CRISIL has downgraded its rating on the long-term bank facilities of MRG Promoters Pvt Ltd (MPPL) to ‘B+/Stable’ from ‘BB/Stable’.

The downgrade is driven by significant time and cost overruns in MPPL’s ongoing project. The delay has been caused by lack of funding, as MPPL is yet to receive sanction for a term loan for the project. Furthermore, a slump in demand for real estate in the project vicinity has also stumped cash inflows from booking of shops.

MPPL’s project is now expected to commence in December 2011, subject to timely sanction of term loan. MPPL’s project was earlier expected to have a soft launch in October 2010 to coincide with the 2010 Commonwealth Games in New Delhi, and have a full commercial launch in January 2011. The project cost has escalated to Rs.850 million from the earlier estimate of Rs.740 million. The rating revision also reflects significant funding risk, attributed to financial closure of the project pending for more than a year.

The rating reflects MPPL’s susceptibility to risks related to project implementation, intense competition, and cyclicality in the hotel industry. These rating weaknesses are partially offset by MPPL’s tie-up with the Hotel Inn brand and the financial support that the company receives from AMR Infrastructures Ltd (AMR).

Outlook: Stable
CRISIL believes that MPPL’s credit risk profile will remain constrained over the near to medium term, driven by high project completion risks and liquidity pressures. The outlook may be revised to ‘Positive’ in case of timely completion of the project within revised budget and the company reports higher-than-expected cash accruals from ramp-up in operations. Conversely, the outlook may be revised to ‘Negative’ if MPPL’s project faces further time and cost overruns, or delay in ramp-up of sales and profitability, thereby adversely affecting the company’s liquidity.

About the Company
MPPL was set up by Mr. Mahesh Kumar and Mr. Ravi Goyal in 2004. It was allocated 7034 square metres of land at Kundli in May 2006 from Haryana State Industrial & Infrastructure Development Corporation (HSIIDC) for a total consideration of Rs.281 million, to be paid over a period of four years (Rs.70 million at the time of booking, and eight instalments of Rs.26.3 million thereafter excluding interest charged at 11 per cent). The company was acquired in May 2007 from its erstwhile promoters Mr. Bharat Anand and Mr. Rakesh Ahuja by AMR in order to develop Park Inn, a shopping mall cum three-star service apartment at Kundli (Haryana). AMR is owned equally by the Ram Chander Soni family, the Brij Mohan Gupta family, the Manoj Kumar family, and by Mr. Krishan Kumar.