| Experienced promotor group with demonstrated track record and favourable location of the ongoing project
Vasavi group is a Hyderabad based commercial and real estate developer promoted by Mr.Vijay Kumar Yerram. The group has more than three decades of experience in real estate development. The Vasavi group is a well-established player in Telangana, Hyderabad, they have completed more than 6 million Sq.fts of residential and commercial projects. Alongside, the brand equity of 'Vasavi' enjoys a reputation in the Hyderabad and Telangana region. Vasavi Avenues LLP (VAL) is a special purpose vehicle (SPV) formed by Vasavi group to develop a residential project named as ‘Ananda Nilayam’ at LB Nagar, Hyderabad, Telangana. The project comprises of 11 residential towers, 2 club houses and various other amenities. The project is located at LB Nagar, a densely populated residential area in eastern Hyderabad. Project will be constructed in total area of 29.6 acres and firm has already purchased land of 26.3 acres and for balance 3.3 acres firm has entered JDA with landlord. The location of the projects is very well developed both residentially and commercially with a lot of scope for further development. Commercial complexes, including supermarkets, schools, restaurants, hospitals, fitness centres and banks, are abundant in the closest vicinity of the proposed location. Acuité believes that the promoters have demonstrated good execution capabilities with a reputation for quality and timely completion. Promoters' industry experience would support in a successful completion of the on-going projects.
Moderate funding and offtake risk with adequacy of cash flows
The ongoing project 'Ananda Nilayam' has the total saleable area of 82,24,380 Sq fts, out of which VAL's share is 79,49,070 Sq fts with the total project cost of Rs.2,655.96 Cr. The total project cost is funded through promotor's contribution of Rs.400 Cr. (in the form of equity and unsecured loans), bank loan of Rs.650 Cr. and balance through collections from customer advances. The funding risk in the project remains low as the firm has already completed debt tie up with lenders for amount of Rs.650.00 Cr, of which Rs. 344.00 Cr. disbursed as on date. The promoters are high net worth individuals and promoter companies being debt-averse further mitigate the funding risk. The firm has incurred about 38 percent of project cost until December'2024 against which it has already received the bookings of ~36 percent of total units (1282 units booked out of total units of 3576). Further, firm has received customer advances of around 70 percent of the sales consideration as on December 31 ,2024 which are 38.41 per cent as required to complete the construction of the project.
The project cash flows are expected to remain adequate over the medium to long term vis-à-vis the debt obligations with average project DSCR of 2.12 times which is expected to remain above unity during the tenure of the project. Acuité believes that timely infusion of funds from promotors and timely booking of unsold units will remain a key rating monitorable.
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| Project Execution Risk
The construction of the project started in December 2022 and it was launched in January 2023. The project is expected to complete by December 2028. While there are inherent project risks as being in moderate stage of construction as ~ 38 per cent of the cost incurred as of December'2024, the risk is mitigated to some extent as the group has established track record of completion of projects in a timely manner. However, any delay in completion of the project may lead to cost and time overruns which will remain a key rating sensitivity.
Geographical concentration risk and intense competition in the industry
The group through its promoter companies has mostly executed its past projects Hyderabad and Bangalore only. Moreover, the group is executing all the current ongoing projects in Hyderabad. The group would remain geographically concentrated until any further diversify to a different state. Furthermore, the group would continue to remain exposed to intense competition from larger players in Telangana like Jayabheri group, Aparna Constructions and estates Pvt Ltd, Prestige Group, My Home group, Kalpataru Group, Mantra Group, Lodha group amongst others.
Susceptibility to real estate 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 and directly linked to drop in property prices and interest rate risks, which could affect the operations.Given the high level of financial leverage, the high cost of borrowing prevents the real estate's developers' from significantly reducing prices to boost sales growth. Moreover, the industry is also exposed to certain regulatory risks linked to stamp duty and registration tax directly impacting the demand and thus the operating growth of real estate players.
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