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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Non Convertible Debentures (NCD) | 1000.00 | ACUITE BB | Stable | Downgraded | - |
| Total Outstanding Quantum (Rs. Cr) | 1000.00 | - | - |
| Rating Rationale |
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Acuité has downgraded its long-term rating to 'ACUITE BB' (read as ACUITE Double B) from ‘ACUITE BB+’ (read as ACUITE Double B Plus) on the Rs.1,000 Cr Non-Convertible Debentures (NCD) of Nam Estates Private Limited (NEPL). The Outlook is 'Stable'. |
| About the Company |
| Nam Estates Private Limited (NEPL) is a group company of Embassy Group. The company was established in 1995 and is based out of Bangalore. The company holds the Embassy Springs project in its books. |
| About the Group |
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Embassy Group was incorporated in 1993 by Mr. Jitendra Virwani. The group is one of the leading real estate dev elopers. The group has dev eloped 55+ Million Sq. Ft. In its legacy of expertise spanning 25 years, Embassy Group has cov ered the entire value 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 dev eloping 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, Triv andrum, Serbia and Malaysia. The group from time to time partners wit h sev eral established market players Like, Blackstone, Warburg Pincus, Taurus Inv estments as well as different financial institutions to execute projects.
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| Analytical Approach |
| Acuité has considered the standalone business and financial risk profiles of NEPL. The implicit support derived from Embassy Property Development Pvt Ltd (EPDPL) by the way of unconditional and irrevocable guarantee towards NEPL's debt has been withdrawn on account of deterioration in the overall credit rating profile of EPDPL. |
Key Rating Drivers
| Strengths |
| Established presence of Embassy group in the commercial real estate segment The Embassy group is among the largest commercial real estate developers in the country. EPDPL is engaged in development of commercial, residential and retail projects. The group has business parks in locations such as Bangalore and Pune, with upcoming projects in Chennai and Trivandrum. The group has developed 55+ Million Sq. Ft. In its legacy of expertise spanning 25 years, Embassy Group has covered the entire value chain of real estate from land acquisition to the development, marketing and operation of assets. In addition, the Embassy Sponsor owns properties in the hospitality segment and is developing industrial parks and warehouses across India. |
| Weaknesses |
| Slow pace of collections from customers As on date, there are four projects being executed under NEPL i.e. Embassy Lake Terrace, Embassy Grove, Embassy Boulevard and Embassy Springs. The construction of all these projects is completed and occupancy certificate has been received. Out of the total 1358 units in the project, NEPL has sold 924 units till March 31, 2023. Out of which 114 units were sold in FY2023 valuing Rs. 658 Cr. As on March 31,2023 the receivables from sold units stands at Rs. 607 Cr. The company has completed construction of all the projects, however, the advances stand receivable from these units. Further, the total unsold inventory stand at Rs. 1389 Cr i.e. ~18 percent of the total project sales value of ~Rs. 7619 Cr. Thus, exposing NEPL to demand risk for projects. Susceptibility to cyclicality and regulatory risks impacting real estate industry EPDPL is exposed to the risk of volatile prices on account of frequent demand supply mismatches in the industry. The Real Estate sector is currently witnessing moderation in demand 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 had a cascading effect on the overall financing costs. Given the high degree of financial leverage the high cost of borrowing inhibits the real estate developers' ability to reduce prices. Further, the industry is exposed to regulatory risk which is likely to impact players such as EPDPL, thereby impacting its operating capabilities. |
| ESG Factors Relevant for Rating |
| NEPL and Embassy group undertakes multiple CSR activities and has an existing CSR policy. In FY22, the group has supported for implementing holistic health and hygiene program with focus on preventive healthcare, nutrition and sanitation at government schools in Bangalore. Further, Embassy Group is engaged in multiple ESG initiatives including supporting government schools in Bangalore, public spaces clean up in Bangalore, installation of segregated garbage bins in Bangalore CBD, transformation of 101 under fly-over pillars, among others. Additionally, all the projects undertaken by Embassy Group have IGBC Green Gold Certification or higher. Embassy group has an active engagement towards improvising education, sustainable infrastructure, community engagement and corporate connect. The group aims to facilitate students of Government Schools with a safe learning environment for skill development through holistic interventions in Education, Health and Infrastructure. It has supported more tha 85 government schools through educational and infrastructure interventions, build around 10 new government schools amongst others. Embassy group drives positive change by providing infrastructure-based solutions with new frontline services for environmental sustainability and community healthcare, it promotes grassroot results to global problems in the communities it is a part of. Embassy group is a proud partner of TAICT’s (The Anonymous Indian Charitable Trust) Ecogram Waste Management Project, which aims to catalyse communities to develop and implement strategic infrastructure for sustainable environmental management. It has completed several initiatives of public spaces clean-up, installation of segregated garbage, mobile cancer detection unit amongst others. |
| Rating Sensitivities |
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> Any inorganic changes to the structure viz. mergers, acquisitions, asset sales, etc. > Further deterioration in the liquidity position by availing additional debt. > Timely completion of construction or timely realization of customer advances pending from sold inventory. > Timely sale of the unsold inventory and realization of its customer advances. > 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 |
| Material covenants |
| None |
| Liquidity Position |
| Stretched |
| 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 moderate financial flexibility and ability to borrow against the value of its investments in various commercial real estate assets and investments. Further, with the moderate sales traction recorded in FY2023 albeit modest collections in its ongoing projects Acuite believes, the liquidity position of the group is likely to remain adequate over the medium term. |
| Outlook: Stable |
| Acuité believes that NEPL will maintain a 'Stable' outlook over medium term on account of established market position of Embassy group in the real estate industry. The outlook may be revised to 'Positive' in case the company generates higher than expected cash flows through customer advances. Conversely, the outlook may be revised to 'Negative' in case of stretch in the company’s liquidity position on account of lower than expected sales traction towards ongoing projects, which may further increase the dependence on refinancing of debt. |
| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 396.54 | 226.20 |
| PAT | Rs. Cr. | (609.47) | (361.09) |
| PAT Margin | (%) | (153.70) | (159.64) |
| Total Debt/Tangible Net Worth | Times | 13.90 | 16.32 |
| PBDIT/Interest | Times | (0.13) | (0.03) |
| Status of non-cooperation with previous CRA (if applicable) |
| Not applicable |
| Any other information |
| None |
| Applicable Criteria |
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• 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 • Group And Parent Support: https://www.acuite.in/view-rating-criteria-47.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 |
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