­Experienced management with long track record of operations
CGEL was incorporated in the year 2000 and is the flagship company of Ahmedabad based ‘City Gold’ group, promoted by Mr. Chimanlal Agrawal and Mr. Sanjay Agrawal. Mr. Chimanlal Agrawal has an experience of over four decades in construction, real estate development and leasing of space and Mr. Sanjay Agrawal has around two decades of experience in the aforementioned industries. CGEL has been engaged in the business of film exhibition and leasing of space for over two decades through its property namely, “City Gold, Ashram Road” accommodating a five screen multiplex along with four other corporate tenants and has recently launched property by the name of  "Citygold Vastral" accommodating another multiplex with 7 screens and space for leasing. Further, the company operates three other multiplexes located at Motera, Kadi and Bopal. The group generates its revenue from film exhibition, real estate development and leasing of space and has developed more than 25 projects spread over 42 lakh square feet of commercial and residential space in Ahmedabad region. Further, the company also operates a total of 5 multiplexes under the brand name ‘City Gold‘ across Ahmedabad region with 21 screens and seating capacity of over 4000. Acuité believes that CGEL will continue to benefit from its established track record of operations and experienced management.

Improving operating performance:
Multiplex segment of the company has shown significant recovery post covid. The segment was highly impacted during FY21-22 on account covid induced restrictions. The company has registered revenue of Rs.17.91Cr during FY23 posting a growth rate of ~90 percent against Rs.9.08Cr of FY22. The growth is mainly on account of recovery of operation as government has eased all the restrictions post COVID-induced lockdown. Further to this, the company has already registered revenue of Rs.14.27Cr in H1FY24, growth in revenue is majorly contributed by improving occupancy in the multiplex and additional cash flow from newly launched 7 screen multiplex  " CG Vastral".

The newly launched G+10 floors property at Vastral has multiplex with 7 screens and CGEL has leased out 60 percent of the area to reputed companies like Tata’s- Westside, Reliance Smart, Trends, Footwear and Shivnetrak foods on a long term lease agreement for an average period of 16 years and is in plans for leasing out the remaining space by the end of FY24, providing long term revenue visibility. Acuite believes that, CGEL will post a healthy growth in its revenue over the medium term on account of healthy cash flows from rental and multiplex segment.

Healthy financial risk profile
Financial risk profile of CGEL is healthy marked by healthy networth, moderate gearing and healthy debt protection metrics. The networth of the company has improved to Rs.76.50 Cr as on 31 March, 2023 as against Rs.71.93 Cr as on 31 March, 2022 on account of moderate accretion to reserves. The gearing (debt-equity) is marginally deteriorated but stood healthy at 0.65 times as on 31 March, 2023 as against 0.55 times as on 31 March, 2022.  The gearing of the company is however expected to improve and remain low over the medium term on account of absence of any debt funded capex plans in the medium term. The total debt of Rs.49.60 Cr as on 31 March, 2023 consists of long term bank borrowings of Rs.39.34 Cr, Unsecured loans of Rs.7.03Cr and short term working capital of Rs.3.23 Cr.

The debt protection metrics of the company stood healthy with interest coverage ratio at 11.39 times and Debt Service Coverage Ratio (DSCR) stood at 2.38 times for FY23 as against 1.32 times in FY22. The Net Cash Accruals to Total debt stood at 0.13 times for FY2023. The Total outside liabilities to Tangible net worth stood at 0.75 times for FY23 as against 0.63 times for FY22. DSCR for FY2023 to FY2025 is expected to remain in the range of 2.4 times to 2.5 times. Acuité believes that the financial risk profile of CGEL will remain healthy in near to medium term due to its improving operating performance, low debt levels vis-à-vis healthy tangible net worth and healthy debt protection metrics.

Renewal risk and customer concentration risk
Occurrence of events such as policy decision by key clients to shift their offices to other state or decisions regarding outsourcing, can impact their willingness to continue their lease agreement. However, this risk is mitigated to an extent, given the strategic location of CGEL’s properties and its existing long term lease agreement with some of its tenants. In the event of non-renewal by existing lessee, the future cash flows will be impacted thereby translating to weakening of debt protection indicators. In the event of either of the companies deciding to move out or seeking a renegotiation, the rentals are likely to be impacted. Timely renewal/leasing at similar or better terms than the existing agreements will remain a key rating sensitivity factor.

Highly competitive and fragmented nature of industry
CGEL is exposed to lease renewal risk, i.e. while renewing the lease agreements, any significant renegotiations by the lessees can adversely impact the cash flows. Further, CGEL is exposed to intense competition in film exhibition industry which is fragmented in nature as at lower end there are single screen theatres while on top end there are chains such as PVR, Cinepolis, INOX and Carnival Cinemas, to name a few. Further, there arises a need of timely adoption of technology like facilities enabling 4D movies, etc. The industry is also exposed to regulatory risk which is likely to impact revenue model of the players such as CGEL, thereby impacting its operating capabilities.