CRISIL has assigned its ‘BB-/Stable’ rating to Rayala Corporation Pvt Ltd’s (RCPL’s) long-term loan facility. The rating reflects RCPL’s exposure to risks related to implementation and stabilisation of its ongoing hotel project, and an expected deterioration in its financial risk profile because of its large, ongoing, debt-funded capital expenditure (capex) programme for the hotel project. These rating weaknesses are partially offset by the prime locations of RCPL’s properties and stable cash flows from its existing lessee base.
Outlook: Stable
CRISIL believes that RCPL will continue to benefit from steady cash flows from lease rentals over the medium term. The outlook may be revised to ‘Positive’ if RCPL completes the ongoing hotel project without any significant time and cost overrun, and generates expected level of revenues from the project. Conversely, the outlook may be revised to ‘Negative’ if the company faces significant time and cost overruns in the ongoing project, existing lease agreements get cancelled unexpectedly, or if the company undertakes larger-than-expected debt-funded capex.
About the Company
Set up in 1948 and promoted by Mr. Rajagopal Naidu, RCPL, part of the Rayala group, is in the business of leasing out commercial spaces in Chennai. The company currently owns three commercial properties - Rayala Tower, Rayala Techno Park, and factory premises - all located at prime locations across Chennai. The company has leased out commercial space of about 270,000 square feet to five corporate clients, Computer Age Management Service Pvt Ltd, K7 Computing Pvt Ltd, C-Dot Alcatel Lucent Research Centre Pvt Ltd, E4E Business Solution India Pvt Ltd, and Rialto Enterprises Pvt Ltd. RCPL is currently setting up an Rs.880-million four-star hotel at Old Mahabalipuram Road, Chennai, funded with a debt-equity mix of 3:2. The hotel is expected to commence operations in 2012-13 (refers to financial year, April 1 to March 31).
The Rayala group is a diversified group and is into multiple businesses, including manufacturing automobile parts, developing real estate, food processing, and manufacturing household appliances. The group is currently led by Mr. Ranjit Pratap, the grandson of Mr. Rajagopal Naidu.
RCPL reported a provisional profit after tax (PAT) of Rs.10.1 million on net sales of Rs.116.6 million for 2009-10, against a PAT of Rs.5 million on net sales of Rs.105.3 million for 2008-09.
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