Based in Chennai (Tamil Nadu) and incorporated as a private limited company in 2010, Hazel Realty Private Limited (HRPL) is engaged in developing residential units in Chennai, Tamil Nadu. The company was incorporated under the name ‘VGN Pragnya Realty Private Limited’ as a joint venture between VGN Group (well-known name in Chennai Real Estate Industry) and Pragnya Fund (Mauritius Based Private Equity Fund).
In 2014, Pragnya Fund purchased the shares of VGN group to the extent of 26 percent of total shares of HRPL leading to Pragnya Group holding 100 percent shares in the HRPL. The company was then renamed to current name of ‘Hazel Realty Private Limited’. The shareholding structure of the company has been changed and currently, Guna Developers Limited and Badrinath Commotrade Private Limited are the ordinary shareholders and Pragnya Fund II is the shareholder in Class A equity shares with 95% voting rights. Further, Guna Developers Limited is a Group company of Pragnya Group. Hence, effectively Pragnya Group has 99.4% economic interest and voting rights in HRPL.
The Company is developing a residential apartment project named as “Hazel” spread across 5.67 acres of land located at Paruthipattu Village, Poonamallee Taluk, Thiruvallur District, Chennai. The residential units’ size ranges from 568 sq. ft to 1647 sq. ft and the project consists of 1-BHK, 2-BHK and 3-BHK apartments. Hazel has a total of 781 units across 4 blocks (6 towers),  each  block  comprising  of  a  basement,  stilt  &  14  floors.  The  project  has  been successfully launched during the year 2012 in a phased manner and 715 units were booked as of September 2022 amounting to 8,19,571 Sq ft out of 9,13,098 Sq Ft. The value of sold units stood at Rs.294.20 Cr with current receivable amounting to Rs.33.23 Cr. The unsold units stood at 66  units amounting to 93,527 sq ft.

Incorporated in 2003, Pragnya Fund, is a real estate private equity firm focused on developing markets in India and Sri Lanka through its real estate opportunity funds Pragnya Fund I and Pragnya Fund II. The funds are managed by Mr. Subba R Dukkipati and Mr. Gopal Menon. Pragnya raised its first fund, “Pragnya Fund 1” in 2005-06 with investments into 6 projects across India and Sri Lanka. Later, in 2012, Pragnya successfully raised its second fund “Pragnya Fund II” and currently is invested into 5 projects in South India and Sri Lanka. Pragnya raised its third major fund Pragnya South City Opportunity Fund in 2016-17 towards development of township in Chennai, Tamil Nadu. The projects are being developed in joint ventures with reputed local partners, achieving diversification in both products and geographies. Pragnya Group (including all the project specific entities formed) is in the process of completing over 15 million sq. ft. of Residential, Office Space, Showroom/Retail Space, SEZ, Townships, etc.
 

­To arrive at rating, Acuité has considered the standalone business and financial risk profile of Hazel Realty Private Limited.

­Corporate governance factors are highly material for the real estate industry. Regulatory compliance, board oversight and business ethics are key governance issues for this industry. Moreover, corruption risks in real estate activities, shareholders’ rights, board diversity & independence, financial audit & control and board & management compensation have a significant impact on the governance performance of real estate companies. Labor management particularly such as employment quality, employee safety, training & development, are significant social factors in the real estate business. Additionally, the other key material social issues are community support & development, product quality & responsibility and human rights. The activities of a real estate entity have a moderate impact on the environment that include material issues such as energy, water efficiency and waste management. HRPL’s board comprises 4 directors with no female director and independent directors. The entity has policies in place for water and material efficiency; it plans for reusage of sewage water and solid waste after treatment for gardening and other activities in its residential units. On the social aspect, the company has provided accommodation near the project site for the construction workers who are mostly from outside the city.

• Timely realization of customer advances pending from sold inventory.
• Timely sale of the unsold inventory and realization of its customer advances
• Sustainable improvement in Profitability, Leverage and Solvency position of the company.
• Sustainable improvement in realization per unit by the company.

• Sharp decline in cash flow, by slackened salability of project or further delays in project execution leading to high customer risk and cash flow mismatch.
• Any deterioration in working capital cycle and liquidity profile of the company.
• Any deterioration in Revenue profile and leverage position of the company.
• Any weakening of financial risk profile of the company.

­HRPL’s liquidity is expected to be adequate marked by a presence of escrow account to capture the collections from sold and unsold units, presence of cash sweep ratio mechanism for timely repayment of proposed NCDs obligations, Interest service reserve account (ISRA) for 2 months of interest coupled with moderate DSCR expected until FY2024. Moderate metrics on customer advances and sales against majority of debt availed is expected to lead to DSCR of around 2x times in base case scenario. HRPL is mainly dependent on collection of receivables from sold units, NCD proceeds and sale proceeds from unsold units for project funding and NCDs repayment obligation. Timely collection of these receivables from old units will be key monitorable for the assessment of liquidity position of HRPL. Acuité believes that the liquidity position of the company to remain adequate over the medium term on account of structured payment mechanism in proposed NCDs, improvement witnessed in the sales velocity in current year and strengthening of liquidity profile by the expected corporate guarantee and shortfall undertaking to be extended by the Pragnya Fund II and Pragnyacrest Properties Private Limited as a security towards the NCDs issue.

­Acuité believes that the HRPL will maintain ‘Stable’ business and financial risk profile over the medium term on the back of experienced promoters, moderate track record of operations of supporting related entity and established brand presence in the real estate industry. The outlook may be revised to 'Positive', in case of higher-than-anticipated advances from customers or promoter fund support resulting in adequate cash flows. Conversely, the outlook may be revised to 'Negative' in case if any undue delay in completion of the project, or lessthan-expected bookings and advance leading to stretch on HRPL’s liquidity.

­BRICKWORK Ratings vide its press release dated April 09, 2021 had denoted the rating of Hazel Realty Private Limited (HRPL) as “ISSUER NOT CO-OPERATING” on account of lack of adequate information required for monitoring of ratings.

­Supplementary disclosures for Provisional Ratings
A. Risks associated with the provisional nature of the credit rating
1. Absence of any entity to take appropriate measures to protect the interest of the debenture holders in case of any breach of the trust deed or law.
2. Absence of support from group entity in case of any exigency.
3. Absence of any structured payment mechanism
4. In case there are material changes in the terms of the transaction after the initial assignment of the provisional rating and post the completion of the issuance (corresponding to the part that has been issued) Acuite will withdraw the existing provisional rating and concurrently, assign a fresh final rating in the same press release, basis the revised terms of the transaction.

B. Rating that would have been assigned in absence of the pending steps/ documentation
The rating would be equated to the standalone rating of the entity: ACUITE BBB- / Stable

C. Timeline for conversion to Final Rating for a debt instrument proposed to be issued:
The provisional rating shall be converted into a final rating within 90 days from the date of issuance of the proposed debt instrument. Under no circumstance shall the provisional rating continue upon the expiry of 180 days from the date of issuance of the proposed debt 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.