• ­Experienced management and establish track record of operations

MHPL is a part of the Scalar Group and is promoted by Mr. Pramod Kumar Gupta and his family. The promoters of the group have been engaged in the warehouse construction and leasing business for over a decade through various entities, including Musaddilal Projects Private Limited, Egwood Industries Private Limited, and Bhagwat Chattels Private Limited, among others. The group owns contracted warehouse space of approximately 2.7 million sq. ft. across seven locations all over India and has entered into long-term lease agreements ranging from 9 to 20 years. The company has been associated with reputed clients, namely Hindustan Unilever Limited, ITC Limited, and UTI Worldwide (India) Private Limited, among others. Apart from the leasing business, the Scalar Group has also been engaged in the plywood manufacturing business since 1964 under Egwood Boards and Panels Private Limited. Acuité believes that the company will continue to benefit from the extensive experience of the management over the medium term.

• Steady revenue stream under lease arrangement from reputed client

MHPL derives its revenues by way of lease rental and warehouse maintenance from ITC Limited (ITC) through its warehouse facility based in Ashok Nagar, Madhya Pradesh. Established in 1910, ITC is one of the largest cigarette manufacturers in the country. ITC is a diversified conglomerate with its presence across various segments such as FMCG, Cigarettes, Hotels, Paper and Packaging, and Agri Business. The company has leased out its warehouse to ITC for a period of 10 years, ending in FY2028. As per the terms of the agreement, ITC will be storing 1,30,000 MT of goods and paying Rs. 56.87 per MT per month, with an escalation of 5 percent every year. The operating income stood at Rs. 10.56 Cr. in FY2024 as against Rs. 10.05 Cr. in FY2023. Further, the company has maintained a Debt Service Reserve Account (DSRA) for three months' repayment along with an ESCROW mechanism. The cash inflows are expected to be steady over the medium term, supported by a 5 percent rental hike every year under the specified terms and conditions of the lease agreement. Acuité believes that reputed clientele and regular receipt of rentals are expected to keep the revenues and cash flows stable over the medium term.

• ­Customer concentration risk in revenue receipts

To serve the LRD loan, the company's revenues are entirely dependent on a single customer, i.e., ITC. Acuité believes that any unprecedented delay in receiving lease rental from ITC is likely to impact MHPL's debt-servicing ability. However, the risk is partially mitigated by the long-term agreement of 10 years and the lock-in period for the entire duration, along with a clause of levying a penal interest of 18 percent on delayed rentals as per the lease agreement.

• Susceptibility to lessee’ performance along with occupancy and renewal risk

MHPL primarily generates cash flows from lease rental and maintenance of its warehouse. The company's ability to meet its repayment obligations will depend on the continued and timely flow of rentals as per the agreed terms under the arrangement. The occurrence of events such as delays in receipt of rentals, or early exits/renegotiation by the lessee due to the latter's lower-than-expected business performance, may result in disruption of cash flow streams, thereby affecting MHPL's debt-servicing ability. Renewals or leasing at better terms, and any significant renegotiations by the lessees, can adversely impact the cash flows from the warehouse.