- Track record of Pranava Group in the real-estate sector; promoter’s industry experience and established regional presence
The group is promoted by Mr. Boorugu Ravi Kumar and Mr. Ashok Bandaru who have more than 2 decades of experience as a real estate developer through various projects executed under the group. Mr. Sama Srinivas, Chief Operating Officer of Pranava Group has gained nearly 2 decades of hands-on experience in construction industry along with different fields namely training and development, entertainment, Retail, and Manufacturing. The senior management team is ably supported by a strong line of mid-level managers. Pranava group consists of entities namely ‘Pranava Avenues Private Limited’, ‘Boorugu Infra Projects Private Limited’ and ‘Pranava Group’ (Partnership Firm) which are engaged in similar line of business. The Pranava group as a whole has completed more than 1 million square feet of residential and commercial projects and plans to add further 1-1.1 million square feet of residential and commercial space by way of its on-going project ‘One Hyderabad’. Alongside, the brand equity of 'Pranava' enjoys a modest reputation and is a renowned developer in the Hyderabad (Telangana) region. The project is located strategically in the planned areas of Hyderabad (Telangana). The location of the projects is very well developed both residentially and commercially with a lot of scope for further development. Commercial complexes, including supermarkets, schools, restaurants, hospitals, fitness centers and banks, are abundant in the closest vicinity of the location. Acuité believes that the promoters have demonstrated good execution capabilities with a reputation for quality and timely completion. Promoters' industry experience is expected to support in a successful sale of the units in the on-going project.
BIPPL’s project “One Hyderabad” consists of residential space of 5,98,978 Sq.fts and commercial space of 4,88,858 Sq.fts. The estimated project cost is around Rs.342 Cr. It is expected to be funded through 31.59 percent of debt, 31.81 percent of promoter contribution (in form of equity and unsecured loans) and remaining 36.60 percent through customer advances. The funding risk is low as the term loan has been sanctioned by State Bank of India (SBI) to an extent of Rs.100.00 Cr in 2021 and Rs.96.55 Cr has been disbursed as of March 31st , 2023. The contribution from promoter stood at Rs.100 Cr as of March 31st , 2023. The unsecured loans brought in by the promoters are subordinated to the Term Loan. The contribution from customer advances stood at Rs.133.45 Cr as of March 31st , 2023. Out of Rs.270.24 Cr construction cost, the company has incurred Rs.222.38 Cr as of March 31st , 2023 resulting in almost 82 percent completion. Further, considering the past track record of completion of Pranava Group, the project is expected to be completed by June 2023, resulting in moderate mplementation risk. The booking of project was started from FY2020. BIPPL recorded sale of 76 residential units as on March 31st , 2023. The real estate market has been growing across the country and moreover in the Hyderabad (Telangana) as evident from the sales trend of the project leading to moderate demand risk. Acuité believes that the project risk profile of BIPPL will remain moderate over the medium term.
- Presence of escrow account, DSRA and sweep ratio to ensure timely repayments
The lenders are expected to benefit from the escrow account and the sweep mechanism for servicing principal, interest, and other obligations payable towards the arrangement. BIPPL’s all sale proceeds are rerouted through escrow account to monitor and use the collections from the sales. The lenders have exclusive charge over the escrow account in the name of the borrower. Moreover, comfort can be drawn from the presence of DSRA. BIPPL has to maintain a Debt Service Reserve Amount (DSRA) equivalent to for 1 Quarter (3-months) principal of Rs.25.00 Cr and interest portion. There is presence of cash sweep ratio which will enable the lender to use the excess collections for principal repayment of term loan. Moreover, Pranava Group has extended corporate guarantee towards the borrowings. Acuité believes that the presence of adequate liquidity buffers and oversight mechanism will strengthen the payment structure of the external borrowings.
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- High geographical concentration risk in revenue profile and intense competition in the industry
BIPPL’s on-going project are located in Somajiguda, Hyderabad (Telangana); with no plans to diversify in the medium term. Acuité believes that BIPPL would remain geographically concentrated until the start-up and successful completion of any project and receipt of healthy customer advances through the sale of entire units in any other region in future. Furthermore, the company would continue to remain exposed to intense competition from larger players in Telangana like Jayabheri group, Aparna Constructions and Estates Pvt Ltd, Prestige Group, My Home group, Kalpataru Group, mantra Group, Lodha group amongst others.
- Susceptible to real estate cyclicality and regulatory risks
The real estate industry in India is highly fragmented with most of the real estate developers, having a city-specific or region-specific presence. The risks associated with the real estate industry are cyclical in nature of business (drop in property prices) and interest rate risk, among others, which could affect the operations. BIPPL is exposed to the risk of volatile prices on account of demand-supply mismatches in the Hyderabad real estate industry. The company is exposed to market risks for the unsold inventory, in terms of sales velocity, pricing and timely collection. Further, the industry is exposed to regulatory risk, which is likely to impact players such as BIPPL, thereby impacting its operating capabilities. However, Acuité believes that the risk to an extent is mitigated on account of improved sales velocity in current financial year.
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