with a minimum debt service coverage ratio (DSCR) of 1.1 times. NAPEPL partially created the debt service reserve account (DSRA) using the first two annuity receipts, amounting to a balance of Rs. 17.6 crore as of January 2026. The remaining DSRA requirement, originally stipulated to be funded through the next two annuity receipts, was instead created upfront through submission of bank guarantees - aggregating Rs. 17 crore - by the sponsor, NKC Projects Private Limited (NPPL; rated [ICRA]A (Stable)/[ICRA]A2+), in March 2026. Accordingly, the DSRA – equivalent to six months of debt‑servicing obligations – stands fully created. ICRA also notes that NPPL has provided sponsor undertakings towards meeting any shortfall in O&M expenses for the project and debt-servicing obligations for the entire tenor of the facility. The rating, however, remains constrained by the exposure of NAPEPL’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 factor. The Stable outlook on the long-term rating considers the expectation of timely receipt of annuities and presence of comfortable debt coverage indicators.