Experienced management with an established track record of operations
KDPL was incorporated in 2004 and is part of the Ahmedabad-based ‘City Gold’ group, promoted by Mr. Chimanlal Agrawal and Mr. Sanjay Agrawal. Mr. Chimanlal Agrawal has over four decades of experience in construction, real estate development, and leasing of space, and Mr. Sanjay Agrawal has around two decades of experience in the industry. KDPL has been engaged in the business of film exhibition and leasing of space for over a decade through its property, namely, "City Gold, Shyamal" which accommodates a four screen multiplex along with four other corporate tenants. Further, the company acquired two pre-leased properties in FY2018 and a property in FY2021 that are 100 percent occupied by its various corporate tenants. 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 the Ahmedabad region. Further, the company also operates 6 multiplexes under the brand name ’City Gold‘ across the Ahmedabad region with 22 screens and a seating capacity of over 3500. The extensive experience of the promoters, along with its established track record of operations, is reflected in the long-term lease agreements with its reputed tenants.

Acuité believes that KDPL will continue to benefit from its established track record of operations, experienced management, and long-standing relationships with the tenants.

Adequate cash flows supported by long-term lease agreements and a reputed lessee profile
KDPL has entered into long term lease agreements with reputed clients like Reliance Projects & Management Services Limited, Tata Communications Limited (TCL), and Tata Teleservices Limited (TTL), with a total leasable area of 70,587 sq. ft. These agreements have a tenure ranging from 9 to 20 years with a price escalation of 12 to 15 percent every 3 years.

In addition to this, KDPL acquired two pre-leased properties in FY2018: one is a warehouse with a total leasable area of 1,84,840 sq. ft. at Bilaspur-Tauru National Highway being used as a fulfilment centre by Amazon Seller Services Private Limited, and the other is an industrial property with a leasable area of 82,385 sq. ft. at IMT Manesar, leased out to Bridgestone India Private Limited, which has been operating its manufacturing plant for over two decades. Recently, in FY2021, KDPL acquired a new property with a total leasable area of 3,00,399 sq. ft. in Noida, Uttar Pradesh, and leased it out to Samsung R&D Institute India for a tenure of 10 years with a price escalation of 15 percent every 3 years.

For the current year FY2023E, the company has generated cash flow of Rs. 30.24 crore against its debt obligation of Rs. 19.49 crore for the same period.

­Renewal risk and customer concentration risk
The occurrence of events such as policy decisions by key clients to shift their offices to other states 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 KDPL’s properties and its established relations with its tenants. In the event of non-renewal by the existing lessee, future cash flows will be impacted, thereby weakening 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 or leasing at similar or better terms than the existing agreements will remain a key rating sensitivity factor.

The highly competitive and fragmented nature of industry
The real estate industry in India is highly fragmented, with most of the real estate developers having a city- or region-specific presence. The risks associated with the real estate industry are cyclical in nature (drop in property prices) and interest rate risk, among others, which could affect operations. KDPL 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, KDPL is exposed to intense competition in the film exhibition industry, which is fragmented in nature as at the lower end there are single-screen theatres while at the top end there are chains such as PVR, Cinepolis, INOX, and Carnival Cinemas, to name a few. Further, there is a need for timely adoption of technology like facilities enabling 4D movies, etc. The industry is also exposed to regulatory risk, which is likely to impact the revenue models of players such as KDPL, thereby impacting its operating capabilities.