March 28, 2024

Ocean Sparkle Limited: Long-term rating upgraded to [ICRA]AA (Stable) and short-term
rating reaffirmed
Summary of rating action

Previous Rated Amount Current Rated Amount

Instrument* Rating Action
(Rs. crore) (Rs. crore)
[ICRA]AA (Stable) upgraded from
Long term – Fund-based - Others 34.00 4.00
[ICRA]AA- (Stable)
Short term - Non-fund based 150.00 65.00 [ICRA]A1+ reaffirmed
[ICRA]AA (Stable) upgraded from
Long term/Short term –
- 115.00 [ICRA]AA- (Stable); [ICRA]A1+
Unallocated limits
reaffirmed
Total 184.00 184.00
*Instrument details are provided in Annexure-I

Rationale

While arriving at the ratings, ICRA has taken a consolidated view of Ocean Sparkle Limited (OSL) and its subsidiaries, Sparkle
Port Services Limited (SPSL), Sparkle Terminal and Towage Services Limited (STTSL), collectively referred to as the OSL Group
due to their managerial, operational and financial linkages.

The rating upgrade factors in the improvement in the credit risk profile of the parent group - Adani Ports and Special Economic
Zone {APSEZ, rated [ICRA]AA+(Stable)/[ICRA] A1+} - and an improvement in the operating profitability of the OSL Group. ICRA
had revised the outlook on the long-term rating of APSEZ to Stable from Negative in February 2024. The operating margins of
the OSL Group improved to ~57% in 9M FY2024 from 47% in FY2023 owing to a reduction in costs after acquisition by reducing
idle time for the tugs, optimisation of teams, reduced employee costs along with renewal of contracts at higher rates.

The ratings continue to factor in the company’s extensive track record and considerable experience in port operations and
management (O&M) services, its leadership position in the segment, the medium-to-long tenure of its customer contracts and
the take-or-pay provisions that helped the company’s performance remain healthy in FY2023 and 9M FY2024. The credit profile
derives comfort from the large and diversified fleet and OSL’s track record of getting repeat business from contract renewals
/extensions and the healthy bidding success rate of the new contracts. The renewal risk is also mitigated by its dominant
market share. Further, the long-term demand outlook for port O&M services remains favourable, driven by large-scale ongoing
and proposed port developments in India.

ICRA, however, notes that other segments, such as offshore supply vessel (OSV), entails additional business risks for the
company. The OSV segment had been witnessing a steep reduction in rates during contract renewal/re-negotiation in the past
few years, which adversely impacted the profitability from this segment; the impact has been partly mitigated by the
rationalisation of the operating costs by the company. The company has deployed two vessels in this segment to ONGC and
both the contracts are long term in nature with a tenure of three years.

The ratings are also supported by OSL’s financial profile, evident from its healthy profitability indicators, comfortable capital
structure and healthy coverage indicators. Further, its liquidity profile is adequate with healthy cash flow from operations,
unutilised bank limits and unencumbered cash balances.

The ratings are, however, constrained by the inherently high capital intensity of the business, which leads to moderate return
indicators, and the ongoing expansion plans of the company. Moreover, while its profitability remains vulnerable to idle vessel
time and competition in the port O&M sector, ICRA notes that the track record of healthy vessel utilisation levels and contract

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 renewals mitigates the risk. Further, any large debt-funded capex or a large-scale M&A activity, if undertaken, would be an
event-based rating sensitivity.

The Stable outlook on the long-term rating reflects ICRA’s opinion that OSL’s credit profile will continue to benefit from its
dominant market position, its large fleet and its extensive experience in the port O&M segment, supported by a favourable
long-term demand outlook for port O&M services.

Key rating drivers and their description

Credit strengths

Extensive track record and leading market position in Indian port O&M services sector - OSL, incorporated in 1995, along
with its subsidiaries and JV, provides port O&M services. With a fleet of around 87 vessels (as on December 31, 2023), it is the
largest player in the domestic O&M market.

Favourable long-term demand outlook for port management and other marine services – OSL provides port O&M services
and accordingly the growth in its business is directly linked to the scale of activity and investments in the port sector. The
positive outlook for cargo growth is expected to boost growth in the port O&M business, which augurs well for companies
such as OSL.

Stable business model and good track record of repeat business – The Group’s business model is primarily based on long term
contracts, with tenures ranging from two to 15 years and a provision for further extensions/renewals based on mutual
agreements. Further, the take-or-pay provision of contracts results in assured revenue, irrespective of the throughput and the
vessels handled by the ports. The company got several contracts renewed in the current fiscal at higher rates. While a portion
of its existing orders are due for renewal in the next year, the renewal risk is mitigated by its dominant market position, a
diversified fleet and a healthy track record of getting repeat business from contract renewals/extensions. OSL’s healthy bidding
success rate in new contracts provides comfort to its growth prospects and revenue generation capability. ICRA also notes that
the competitive intensity has moderated in recent years in the O&M segment due to the financial constraints faced by some
of the other players.

Comfortable financial risk profile with healthy profitability indicators – OSL’s financial profile remains comfortable, evident
from its healthy profitability indicators, a healthy capital structure and comfortable coverage indicators. On a consolidated
basis, OSL’s revenue and operating profitability remained broadly flat in FY2023 at Rs. 615.2 crore (P.Y. Rs. 606.3 crore) and
47.1% (P.Y. 49.5%), respectively. During 9M FY2024, the financials remained healthy with revenues of ~Rs. 470.8 crore and
operating profitability of 57.0% at the consolidated level. The improvement in operating profitability is attributable to various
factors, including reduced idle time for the tugs, optimisation of teams, reduced employee costs and renewal of contracts at
higher rates. The company has repaid all its term loans, except for the NCDs at STTSL. The loans were repaid using existing
cash balances and unsecured loan from AHSL. The company’s coverage metrics had remained comfortable. During 9M FY2024,
on a consolidated basis, the interest coverage stood at 35.33 times and DSCR at 3.4 times.

Credit challenges

High capital-intensive nature of business - The inherently high capital intensity of the business necessitates periodic large-
scale expansion of fleet. Further, any timing mismatches in the intermediary period between asset acquisition and deployment
can impact its profitability. However, the company’s policy of acquiring vessel only when the visibility of the contract pipeline
is good moderates the risk. At present, the company has no debt-funded vessel acquisition plan, for which the capital structure
is expected to remain comfortable in the near term.

Business and financial risks associated with OSV segment - The company had entered the OSV segment a few years back to
get diversification benefits and enjoy the healthy margin then available in this segment. However, over the years, OSL has
witnessed a steep reduction in rates for its platform supply vessels (PSVs) during contract renewal/re-negotiation, in line with
the industry trends, which has adversely impacted the profitability from this segment. However, the impact has been partly

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 mitigated by the rationalisation of operating costs by the company. The company has deployed two vessels in this segment to
ONGC and both the contracts are long term in nature with a tenure of three years.

Moderate return indicators although the same improved in 9M FY2024 - The return indicators have been moderate till
FY2023, despite healthy profitability, due to the inherently high capital intensity of the business. However, the return on capital
employed improved in 9M FY2024 due to higher operating profitability in 9M FY2024 and a significant reduction in debt levels.

Liquidity position: Adequate

At a consolidated level, OSL’s liquidity position is expected to remain adequate with healthy operating cash flows. The
repayment obligations remain low at ~Rs. 9.00 crore per annum in FY2025 and FY2026, which would be comfortably met from
operating cash flows. At a consolidated level, the surplus free cash and liquid investments stood at ~Rs. 30.6 crore as on
December 31, 2023 and fund-based limits of Rs. 4 crore remained unutilised. Going forward, the company plans to incur a
capex of ~Rs. 100 crore each in FY2025 and FY2026 for the purchase of vessels, which is expected to be funded by internal
accruals.

Rating sensitivities

Positive factors – The ratings could be upgraded if there is a substantial growth in revenue and profitability on a sustained
basis, and the company maintains or improves its capital structure and coverage indicators. Further, an improvement in the
credit profile of the parent could be a positive trigger.

Negative factors – Pressure on the ratings may arise if there is significant reduction in revenue and profitability, or significant
impact on the credit profile caused by higher-than-expected debt-funded capital expenditure. Further, weakening in the parent
company’s credit profile or weakening of linkages with the parent could be a negative trigger.

Analytical approach

Analytical Approach Comments

Applicable rating methodologies Corporate Credit Rating Methodology
Parent/Group Company: Adani Ports and Special Economic Zone Limited
The ratings draw comfort from the likelihood of support from the ultimate parent company
Parent/Group support
for the rated entity, should there be a need in future, given the strategic importance of the
rated entity to the parent group
While arriving at the ratings, ICRA has taken a consolidated view of Ocean Sparkle Limited
(OSL) and its subsidiaries- Sparkle Port Services Limited (SPSL), Sparkle Terminal and Towage
Consolidation/Standalone
Services Limited (STTSL). As on March 31, 2023, the company had four subsidiaries and a joint
venture, which are all enlisted in Annexure II

About the company

Ocean Sparkle Limited (OSL), its subsidiary and its joint venture (JV) companies, collectively referred to as the OSL Group, are
engaged in the provision of marine vessels and comprehensive port management services across various major, non-major
and captive ports in India and abroad. Adani Ports and Special Economic Zone Limited (APSEZ), through its subsidiary Adani
Harbour Services Limited (AHSL), acquired a majority stake in the company in May 2022. Accordingly, from May 2022, AHSL
has become the holding company and APSEZ has become the ultimate holding company. AHSL, directly or indirectly, held
98.52% in OSL as on December 31, 2023.

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 Key financial indicators (audited)

OSL Consolidated FY2022 FY2023 9M FY2024*

Operating income 606.3 615.2 470.8
PAT 161.9 188.0 206.7
OPBDIT/OI 49.5% 47.1% 57.0%
PAT/OI 26.7% 30.6% 43.9%
Total outside liabilities/Tangible net worth (times) 0.43 0.16 0.11
Total debt/OPBDIT (times) 1.76 0.54 0.23
Interest coverage (times) 5.65 10.49 35.33
Source: Company, ICRA Research; * Provisional numbers; All ratios as per ICRA’s calculations; Amount in Rs. crore; PAT: Profit after tax; OPBDIT: Operating profit
before depreciation, interest, taxes and amortisation

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for past three years

Chronology of rating history

Current rating (FY2024)
for the past 3 years
Amount Date & Date &
Instrument Amount outstanding Date & rating
Date & rating in FY2023 rating in rating in
Type rated as on Mar in FY2024
FY2022 FY2021
(Rs. crore) 31, 2023
(Rs. crore) Mar 28, 2024 Mar 13, 2023 Apr 29, 2022 Apr 08, 2021 -
Long [ICRA]AA- (Stable); [ICRA]AA-
1 NCD 1 - -- - [ICRA]AA-% -
term withdrawn (Stable)

Long [ICRA]AA- (Stable); [ICRA]AA-

2 NCD 2 - -- - [ICRA]AA-% -
term withdrawn (Stable)

Long [ICRA]AA-
3 Term loans - -- - - [ICRA]AA-% -
term (Stable)

Fund based –
Working Long [ICRA]AA [ICRA]AA-
4 4.00 -- [ICRA]AA- (Stable) [ICRA]AA-% -
capital term (Stable) (Stable)
facilities

Non-fund Short
5 65.00 -- [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ -
based term

Long [ICRA]AA-
Unallocated [ICRA]AA-
6 term/Sh - -- - - (Stable)/ -
limits %/[ICRA]A1+
ort term [ICRA]A1+
Long [ICRA]AA
Unallocated
7 term/Sh 115.00 -- (Stable)/ - - - -
limits
ort term [ICRA]A1+
%: Rating watch with positive implications

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 Complexity level of the rated instruments

Instrument Complexity Indicator

Long term – Fund based - Others Simple
Short term - Non-fund based Very Simple
Long term/Short term – Unallocated limits Not Applicable

The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated.
It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument's
credit rating. It also does not indicate the complexity associated with analysing an entity's financial, business, industry risks or
complexity related to the structural, transactional or legal aspects. Details on the complexity levels of the instruments are
available on ICRA’s website: Click Here

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 Annexure I: Instrument details

Amount Rated
ISIN Instrument Name Date of Issuance Coupon Rate Maturity Current Rating and Outlook
(Rs. crore)
Long-term – Fund
NA - - - 4.00 [ICRA]AA (Stable)
based - Others
Short-term - Non-
NA - - - 65.00 [ICRA]A1+
fund based
Long term/Short
NA term – Unallocated - - - 115.00 [ICRA]AA (Stable)/[ICRA]A1+
limits
Source: Company

Please click here to view details of lender-wise facilities rated by ICRA

Annexure II: List of entities considered for consolidated analysis

Consolidation
Company Name OSL Ownership
Approach
Ocean Sparkle Limited 100.00% (rated entity) Full Consolidation
Sparkle Port Services Limited 100.00% Full Consolidation
Sparkle Terminal and Towage Services Limited 100.00% Full Consolidation
Sparkle Overseas Pte. Ltd. 100.00% Full Consolidation
Sea Sparkle Harbour Services Limited 100.00% Full Consolidation
Khimji’s Sparkle Marine Services Co SOAC 49.00% Equity Method

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 ANALYST CONTACTS
Girishkumar Kadam Prashant Vasisht
+91 22 6114 3441 +91 124 4545 322
[email protected] [email protected]

B Kushal Kumar Deep Shailesh Vakil

+91 040 6939 6408 +91 7977801221
[email protected] [email protected]

RELATIONSHIP CONTACT
L. Shivakumar
+91 22 6114 3406
[email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
[email protected]

Helpline for business queries

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)

[email protected]

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
companies as an independent and professional investment Information and Credit Rating Agency.

Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company,
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For more information, visit www.icra.in

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