|
|
| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 26.65 | ACUITE BB+ | Stable | Downgraded | - |
| Total Outstanding | 26.65 | - | - |
|
Rating Rationale |
|
ACUITE has downgraded in the long-term rating to ‘ACUITE BB+’ (read as ACUITE double B plus) from ‘ACUITE BBB-’ (read as ACUITE triple B minus) on the Rs. 26.65 Cr. bank facilities of Unacco School. The outlook continues to remain ‘Stable’.
Rationale for Rating The rating downgrade reflects a decline in profitability as reflected from its EBIDTA margins. The EBIDTA margin has been on a decline for the last 2 years at approximately 38% in FY2024 compared to 47.48% and 57.52 per cent as on FY2023 and FY2022 respectively. The trust achieved revenues of Rs.31.31 Cr. In(Provisional) FY2024 as compared to revenues of Rs.27.11 Cr. in FY2023 and Rs.15.25 Cr. in FY2022. However, due to geopolitical issues in Manipur, many students have left the schools and migrated to other States and enrolments have been subdued in present academic season also. In fact, school at Chanung is operating at a loss. This has been a result of increasing administrative and employee costs against lower-than-expected turnover. Furthermore, there was interim cash flow mismatches leading to restructuring of its term loans.
However, the rating takes into account the established position of the school in Manipur, experienced trustees. The rating also factors the above average financial risk profile of the trust characterized by low gearing and moderate debt protection metrics. However, these strengths during the year leading to restructuring of the term loans in FY2024. |
| About the Company |
|
Founded in 2010, Unacco School (US) is run by Unacco Social Development Trust, a public educational trust based out of East Imphal district, Manipur. The school is affiliated to Central Board of Secondary Education (CBSE). The school is managed by 3 trustee members – Sri Ningombam Irabanta Singh, Sri Ningombam Kuber Singh and Sri Longjam Shyamananda Singh. The school has four units, Unacco School (Khongman), located in east Imphal and Unacco School (Meitram), located in west Imphal, Unacco School (Chanung) and Unacco School (Chanura), 1.5 Kms from Meitram. The trust also started running a college Unacco College (Khongman) in FY2024.
|
| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
| Acuité has considered the standalone business and financial risk profiles of Unacco School to arrive at the rating. |
| Key Rating Drivers |
| Strengths |
| Established track record and great range of courses offered in the university
The key trustee of the Unacco Social Development Trust, Mr. Ningombam Irabanta Singh has 11 years of experience in microfinance business and promoter of Unacco Financial Services Private Limited. Mr. Longjam Shyamananda Singh has 30 years of teaching experience and Mr. Kuber Singh is a businessman by profession. The principal of the school, Mr. Potshangbam Surachandra Singh is a leading academician of the state and has 19 years of teaching and administrative experience of various other institutes. The Trust operates 4 schools and 1 college in the state of Manipur presently. Acuité believes that the trustee’s extensive experience has helped the schools to establish its position in the state of Manipur. Above average financial risk profile Unacco School’s financial risk profile is above average marked by moderate corpus fund, low gearing and healthy debt protection metrics. The corpus fund of the trust increased to Rs.41.71 Cr as on March 31, 2023 from Rs.31.04 Cr as on March 31, 2022 on account of accretion to reserves. Gearing remained below unity at 0.67 times as on March 31, 2023 as against 0.54 times as on March 31, 2022. The Total outside Liabilities/Tangible Net Worth (TOL/TNW) stood comfortable at 1.07 times as on March 31, 2023 from 0.81 times as on March 31, 2022. The debt protection metrics of the company is marked by Interest Coverage Ratio at 9.32 times and Debt Service Coverage Ratio (DSCR) at 2.65 times as on March 31, 2023. NCA/TD stood at 0.41 times in FY2023 as against 0.43 times in FY2022. Going forward, Acuité believes that the financial risk profile of the company will remain at comfortable levels backed by steady accruals and no major debt funded capex plans. |
| Weaknesses |
| Steady scale of operations but decline in margin
The trust achieved revenues of Rs.31.31 Cr. in FY2024 (Provisional) as compared to revenues of Rs.27.11 Cr. in FY2023 and Rs.15.25 Cr. in FY2022. However, due to geopolitical issues in Manipur, many students have left the schools and migrated to other States and enrolments have been subdued in present academic season also. Currently, the Khongman school, Chanura school and the Meitram school is operating at low students intakes and is expected to remain subdued. The EBIDTA margin has been on a decline for the last 2 years at approximately 38% in FY2024 (Provisional) compared to 47.48% and 57.72 per cent as on FY2023 and FY2022 respectively. In fact, school at Chanung is operating at a loss. This has been a result of increasing administrative and employee costs against lower-than-expected turnover. The PAT margin also decreased to ~17.83 per cent as on FY2024 as against 31.80 per cent as on FY2023 and 31.72 per cent in FY2022. Acuite believes that the sustainability of the profitability margin will be the key sensitive factor. 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 an extent. Any adverse government regulations may impact the 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 faces stiff competition from other reputed institutions in the vicinity which puts pressure to attract fresh students. However, considering that they have an established brand presence and has been consistently producing academic achievements, the society has been insulated from the competition to some extent. Restructuring of term loans from North Eastern Development Finance Corporation Limited (NEDFI) There was an interim cash flow mismatch in the trust due to which there were delays in servicing the term loan instalments and interests. Although the cash accruals of the trust on year-end were sufficient to repay the term loan obligations for the year. The trust also got sanction of Funded Interest Term Loan (FITL), as and when interest were being charged on these restructured term loans with similar moratorium period. NEDFi has restructured the term loans of the trust in September 2023, with a retrospective moratorium period granted from May 4, 2023 to May 5, 2024 due to social riots/ disturbances in Manipur in accordance with guidelines provided in RBI circular no. RBI/FIDD/2018-19/64. The unpaid principal instalments of the moratorium period would be repayable in monthly instalments at the end of the present repayment schedule with same instalment size and tenure. Furthermore, a moratorium of 12 months was granted on due interest from May 4, 2023, to May 5, 2024 which would be converted to Funded interest term Loan (FITL) and shall be repayable from June 1, 2024. Acuite believes the timely servicing of term loans will remain a key rating sensitivity factor. |
| Rating Sensitivities |
|
| Liquidity Position |
| Adequate |
|
Unacco School has an adequate liquidity position marked by slight decline in net cash accruals in FY2024 due to the geopolitical issues of Manipur which had disrupted the operations of the schools; although it was sufficient to repay the debt during the year. Unacco School faced cash flow mismatch in the interim period during the year, where the school had got restructuring of its existing term loans and interest obligations in August 2023. NEDFi had restructured the term loans of the trust from a retrospective effect on September 20, 2023, in accordance with guidelines provided in RBI circular no. RBI/FIDD/2018-19/64 Master Direction FIDD.CO.FSD.BC No.9/05.10.001/2018-19 dated October 17, 2018 [Master Direction – Reserve Bank of India (Relief Measures by Banks in Areas affected by Natural Calamities) Directions 2018 – SCBs]. Presently, the school’s debt repayments are expected to start in May 2024 and servicing of the same would remain a key monitorable factor. The school had unencumbered cash and bank balances of Rs.1.26 crore as on March 31, 2023. The current ratio stood below unity 0.14 times in FY23 due to the low cash & bank balance in FY2023 on account of low admission fee, tuition fee and advances for hostel for the next session. However, Unacco has been sanctioned a cash credit limit from State Bank of India from December 2023 of Rs. 4.95 Cr which is expected to ease the working capital requirements of the School. Acuité believes that the liquidity of the school would continue to remain adequate on account of steady cash accruals and sanctioning of working capital limit in December 2023. However, its ability to manage the cash flows in servicing the debt obligations in a timely manner will remain a key monitorable factor
|
| Outlook: Stable |
|
Acuité believes that Unacco School will maintain a ‘Stable’ outlook over the medium term owing to its experienced management, established position in the city of Imphal and comfortable financial risk profile. The outlook may be revised to 'Positive' if the scale of operations increases along with an increase in number of new admission while improving its operating profitability and coverage indicators. Conversely, the outlook may be revised to 'Negative' if the liquidity profile and financial risk profile deteriorates on account of low cash accruals and further slippage in profitability margins.
|
| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 27.11 | 15.25 |
| PAT | Rs. Cr. | 8.62 | 4.84 |
| PAT Margin | (%) | 31.80 | 31.72 |
| Total Debt/Tangible Net Worth | Times | 0.67 | 0.54 |
| PBDIT/Interest | Times | 9.32 | 5.14 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable |
| Any other information |
| None |
| Applicable Criteria |
|
• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Rating Process and Timeline: https://www.acuite.in/view-rating-criteria-67.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 |
|
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
|
|
| |
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
Contacts |
|
|
|
About Acuité Ratings & Research |
