- Experience Management and Financial Flexibility of the Ambuja-Neotia Group
The key trustee and chancellor of The Neotia University, Mr. Harshavardhan Neotia, has immense experience in real estate and hospitality business and is the key promoter of the well-known Ambuja-Neotia Group. The Ambuja-Neotia Group has been promoted by the Neotia family, which has been an integral part of the business community in Kolkata for nearly 125 years.
The group, through its various joint venture companies and special purpose vehicles (SPVs), has been engaged in the development of real estate properties, both housing and commercial complexes, and in the hospitality business. The group has executed more than 25 million square feet of development, comprising residential, commercial, and hospitality projects, through its various joint ventures and subsidiary companies in the last two decades. The group has established its brand presence, which is widely recognised in the eastern region, and has ventured into the states of Sikkim, Bihar, and Chhattisgarh to undertake various types of real estate and hospitality projects. The group has a healthy financial risk profile and has demonstrated a willingness to support their businesses. Furthermore, the group has demonstrated their support for TNU, as reflected by the continuous infusion of unsecured loans and equity into the university for the smooth running of operations over the years. The total unsecured loan from the group stood at Rs. 21.71 crore as of March 31, 2023 (provisional).
Acuité believes that TNU, being a strategically important entity for the group, shall continue to benefit from the financial, operational, and management support of the Ambuja-Neotia Group as and when required. The chairman of the group, Mr. Harshavardhan Neotia, is the principal trustee of the university, and the extensive experience of the promoters will continue to benefit the group over the medium term. |
- Higher fixed costs lead to a deterioration in profitability margins.
The ramp-up in student intake, which remained lower than the previous year with higher employee costs, has led to a reduction in profitability metrics, which in turn has led to a reduction in leverage indicators.
After witnessing an improvement in operating profit margin from 26.78 percent in FY2021 to 31.34 percent in FY22, it declined to 22.40 percent in FY23 (provisional), mainly on account of an increase in employee costs. Also,the university reported a decline in profit after tax (PAT) of Rs. 1.61 crore during FY23 (provisional) as against Rs. 5.54 crore in FY22.
The ongoing capex plan of the university to the tune of Rs. 25 crore will be incurred towards the construction of new hostel facilities for both boys and girls, which is expected to be completed by September 2024.
- Below average financial risk profile
The university’s financial risk profile continues to remain average with moderate debt protection metrics. The corpus fund of the university increased yet remained at Rs. 7.58 crore as of March 31, 2022, from Rs. 2.03 crore as of March 31, 2021. The improvement was mainly due to the retention of profits. Despite improvement, the gearing level of the university remained high at 4.94 times (considering unsecured loans as debt) as of March 31, 2022, as compared to 14.57 times as of March 31, 2021. However, the adjusted gearing ratio, without considering unsecured loans, stood at 2.84 times as of March 2022. Also, the debt-to-EBITDA ratio of the university remained high at 4.01 times as of March 31, 2022. The university is incurring a capex of Rs. 25 crore, which will be funded through bank lines to the tune of Rs. 18 crore. The Total Outside Liabilities/Tangible Net Worth (TOL/TNW) stood high at 6.21 times as of March 31, 2022, as against 17.61 times as of March 31, 2021.
However, the debt protection metrics of the university remained moderate, with the debt service coverage ratio at 2.54 times and the interest service coverage ratio (ICR) at 3.03 times as of March 31, 2022. The Net Cash Accruals/Total Debt (NCA/TD) stood at 0.16 times as of March 31, 2022, and is expected to remain almost at the same levels in the near term.
- The education sector in India is highly regulated and competitive.
The education sector is highly regulated, with the government deciding on the maximum student intake, fees, mandatory facilities, faculty strength, and even faculty salary to some extent. Any adverse government regulations may impact society’s revenue growth and accruals. The student-teacher ratio is within the stipulated norms for all the institutions. The institutions run by the society face stiff competition from other reputed institutions in the vicinity, which puts pressure on them to attract fresh students. However, considering that they have an established brand presence and have been consistently producing academic achievements, society has been insulated from the competition to some extent. |
