­Embassy Construction Private Limited (ECPL), incorporated in 1988 and based out of Bangalore, is into construction and development of Real Estate Projects. ECPL is part of Embassy Group and a subsidiary of JV Holding Private Limited. ECPL is constructing and developing a commercial business park at Venkatala Village, Yelahanka, Hobli Bangalore (North Bangalore) under the name of Embassy Business Hub. The Company has aggregated 15 acres and 5 guntas of land under JDA out of the total requirement of ~61 acres. The dev elopment for first 4 acres and 7 guntas land is already pre-leased to Philips India Limited.

­Embassy Group was incorporated in 1993 by Mr. Jitendra Virwani. The group is one of the leading real estate developer. The group has developed 55+ Million Sq. Ft. In its legacy of expertise spanning 25 years, Embassy Group has cov ered the entire v alue chain of real estate from land acquisition to the development, marketing and operation of assets. In addition, the Embassy group owns properties in the hospitality segment and is developing industrial parks and warehouses across India. It also has an extensiv e land bank of 1000+ acres across India. The operation spread across Indian and international markets that include Bangalore, Chennai, Pune, Coimbatore, Trivandrum, Serbia and Malaysia. The group from time to time partners with sev eral established market players Like, Blackstone, Warburg Pincus, Taurus Inv estments as well as different financial institutions to execute projects.

­Acuité has considered the standalone business and financial risk profiles of ECPL to arrive at the rating. The rating also factors funding support from the group to shore up its liquidity requirements in the event.

• ­A significant increase in the scale of operations, through diversification
• An elongation of the working capital cycle
• Fall in the operating profitability and/or deterioration in the liquidity position
• Any inorganic changes to the structure viz. mergers, acquisitions, asset sales etc.
• Timely cedeing of asset to Embassy REIT platform

• ­Minimum security cover of 1.5x

• D/E to be maitained in the ratio of 65:35; any cost overrun to be funded through additional equity from promoters

­The company is basically a project execution company and does not have any external debt and any revenue from operations in the past. The company generate negative net cash accruals over past 3 years with no debt repayments tied to the same.

The group operates in real estate business, which to a large extent is illiquid and highly cyclical and it usually takes time monetize these assets. Existing debt of the group includes loans obtained for general corporate purpose and acquisition and are susceptible to refinancing risk. The group in the past has been able to demonstrate high financial flexibility and ability to borrow against the value of its investments in various commercial real estate assets and investments.

Existing borrowings in the books of ECPL are from associate companies in from of ICDs. The company plans to either take LRD facility for which IndusInd Bank or cede the assets to REIT post completion of the project to repay the construction finance loan.

­Acuité believes that ECPL will maintain a 'Stable' outlook over medium term on account of established market position of Embassy group in the real estate industry and nature of project. The outlook may be revised to 'Positive' in case the company generates higher than expected cash flows and achieves its project completion as per scheduled timelines. Conversely, the outlook may be revised to 'Negative' in case of stretch in the company’s liquidity position on account of escalation of project costs, which may further increase the dependence on refinancing of debt.

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.