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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Non Convertible Debentures (NCD) | 250.00 | ACUITE B | Stable | Assigned | - |
| Non Convertible Debentures (NCD) | 100.00 | ACUITE B | Stable | Reaffirmed | - |
| Total Outstanding | 350.00 | - | - |
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Rating Rationale |
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Acuite has reaffirmed the long term rating of ACUITE B (read as ACUITE B) on Rs.100 Cr Non-Convertible Debentures of Shreshta Infra Projects Private Limited (SIPPL). The outlook remains 'stable'.
Acuite has assigned its long term rating of ACUITE B (read as ACUITE B) on Rs.250 Cr Cr Non-Convertible Debentures of Shreshta Infra Projects Private Limited (SIPPL). The outlook is 'stable'. Rationale for the rating The rating takes into cognizance the experience of the promoter in real estate development and favourable project location and the support extended by the promoter developer. These strengths are however, partly offset by the below average financial risk profile of the group, risk of project execution, and exposure to the risks in the real estate industry. |
| About the Company |
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Shreshta Infra Projects Pvt Ltd. is a SPV floated by Adarsh Developers which is into development and construction of properties at prime locations in Bangalore. It is developing a residential villa project “Sanctuary” in Kodati, Bangalore. The project has a total of 162 units with 0.58 mn sqft of builtup area out of which SIPPL has a share of 112 Villas with 0.41 mn sqft. The project will be completed by February, 2024. Out of total 112 units in “Adarsh Sanctuary”, 109 units has already been sold with 0.40 mn sqft. The company is also planning to launch Sanctaury phase 2 which is a plotted development with a saleable area of 0.32mn sqft. The company is also developing “Adarsh Savana”, a plotted development project with saleable area of 2.84 mn sqft in Shreshta Infra Projects Pvt Ltd. Out of total 2.84 mn sqft, 2.20 mn sqft has been sold.
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| About the Group |
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Alekhya Property Development Private Limited is a SPV floated by Adarsh Developers which is into development and construction of properties at prime locations in Bangalore. It is currently developing an apartment project “Lake Front” in Kaikondrahalli, North Bangalore. Earlier the project was launched in 2014, however due to some environmental issue the project was stalled and again relaunched in 2020. The project has a total of 344 units with 0.68 mn sqft of builtup area out of which APDPL has a share of full 344 villas with 0.68 mn sqft. Out of total 344 units, 337 units has already been sold. The company has undertaken the extension of the existing Lakefront project, i.e, Lakefront TDR to increase the height of the building and add more flats. The project is expected to start in July’24.
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| Unsupported Rating |
| Not applicable. |
| Analytical Approach |
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Extent of consolidation
Full consolidation Rationale for consolidation or Parent/Group/Govt. support ACUITE has considered the consolidated financials of Shreshta Infra Projects Private Limited (SIPPL) and Alekhya Property Developments Private Limited (APDPL) together referred to as the ‘Adarsh Project Group’ (APG). The consolidation is in the view of common management, cross collateralization of the NCDs and a similar line of business. |
| Key Rating Drivers |
| Strengths |
| Experienced management and long operational track record
Adarsh Group has a long operational track record in the real estate industry for more than three decades. In addition to this, the partners Mr. BM Jayeshankar and Mr. BM Karunesh are highly experienced and actively involved in the operations of the group. Acuité believes that the long operational track record of the group and promoter’s extensive understanding and expertise will support the group’s growth plans going forward. |
| Weaknesses |
| Weak financial risk profile
The consolidated financial profile of APG is weak marked by negative networth, high gearing and weak debt protection metrics. The tangible net worth of the group deteriorated to Rs. (264.42) Cr as on March 31, 2023 from Rs.1.79 Cr as on March 31, 2022 on account of accumulated losses. Gearing of the group stood at (-) 3.69 times as on March 31, 2023. The weak debt protection metrics of the group is marked by Interest Service Coverage Ratio (ICR) at (-)1.40 times and Debt Service Coverage Ratio at (-)1.40 times as on March 31, 2023 . Acuité believes that financial risk profile of the group is expected to be improved over the medium term. Exposure to the risks in the Real Estate Industry The business is exposed to the risk of volatile prices on account of frequent demand supply mismatches in the industry. The real estate sector is under high stress 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 a cascading effect on the overall finance costs. Given the high degree of financial leverage, the high cost of borrowing inhibits the real estate developers’ ability to reduce prices. |
| ESG Factors Relevant for Rating |
| Not Applicable |
| Rating Sensitivities |
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| All Covenants |
| None. |
| Liquidity Position |
| Adequate |
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The company’s liquidity is adequate marked by moderate projected DSCR in the near to medium term. However, the group has total sales receivables of Rs.1034.00 Cr as on 31st March 2023 and committed receivables of Rs.866.00 Cr from the unsold inventory. The cash and bank balance of the group stood at Rs.54.84 Cr as on March 31, 2023. However, the current ratio of the group declined to 1.50 times as on March 31, 2023 as compared to 3.19 times as on March 31, 2022. Acuité draws comfort from the promoter’s regular fund infusion into the business. Acuité believes that going forward the group’s liquidity position is likely to be adequate in the near to medium term on account of presence of escrow accounts to ensure timely repayment upon stabilization of business.
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| Outlook: Stable |
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Acuité believes that the outlook on Adarsh Project Group will remain 'Stable' over the medium term on account of the long track record of operations, experienced management, and financial flexibility. The outlook may be revised to 'Positive' in case the group makes substantial progress on the bookings over the medium term. Conversely, the outlook may be revised to 'Negative' in case there is significant drop in bookings or any deterioration of financial risk profile leading to pressure on liquidity
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| Other Factors affecting Rating |
| None. |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 197.40 | 10.26 |
| PAT | Rs. Cr. | (266.21) | (83.29) |
| PAT Margin | (%) | (134.86) | (811.57) |
| Total Debt/Tangible Net Worth | Times | (3.69) | 676.27 |
| PBDIT/Interest | Times | (1.40) | 0.27 |
| 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 • Service Sector: https://www.acuite.in/view-rating-criteria-50.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
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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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