Product Quantum (Rs. Cr) Long Term Rating Short Term Rating
Non Convertible Debentures (NCD) 100.00 ACUITE BBB | Stable | Reaffirmed -
Total Outstanding Quantum (Rs. Cr) 100.00 - -
Total Withdrawn Quantum (Rs. Cr) 0.00 - -
 
Rating Rationale

Acuité has reaffirmed its long-term rating of ‘ACUITE BBB’ (read as ACUITE triple B) on the Rs.100.00 Cr Non-convertible debentures (NCDs) of Suvilas Realities Private Limited (SRPL). The outlook is ‘Stable’.

The rating reaffirmation considers the established market presence of the Shriram Properties Limited in the real estate market of South India, the extensive experience of the Shriram Properties Limited (SPL) in projects as development manager, favorable sales velocity in the ongoing project and continued business and financial support from Shriram Properties Limited. These rating strengths are partly offset by geographical concentration in the revenue profile  and its susceptibility to cyclicality inherent to real estate industry.

­About the Issuer

Suvilas Realities Private Limited (SRPL) is a Bangalore-based company incorporated in 2013 by Mr. Sunil Chowdary Muniveerappa and Mr. Umesh Madhugondanahalli. SRPL is engaged in the development of residential and commercial projects. The company has entered into a ‘Development Management’ agreement with Shriram Properties Limited (SPL) for its project, namely ‘Shriram Suvilas palms. SRPL’s ongoing project is located in Jallahalli, North Bangalore (Karnataka). The business plan of the SRPL’s management is to generate cash flows through developing and selling residential units.  SRPL  is  presently developing a  residential project (under the name of ‘Shriram Suvilas palms) at Jalahalli is a suburb in northern part of Bengaluru is one of the greenest areas of Bengaluru with a total saleable area of 6.54 lakh square feet to construct 660 units. The total cost of the project is ~Rs.386.77 Cr and  the RERA certificate was  received  in  March’2021  and  the  project  was  launched  in  July’2021.  The scheduled project completion date is estimated by March’2026.
 
­About the Group Company

Suvilas Properties Private Limited (SPPL) is the group company of SRPL, incorporated in 2012 by Mr. Sunil Chowdary Muniveerappa, Mrs. Suresha Ramakrishnappa Chikkajala and Mr. Umesh Madhugondanahalli. It has an ongoing project ‘Shriram Suvilas Garden of Joy’, which is also under  development  management  with  Shriram Properties  Limited.  Both  the  projects  are located  adjacent  to  each  other  at  Jallahalli,  North  Bangalore.  The  business  plan  is  to generate cash flows through sale of land by developing residential units. ‘Shriram Suvilas Garden Joy located at Jalahalli Bengaluru with a total saleable area of ~2.00 lakh square feet to construct 152 units. The total cost of the project is ~Rs.84.46 Cr and is expected to be completed by April, 2024.

 
 
Analytical Approach

Acuité has considered the standalone business and financial risk profile of SRPL and subsequently notched up the standalone rating by factoring in strong operational and financial support from Shriram Properties Limited (SPL). SPL is a Development Manager for the projects undertaken by SRPL and has provided unconditional and irrevocable corporate guarantee and shortfall undertaking for the issued NCDs. The guarantee covers the principal and other payable towards the rated NCDs in a timely manner.
 

Key Rating Drivers

Strengths

Longstanding track record of SPL in the real-estate business and strong pipeline of ongoing projects
SPL is part of renowned Chennai-based Shriram group, which came into existence in 1974. The group has presence across various segments of financial services industry, engineering and real estate development. Shriram Properties Limited (SPL), real estate arm of Shriram group, largely operates in residential real estate segment. The company since inception, on consolidated basis, has completed projects with saleable area of 17.90 msf. As on June 2022, company  is  undertaking  residential  projects  with  total  saleable  area  of  33.10  msf.  The company successfully got listed on BSE and NSE during December 2021. SPL is one of the leading residential real estate development companies in South India, primarily focusing on the mid-market and affordable housing categories. SPL has a strong brand presence along with development track record which has led to its market leadership in the mid-level residential real estate market in South India particularly in Bangalore. Acuité believes that SPL’s extensive industry experience and leveraging of its brand equity will lead to moderate implementation  and  demand  risk  associated  with  upcoming  projects  of  SRPL  over  the medium term.

Continuous support from Shriram Properties Limited and presence of unconditional and irrevocable corporate guarantee
SRPL had entered into development management agreement with SPL whereby the project will be  relaunched  with  the  brand  name  of  ‘Shriram’.  SPL will  manage  the  project development, marketing and sales for an agreed development fee. It will also monitor the construction and development stage and ensures timely execution of the project. Apart from the operational support, SPL has extended an unconditional and irrevocable corporate guarantee coupled with shortfall undertaking for these NCDs issued by SRPL. Besides, the investors to the NCDs benefit from Escrow mechanism for servicing principal, interest, and other NCDs obligations. Acuité believes that the presence of operational and financial support from the SPL is likely to augment the business and financial risk profile of the company.

Favourable location of the project
The project is located in the Jalahalli is a suburb in northern part of Bengaluru area which falls on the one of the greenest areas of Bengaluru. Bangalore city and thus it has good connectivity with major areas of the city. It is also has the Jalahalli metro station, and will have direct connectivity through it with important areas in the city. Acuité believes that Good location and metro connectivity, will attract customers and support salability over the medium term.

Weaknesses

Exposure to project implementation risk
SRPL is developing a residential project in Jalahalli Bengaluru. The construction of the project is started in March, 2021 and they are expected to be completed by March 2026. The total developer saleable area of the aforesaid project is 6.55 lakh square feet with a total project cost of ~Rs.386.77 Cr. It is expected to be funded through NCD of Rs.68 Cr (~17 percent) and promoter contribution 150.00 Cr (~20 percent) and Rs.242.28 Cr (~63 percent) through customer advances. As on June 30, 2022, only ~5% of the construction cost being incurred and received the bookings for 94 flats out of 660. The company has completed the pre-construction steps including all regulatory approvals for commencement of construction. The project being in the nascent stage of construction with excavation completed for and structural works being undertaken. Going forward, ramp-up in the collections through new sales/construction linked payments may be required to meet the envisaged construction timelines. Timely support from the SPL will remain crucial in case the customer advances fall below the envisaged levels to support the construction momentum. Acuité believes that the project is still exposed to construction risk as it is in the nascent stages of development and is exposed to execution, funding and market risks. The completion of the project without any time or cost overrun, incremental bookings and timely receipt of advances remain key sensitivity factors.

Exposed to inherent cyclicality in real estate sector
The real estate sector is marked by volatile prices and a highly fragmented market structure because of the presence of a large number of regional players. In addition, being a cyclical industry, the real estate sector is highly dependent on macro-economic factors, which in turn render the company’s sales vulnerable to any downturn in demand.

 

ESG Factors Relevant for Rating
­Not Applicable
 
Rating Sensitivities
  • 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
  • Further delays in project execution leading to cash flow mismatchs
  • Sustainable improvement in profitability, leverage and solvency position of the company
 
Material covenants
­None
 
­Liquidity Position: Adequate

SRPL’s liquidity position will remain adequate over the medium term on account of presence of escrow accounts of both projects to ensure timely repayment of NCDs obligation and further on account of interim funding support from Shriram Properties Limited (SPL). The agreement for issue of Rs.100.00 Cr worth Non-Convertible Debentures (NCDs) has been signed between the Investor (IIFL Asset Management Limited) and the Issuer (Suvilas Realities Private Limited). The NCDs has been issued to an extent of Rs.68.00 Cr out of the Rs.100.00 Cr and out of Rs.68 Cr only Rs. 19 Cr is outstanding which is expected to be close by December, 2022 leading to limited funding risk on the ongoing project. The implementation risk of the project  stands  moderate  on  account  of  presence  of  operational  support  from  Shriram Properties Limited in terms of development management services.

As of June, 2022 SRPL has sold close to around 94 units out of 660 units amounting to nearly 1.02 lakh Sq.ft. SRPL is mainly dependent on customer advances and NCD proceeds for its project funding and debt repayment.  The liquidity is expected to improve with inflow of customer advances as the construction work progress for both of the projects. Moreover, Acuité believes the SPL is continued to support SRPL in the event of any further cash flow requirement.
 
Outlook: Stable

Acuité believes that SRPL’s rating will maintain a 'Stable' outlook over the medium term on account of operational and financial support extended by SPL as a development manager and corporate guarantor. The outlook may be revised to 'Positive' if the company registers healthy booking level along with steady cash flows from customer advances. Conversely, the outlook may be revised to 'Negative' in case of any stretch in its working capital management on account of delays in project execution or collection of booking money and customer advances.
 
Other Factors affecting Rating
­Not Applicable
 

Particulars Unit FY 22 (Actual) FY 21 (Actual)
Operating Income Rs. Cr. 0.00 0.00
PAT Rs. Cr. (3.93) (0.04)
PAT Margin (%) (561828.58) 0.00
Total Debt/Tangible Net Worth Times (22.21) (871.77)
PBDIT/Interest Times 0.75 1.00
Status of non-cooperation with previous CRA (if applicable)
­None
 
Any other information
­None
 
Applicable Criteria
• 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
https://www.acuite.in/view-rating-criteria-55.htm

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook
06 Oct 2021 Non Convertible Debentures Long Term 49.00 ACUITE BBB | Stable (Reaffirmed)
Non Convertible Debentures Long Term 37.00 ACUITE BBB | Stable (Reaffirmed)
Non Convertible Debentures Long Term 14.00 ACUITE BBB | Stable (Reaffirmed)
16 Sep 2020 Non Convertible Debentures Long Term 37.00 ACUITE BBB (CE) | Stable (Reaffirmed)
Non Convertible Debentures Long Term 14.00 ACUITE BBB (CE) | Stable (Reaffirmed)
Non Convertible Debentures Long Term 49.00 ACUITE BBB (CE) | Stable (Reaffirmed)
20 Sep 2019 Non Convertible Debentures Long Term 14.00 ACUITE BBB (CE) | Stable (Assigned)
Non Convertible Debentures Long Term 49.00 ACUITE BBB (CE) | Stable (Assigned)
Non Convertible Debentures Long Term 37.00 ACUITE BBB (CE) | Stable (Assigned)
22 May 2019 Proposed Non Convertible Debentures Long Term 100.00 ACUITE Provisional BBB (SO) | Stable (Assigned)
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Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Rating
Not Applicable INE05DJ07028 Non-Convertible Debentures (NCD) Not Applicable Not Applicable Not Applicable 37.00 ACUITE BBB | Stable | Reaffirmed
Not Applicable INE05DJ07036 Non-Convertible Debentures (NCD) Not Applicable Not Applicable Not Applicable 14.00 ACUITE BBB | Stable | Reaffirmed
Not Applicable INE05DJ07010 Non-Convertible Debentures (NCD) Not Applicable Not Applicable Not Applicable 49.00 ACUITE BBB | Stable | Reaffirmed
­

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