In an industry-first, ICRA, leading rating agency in the country, has assigned [ICRA]A- (Stable) to Greencell Marudhara Private Limited, GMPL, the electric vehicle bus - fleet operator for the Rajasthan State Road Transport Corporation (RSRTC) in the state of Rajasthan.
The rating in this sunrise sector is of significance as the Government of India (GOI) is focussing significantly on promoting electric vehicles as a cleaner and sustainable form of transportation, with special focus on the commercial segment.
To encourage electric vehicle adoption in India, the GOI has introduced various programs over the years. At the center of this was the National Electric Mobility Mission Plan 2020 (NEMMP 2020), which was introduced in January 2013. As part of the NEMMP 2020, Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme was launched by the Central Government in April 2015. After completion of the first phase, its Phase II (known as FAME II) became effective from April 1, 2019 for a tenor of three years with a capital outlay of Rs10,000cr.
FAME II targets demand generation by offering subsidies as incentives to reduce the capital investment associated with EVs. Out of total budgetary support, about 86 percent of funds have been allocated for demand incentive to create demand for EVs in the country. In addition, around ten states have so far announced or have floated their draft EV policies. In addition to FAME II, these policies offer other modes of incentives such as exemptions from registration and road-tax to further augment sales of electric vehicles in India.
The first step has been identified as electrification of public transportation and commercial segments, with key focus being on the bus fleet in the country. Accordingly, FAME II aims to generate demand by way of supporting 7,000 Electric Buses (e-bus). In addition to the demand incentives under FAME II, demand generation is also targeted through subsidised electricity tariffs, exemptions or reductions on road tax, registration tax in order to reduce the capital investment associated with EVs. As part of these programs, SRTUs are being supported to gradually adopt e-buses into their fleet, with an order pipeline of more than 5,000 e-buses announced across the country.
Elaborating further, Shamsher Dewan, Vice President, ICRA Limited says, “We are delighted to announce ICRA’s first rating in the emerging EV segment. Considering the significant cost-differential between conventional vehicles and EVs, the key driver for the adoption of EVs remain the incentives provided by the GOI. In this regard, GOI’s focus on promoting electric vehicles as a cleaner and sustainable form of transportation by providing capital subsidies remains a positive.
For faster penetration of EVs in India, it is imperative that India develop a domestic EV manufacturing ecosystem as well. Currently, the domestic production scenario is in its infancy and is limited to assembly of imported components. However, given the localization targets applicable to the FAME policy, this is expected to put in place the local manufacturing expertise. Going forward we expect JVs between global EV OEMs and domestic partners.”
The rating assigned for Greencell Marudhara Private Limited (GMPL) factors in its status as the successful concessionaire for procurement, operations and maintenance of 48, 12-metre-long, fully built air-conditioned electric buses on intercity routes for Rajasthan State Road Transport Corporation (RSRTC; Authority) (on Gross Cost Contract Basis under the FAME II Scheme), and its superior financial flexibility by virtue of being backed by Green Growth Equity Fund (GGEF; sponsor).
The business model of companies in this space is expected to be characterised by high revenue visibility and minimal traffic risk, given the nature of the contracts, wherein entities will be paid a fixed rate (in Rs./Km) for a minimum assured distance, subject to the assured bus availability, over a pre-defined contract period.
Such projects will also limit the counterparty risk to an extent by the presence of an escrow mechanism, wherein the SRUs would be obligated to deposit the revenues from ticket collections while also maintaining some reserves to ensure timely debt servicing. However, limited track record of e-bus operations in India and inherent risk associated with projects in execution remains key monitorable. Furthermore, in the initial phase, OEMs for such projects remain dependant on imported components/technology sourcing. Thus, any adverse developments on the geo-political front with relation to trade policies can impact availability of components and seamless operations.