Press Release

Press Release

May 24, 2024

EARNEST CONSTRUCTIONS PRIVATE LIMITED
Rating Reaffirmed and Withdrawn

Product	Quantum (Rs. Cr)	Long Term Rating	Short Term Rating
Non Convertible Debentures (NCD)	320.00	ACUITE B \| Stable \| Reaffirmed	-
Non Convertible Debentures (NCD)	5.00	Not Applicable \| Withdrawn	-
Total Outstanding	320.00	-	-
Total Withdrawn	5.00	-	-

Rating Rationale

Acuité has reaffirmed the long-term rating of 'ACUITE B' (read as ACUITE B) on the Rs. 320.00 crore of Non-Convertible Debentures (NCDs) of Earnest Constructions Private Limited (ECPL). The outlook is 'Stable'.
Also, withdrawn the long-term rating on Rs. 5.00 crore of proposed Non-Convertible Debentures of Earnest Constructions Private Limited (ECPL) without assigning any rating. The rating is being withdrawn on account of request received from the company as these NCD's did not get listed. The rating withdrawal is in accordance with Acuité's policy on withdrawal of rating as applicable to the respective facility / instrument.

Rationale for the rating
The rating takes into cognizance the experience of the promoter in real estate development and the support extended by the promoter developer through regular infusion of funds in the form of unsecured loans and proceeds received from the NCDs. These strengths are however, partly offset by the weak financial risk profile of the company, risk of project execution and exposure to the risks in the real estate industry.

About the Company

Incorporated in 2011 in Bangalore, Earnest Constructions Private Limited (ECPL) is engaged in the business designing, planning, managing, developing and construction of apartments, homes, factory buildings, warehouses, hotels, holiday resorts, industrial sheds, housing colonies, multi-storied buildings, integrated townships, commercial spaces, etc. Present directors of the company are Mr. Bilidale Madaiah Jayeshankar and Mr. Bilidale Madaiah Karunesh.

About the Group

Established in 1988, by Mr. BM Jayeshankar and Mr. BM Karunesh, Adarsh Developers (AD) is a partnership firm engaged in carrying out the business of development and construction of residential and commercial projects. AD is the flagship as well as holding company of the Adarsh Group. Further, the group has ventured into hospitality business also. The firm has infused funds in the form of unsecured loans in all its SPVs and also given corporate guarantee to them. Currently, the firm has a total land bank of around 1000 acre (most are in Bangalore and Karnataka and some are in Chennai, Tamil Nadu, Kerala and Goa).

Unsupported Rating

Not Applicable

Analytical Approach

Acuité has taken the standalone view of the business and financial risk profile of Earnest Constructions Private Limited (ECPL) for arriving at this rating.

Key Rating Drivers

Strengths

Experienced management and long operational track record
The directors of the company Mr. B M Jayeshankar and Mr. B M Karunesh are highly experienced and actively involved in the operations of the company. In addition to this, the parent, Adarsh Group has a long operational track record in the real estate industry for more than three decades. Acuité believes that the promoter’s extensive understanding and expertise and long operational track record of the company will support the company’s growth plans going forward.

Weaknesses

Weak financial risk profile
The financial profile of the company is weak marked by negative networth, high gearing and weak debt protection metrics. The tangible net worth of the company deteriorated to Rs. (0.79) crore in FY2023 from Rs. (0.39) crore in FY2022 on account of accumulated losses.. Gearing of the company stood at (240.81) times in FY2023 as against (434.29) times in FY2022. The weak debt protection metrics of the company is marked by Interest Coverage Ratio and Debt Service Coverage Ratio at (1,098) times in FY2023. Acuité believes that financial risk profile of the company is expected to be improved over the medium term.

Exposure to the risks in the Real Estate Industry
The business is exposed to the risk of volatile prices on account of frequent demand supply mismatches in the industry. The real estate sector is under high stress on account of large amounts of unsold inventory and high borrowing costs. This is primarily attributable to the high residential property prices due to persistent rollover of bank debt which has a cascading effect on the overall finance costs. Given the high degree of financial leverage, the high cost of borrowing inhibits the real estate developers’ ability to reduce prices.

Rating Sensitivities

Timely payment of debt obligations
Scheduled commencement and completion of project in group companies
Timely receipt of customer advances
Improvement in financial risk profile

Liquidity Position

Adequate

The company’s liquidity is expected to be adequate over the medium term as the company is expected to receive timely cash flow to meet its debt obligation. However, the company has very low cash and bank balance at Rs. 0.05 crore in FY2023. The company has also prepaid interest of Rs. 19.67 crore charged till December 2023 on NCDs by March 2024 during moratorium period. Acuité believes that going forward the company’s liquidity position will improve in the near to medium term on account of expected timely surplus generation due to timely advance collections from customers to ensure timely repayment.

Outlook: Stable

Acuité believes that the outlook on ECPL will remain 'Stable' over the medium term on account of the long track record of operations, experienced management, and financial flexibility. The outlook may be revised to 'Positive' in case the group makes substantial progress on the bookings over the medium term. Conversely, the outlook may be revised to 'Negative' in case there is significant drop in bookings or any deterioration of financial risk profile leading to pressure on liquidity.

Other Factors affecting Rating

None

Key Financials

Particulars	Unit	FY 23 (Actual)	FY 22 (Actual)
Operating Income	Rs. Cr.	0.01	1.42
PAT	Rs. Cr.	(0.44)	(0.14)
PAT Margin	(%)	(3407.75)	(9.88)
Total Debt/Tangible Net Worth	Times	(240.81)	(434.29)
PBDIT/Interest	Times	(1098.00)	(1404.00)

Status of non-cooperation with previous CRA (if applicable)

Not Applicable

Any other information

None

Applicable Criteria

• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm
• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm
• Real Estate Entities: https://www.acuite.in/view-rating-criteria-63.htm

Note on complexity levels of the rated instrument

In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.

Rating History

Date	Name of Instruments/Facilities	Term	Amount (Rs. Cr)	Rating/Outlook
26 May 2023	Non-Covertible Debentures (NCD)	Long Term	320.00	ACUITE B \| Stable (Assigned)
26 May 2023	Proposed Non Convertible Debentures	Long Term	5.00	ACUITE Provisional B \| Stable (Assigned)

Annexure - Details of instruments rated

Lender’s Name	ISIN	Facilities	Date Of Issuance	Coupon Rate	Maturity Date	Quantum (Rs. Cr.)	Complexity Level	Rating
Not Applicable	INE0HCI07011	Non-Convertible Debentures (NCD)	27 Jun 2023	12.00	25 Jun 2027	320.00	Simple	ACUITE B \| Stable \| Reaffirmed
Not Applicable	Not avl. / Not appl.	Proposed Non Convertible Debentures	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	5.00	Simple	Not Applicable\|Withdrawn

Contacts

Analytical Details	Contact Details
Mohit Jain Senior Vice President - Rating Operations Tel: 022–49294017 mohit.jain@acuite.in Chayan Patra Associate Analyst - Rating Operations Tel: 022-49294065 chayan.patra@acuite.in	Contact details exclusively for investors and lenders Mob: +91 8591310146 Email ID: analyticalsupport@acuite.in Tel: 022-49294011 rating.desk@acuite.in

About Acuité Ratings & Research

Acuité is a full-service Credit Rating Agency registered with the Securities & Exchange Board of India (SEBI). The company received RBI Accreditation as an External Credit Assessment Institution (ECAI) for Bank Loan Ratings under BASEL-II norms in the year 2012. Acuité has assigned ratings to various securities, debt instruments and bank facilities of entities spread across the country and across a wide cross section of industries. It has its Registered and Head Office in Kanjurmarg, Mumbai.

Disclaimer: An Acuité rating does not constitute an audit of the rated entity and should not be treated as a recommendation or opinion that is intended to substitute for a financial adviser's or investor's independent assessment of whether to buy, sell or hold any security. Ratings assigned by Acuité are based on the data and information provided by the issuer and obtained from other reliable sources. Although reasonable care has been taken to ensure that the data and information is true, Acuité, in particular, makes no representation or warranty, expressed or implied with respect to the adequacy, accuracy or completeness of the information relied upon. Acuité is not responsible for any errors or omissions and especially states that it has no financial liability whatsoever for any direct, indirect or consequential loss of any kind, arising from the use of its ratings. Ratings assigned by Acuité are subject to a process of surveillance which may lead to a revision in ratings as and when the circumstances so warrant. Please visit our website (www.acuite.in) for the latest information on any instrument rated by Acuité. Please visit https://www.acuite.in/faqs.htm to refer FAQs on Credit Rating.