Product Quantum (Rs. Cr) Long Term Rating Short Term Rating
Bank Loan Ratings 20.00 ACUITE BBB- | Stable | Assigned -
Bank Loan Ratings 300.00 ACUITE BBB- | Stable | Reaffirmed -
Total Outstanding Quantum (Rs. Cr) 320.00 - -
 
Rating Rationale
­Acuité has reaffirmed its long-term rating  of ‘ACUITE BBB-’ (read as ACUITE Triple B 'Minus') on the Rs. 300.00 Cr bank facilities of Vertex Homes Private Limited (VHPL). The outlook remains 'Stable'.
­Acuité has assigned its long-term rating  of ‘ACUITE BBB-’ (read as ACUITE Triple B 'Minus') on the Rs. 20.00 Cr bank facilities of Vertex Homes Private Limited (VHPL). The outlook is 'Stable'.
 
The rating reaffirmation takes into cognizance the established track record of operations of more than two decades and experience of the promoters in the real estate sector.  Vertex  group has healthy sales and collection traction in its key ongoing projects (‘Kinston park’, ‘Viraat’, ‘Bougainvilla’ and ‘Pristine’ under VHPL and one under VVDL named ’33- West’)  during FY2023 and 3MFY2024. As on June 30, 2023 collectively for five projects, group has been able to sell area of around 0.32 lakh sqft and the group has completed around 52 percent of construction as on June 30, 2023 against which it has already received healthy bookings of 86 percent and received customer advances of 62 percent as a percentage to total saleable value. Further, the rating factors in the successful completion of various projects in the past by the Vertex Group and the locational advantage of the current on-going project. However, the above mentioned strengths are partially offset by the geographical concentration risk as all ongoing projects of the group are in Hyderabad. Further, the rating is also constrained by inherent cyclicality in real estate industry.

About Company
Incorporated in January 2000, Vertex Homes Private Limited (VHPL) is a Hyderabad (Telangana) based residential real estate developer, promoted by Mr. Vegesna Venkata Rava Varma and Mr. Chakka Guru Muralli Mohan. VHPL is into the development of real estate projects in Telangana and Andhra Pradesh. VHPL is presently developing 4 residential projects in Hyderabad with a cumulative saleable area of 51 lakh square feet to construct 1500 flats and 315 Villas. Of this VHPL’s share consists of 25.33 lakh square feet involving 1011 flats and 171 Villas.
 
About the Group
Incorporated in 2019, Vertex Vega Developers LLP (VVDL) is a Hyderabad (Telangana) based residential real estate developer, promoted by Mr. Vegesna Venkata Rava Varma and other family members. VHPL is also into the development of real estate projects in Telangana and Andhra Pradesh. VVDL is presently developing a residential project in Hyderabad with a saleable area of 9.23 lakh square feet to construct 534 flats. Of this VVDL’s share consists of 6.76 lakh square feet consisting of 283 flats.
 

Analytical Approach

Extent of Consolidation
•Full Consolidation
Rationale for Consolidation or Parent / Group / Govt. Support
Acuité has consolidated the financial and business risk profiles of VHPL with Vertex Vega Developers LLP (VVDL), hereinafter, referred to as “Vertex Group” on account of their common management and brand name, operational and financial linkages.

Key Rating Drivers

Strengths
  • ­Experienced promoters, demonstrated track record and favorable location of the ongoing projects
The group is promoted by Mr. Vegesna Venkata Rava Varma and Mr. Chakka Guru Muralli who have more than 2 decades of experience as a real estate developer through various projects executed under the group. Vertex group consists of other group entities as well named as ‘Vertex Nirman LLP’ and ‘Vertex Siri Developers LLP’ which are engaged in similar line of business. The vertex group as a whole has completed more than 6 million square feet of residential and commercial projects and plans to add further 5-6 million square feet of residential space by way of its on-going and upcoming projects. Alongside, the brand equity of 'VERTEX' is enjoys a reputation in the Hyderabad (Telangana) region. With a successful track record in past projects, the group has the intent of executing larger residential projects. The group, with its strategic positioning has created brand equity and is now among the top 15 real estate developers in Telangana under the affordable segment. Besides, the on-going projects are located strategically in the planned areas of Hyderabad (Telangana). The location of the projects are very well developed both residentially and commercially with a lot of scope for further development. Commercial complexes, including supermarkets, schools, restaurants, hospitals, fitness centers 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 is expected to support in a successful sale of the units in the on-going and upcoming projects.
  • Moderate project risk
The group is presently developing 5 residential projects (under the name of ‘Kinston park’, ‘Viraat’, ‘Bougainvilla’ and ‘Pristine’ under VHPL and one under VVDL named ’33- West’) under JDA. The total saleable area of the aforesaid projects is 51 lakh square feet with a total project cost of Rs. 2,027 Cr and total saleable value of Rs.3,818 Cr. Of the total saleable area, Vertex’s share is 32 lakh square feet and saleable value of Rs.2,300 Cr. The cost of the project is expected to be funded through 20.47 percent of debt and promoter contribution each (in form of equity and unsecured loans) and remaining through customer advances. The funding risk is moderate as the group has already submitted the proposal to the lenders for bank finance. The promoters are high net worth individuals and promoter companies being debt-averse further mitigate the funding risk. Moreover, promoters will be supporting the project in case of any exigencies and the group will be maintaining a Debt service reserve account (DSRA) of minimum 3 months of principal + interest once the debt is availed. The group has completed around 52 percent of construction as on June 31, 2023 against which it has already received healthy bookings of 86 percent and received customer advances of 62 percent as a percentage to total saleable value. While there are inherent project risks as being in nascent stage of construction and with funding yet to be tied up, the risks are largely mitigated by the aforementioned facts. Acuité believes that timely funding and receipt of customer advances will be a key rating sensitivity.
Weaknesses
  • ­Geographical concentration risk and intense competition in the industry
The group through its promoter companies has mostly executed its past projects Hyderabad and Vijayawada only. Moreover, the group is executing all the current projects in Hyderabad. The group would remain geographically concentrated until any further diversification 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.
  • Inherent cyclicality in Real Estate Sector
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 the real estate industry are cyclical in nature of business (drop in property prices) and interest rate risk, among others, which could affect the operations
Rating Sensitivities
  • Timely funding tie-up and realization of customer advances pending from sold inventory
  • Lower than expected sales traction leading to increased dependence on debt
  • Sharp decline in cash flow due to slower customer advances or delays in project execution
 
All Covenants
­Not applicable
 
Liquidity Position: Adequate
T­he group is expected to have adequate liquidity which is to be supported by way of a secured payment mechanism with Escrow account, DSRA for 3 months of interest + principal and DSCR > 3x in base case scenario.
 
Outlook:
A­cuité believes that the group will maintain 'Stable' business risk profile over the medium term on the back of experienced promoters in the real estate industry. The outlook may be revised to 'Positive' in case of higher-than-expected advances from customers resulting in adequate cash flows for early completion of the project and prepaying the debt. Conversely, the outlook may be revised to 'Negative' in case of any undue delay in completion of the project, or less-than-expected bookings and advance leading to stretch on its liquidity.
 
Other Factors affecting Rating
­None
 

Particulars Unit FY 23 (Provisional) FY 22 (Actual)
Operating Income Rs. Cr. 133.66 111.94
PAT Rs. Cr. 10.99 8.69
PAT Margin (%) 8.23 7.76
Total Debt/Tangible Net Worth Times 1.75 0.98
PBDIT/Interest Times 5.44 5.31
Status of non-cooperation with previous CRA (if applicable)
­None
 
Any Other Information
­None
 
Applicable Criteria
• 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
­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
 

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook
07 Apr 2023 Proposed Long Term Loan Long Term 300.00 ACUITE BBB- | Stable (Reaffirmed)
07 Jan 2022 Proposed Long Term Loan Long Term 25.00 ACUITE BBB- | Stable (Assigned)
Proposed Long Term Loan Long Term 275.00 ACUITE BBB- | Stable (Assigned)
­

Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Complexity Level Rating
State Bank of India Not Applicable Term Loan Not available Not available Not available 300.00 Simple ACUITE BBB- | Stable | Reaffirmed
State Bank of India Not Applicable Term Loan Not available Not available Not available 20.00 Simple ACUITE BBB- | Stable | Assigned

Contacts




About Acuité Ratings & Research

Acuité Ratings & Research Limitedwww.acuite.in