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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Non Convertible Debentures (NCD) | 1130.00 | ACUITE BB+ | Stable | Reaffirmed | - |
| Total Outstanding | 1130.00 | - | - |
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Rating Rationale |
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Acuité has reaffirmed its long-term rating of 'ACUITE BB+' (read as ACUITE Double B plus) on the Rs.1130.00 crore Non-Convertible Debentures of TARC Limited (TARC). The outlook is 'Stable'.
Rationale for reaffirmation The rating takes into account the established market position of the company in the Real Estate segment especially in the Delhi NCR region, The upcoming projects of the company having potential of total sales of more than Rs. 7500 Cr. The company have completed multiple projects in the past and have 550+ acre of land bank across Delhi and NCR region. However the rating is constrained by project risk as its project launch of TARC Kailasa got delayed by 3-4 Months resulting into a shift in cash flow. However the risk is mitigated to an extent by launch of its projects namely TARC Kailasa in January 2024 wherein sale showed good traction as Tower 1 of Kailasa project was completely sold off within 3 month of the project givng stability to cash flow. The project 63A Gurugram is delayed by more than 5 months however, is scheduled to be launched in June 2024. The said project has a sales potential of Rs. 2500 Cr. The timely commencement and completion of key real estate projects of the company along with steady cash inflows from these projects and timely repayment of debt obligations will continue to remain a key rating sensitivity going ahead. |
| About Company |
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Delhi based TARC Limited is a Public Limited Company incorporated in the year 2016. The Company is engaged in the real estate development business and is primarily pursuing residential projects in the NCR and Delhi region. Pursuant to the Order of the Hon’ble NCLT Chandigarh on 24th August 2020 approving the demerger, the Company emerged as the resulting Company under the name and style of Anant Raj Global Limited, which was subsequently renamed as TARC Limited. TARC’s current Chairman is Mr. Anil Sarin and the day to day operations of the Group are managed Mr. Amar Sarin – Managing Director and CEO.
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| About the Group |
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TARC GROUP comprises of TARC LIMITED and 63 other entities which are subsidiaries, associates or Joint Ventures of TARC Limited. The group has a land bank of ~500 Acres. The list of companies in the group is given in Annexure - 2.
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| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
| Extent of Consolidation |
| •Full Consolidation |
| Rationale for Consolidation or Parent / Group / Govt. Support |
| Acuite has considered the consolidated financial and business risk profile for TARC Limited. The list of entities consolidated in the financial is given below in the Annexure 2 and together these are referred to as the TARC Group.
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| Key Rating Drivers |
| Strengths |
| Extensive experience of the management and established position of the company in NCR real estate market
The Chairman along with the Managing Director and CEO have an extensive experience in the real estate market in the NCR region. Mr. Anil Sarin, Chairman has been part of the industry for over four decades. TARC has an established position in the industry which is also reflected in the large land bank and history of many completed projects. The company has a land bank of ~550+ acres in both Delhi and NCR region. Some of the key ongoing and upcoming projects of TARC includes TARC Tripundra, TARC Kailasa and TARC 63A. The company has also successfully completed TARC Maceo project with 16 lakh sq. ft. of saleable area. Acuité believes that TARC will likely to continue receives benefit from extensive experience of the management and established presence in the real estate segment. Improvement in liquidity position Earlier, the company’s primary source of revenue was through the lease rentals from its various commercial properties. TARC's liquidity had been adversely impacted on account of the spread of Covid and the subsequent lockdowns which affected its lease rentals.. This has resulted in significantly lower cash flows from majority of its leased properties against which a significant proportion of debt remained outstanding. The company had issued NCDs worth of Rs.1330 Cr. in April 2022 and as per their fund utilization plans Rs.1330 Cr. was used to take over TARC’s all existing debt & other liabilities identified under the terms of the issued NCDs and the remaining was used as construction finance for their projects. The company had an outstanding amount of ~Rs.1155 Cr. from their lenders as on April 29, 2022 against its various projects. Since then, company has transformed predominantly into a luxury residential real estate developer and launched two of its projects, namely TARC Tripundra in October 2022 and TARC Kailasa in January 2024 in Delhi. The NCD investors have access to cashflows from the all the projects and properties charged to the previous lenders. According to the issued terms, the NCD will have only coupon payment on every 31 March of the year @6% p.a. and no principal till June 2023. Also, the company has prepaid the interest payment falling due in March 2023 in two tranches i.e. In December 2022 and March 2023 and again prepaid the interest payment falling due in March 2024. Also, completed yearly redemption of Rs. 200 crores NCD in two tranches in June 2023 and December 2023 reflecting improvement in liquidity position. Since the launch of two projects company has began to generate cashflows, while the projects will still be exposed to demand risk, Acuité believes that TARC’s liquidity position is further expected to improve over the medium term on account of healthy cash inflows through new sales bookings and expected government receivables. Comfort derived from the structure of the issued NCDs The NCDs issued have access to all properties and projects of TARC under the previous lenders. All the cash flows from the existing project or any cash flows from sale of properties or receivables from the land acquisition transactions will be received in an account controlled by the debenture trustees. The following sources of funds have been identified for the repayment; a) Cash flows from the underlying projects. b) Inflows on account of part payment of certain land acquisition transactions. c) In case of any delay from the aforementioned cash flows or material delay in project progress which might result in cash flow mismatch, repayments to be completed through sale of identified assets, as per the terms of the NCDs. Any such asset sale process will be initiated prior to the repayment dates. |
| Weaknesses |
| Project Completion Risk
TARC's project and properties mortgaged to existing lenders have been mortgaged against the issued NCDs. The cash flows from these projects will be the primary source of the repayment for the NCDs, beside proceeding from asset monetization. TARC Tripundra Project and TARC Kailasa Project are the key ongoing projects. Out of the two, the TARC Tripundra project was launched in Oct 2022, which is in progress. For Patel Road Project, the demolition of the of existing structure is completed and construction has already began in January 2024. For Maceo project the construction is completed and 100% inventory is sold. However, the projects are still exposed to execution and demand risk. These are mitigated to some extent on account of the favourable location of the projects in the NCR region and TARC's extensive experience in real estate development in the region. TARC Tripundra is a luxury residential project with total saleable area of 481000 sq. ft. which got launched in Oct 2022 and construction work is going on. Total project cost is estimated to be in the range of Rs. 200 - 250 Cr. RERA approval is also in place for the project and its scheduled completion is by FY2025. Patel Road project involved demolition of the Moments Mall located near Kirti Nagar Metro Station, which is already done and construction of a residential complex is underway. The total saleable area is ~1800000 sq. ft. with estimated project cost in the range of Rs. 900-1000 Cr. There are other projects mortgaged to the issue however these are smaller relative to the key projects mention above and are currently in the planning stage. The timely commencement and completion of the key projects will remain a rating monitorable for Acuité. Susceptibility to real estate sector cyclicality and regulatory risks The real estate industry in India is highly fragmented with most of the real estate developers, having a city specific or region - specific presence. The risks associated with real estate industry are cyclical in nature of business (drop in property prices) and interest rate risk, among others, which could affect the operations. All players in the real estate sector are exposed to the risk of volatile prices on account of frequent demand supply mismatches in the industry. Given the high degree of financial leverage, the high cost of borrowing inhibits the real estate developers' ability to significantly reduce prices to augment sales growth. However, the unsold inventory risk is mitigated in TARC's case, given the location of its key projects in the NCR region where unsold inventory remains low. Further, the industry is exposed to regulatory risk, which is likely to impact players such as TARC, thereby impacting its operating capabilities. |
| ESG Factors Relevant for Rating |
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Employee health & safety management is of primary importance to the construction industry given the nature of operations. Additionally, product quality and safety is of utmost significance. Human rights concerns such as forced labor are crucial considering the exploitative industry practices. Furthermore, responsible procurement and community relations are key influencing factors. The inherent material risk to the construction industry includes releasing toxic greenhouse gases and delivering a green building structure by utilizing clean technology. Factors such as ethical business practices, legal and regulatory compliance hold utmost significance in the construction industry, considering the frequency of litigations. Other issues include management compensation and Board oversight.
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| Rating Sensitivities |
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| Liquidity Position |
| Adequate |
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Acuite expects TARC's liquidity profile to remain adequate post the successful issue of the NCDs on account of adequate cushion between expected cash surplus and expected repayment obligations. TARC is expected to generate cash surplus in the range in of Rs. 500 - 700 Cr. in FY2024-25 against principal repayment obligation of ~Rs. 400 Crore in FY2025. The expected cash inflow includes receivables from land acquisition transaction in the range of Rs.150 Cr.
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| Outlook: Stable |
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Acuité believes that TARC will maintain a 'Stable' outlook over the medium term owing to its experienced management and established position in the real estate segment. The outlook may be revised to 'Positive' in case the company registers sustainable sales and collection traction in their key real estate project. Conversely, the outlook may be revised to 'Negative' in case of steep decline in sales traction or slower than progress in key real estate project having an adverse impact on TARC's liquidity profile.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 24 (Actual) | FY 23 (Actual) |
| Operating Income | Rs. Cr. | 111.45 | 193.54 |
| PAT | Rs. Cr. | (77.04) | 20.36 |
| PAT Margin | (%) | (69.13) | 10.52 |
| Total Debt/Tangible Net Worth | Times | 1.40 | 1.29 |
| PBDIT/Interest | Times | 0.42 | 1.21 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable |
| Any Other Information |
| None |
| Applicable Criteria |
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• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Consolidation Of Companies: https://www.acuite.in/view-rating-criteria-60.htm • Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm • Real Estate Entities: https://www.acuite.in/view-rating-criteria-63.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. Acuité'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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| *Annexure 2 - List of Entities (applicable for Consolidation or Parent / Group / Govt. Support) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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