Detailed Rationale

Crisil Ratings has placed its rating on the long term bank facilities and non convertible debentures (NCDs) of Aditya Birla Real Estate Limited (ABREL; a part of the Aditya Birla [AB] group, Formerly known as Century Textiles and Industries Limited) on ‘Rating Watch with Developing Implications’ while reaffirming its ‘Crisil A1+’ rating on the short-term bank facilities and commercial paper of the company. The rating on NCDs worth Rs 12 crore has been withdrawn as the instruments have been fully redeemed. Crisil Ratings has received independent confirmation of redemption from the debenture trustee. The withdrawal is in line with Crisil Ratings policy on withdrawal of ratings. (see 'Annexure: Details of Rating Withdrawn')

 

The long-term rating has been placed on watch following the announcement made by the company on March 31, 2025, regarding execution of a business transfer agreement with ITC Ltd (ITC; ‘Crisil AAA/Stable/Crisil A1+’) for sale of the company’s paper and pulp division for a total consideration of Rs 3,498 crore. The transaction is expected to conclude in around six months, subject to receipt of regulatory and other approvals. This division contributed 75% of ABREL’s consolidated revenue and 58% of overall operating profits or earnings before interest, depreciation, tax and amortisation (Ebitda) in fiscal 2024. Crisil Ratings will monitor the progress of the transaction, deployment of funds expected from the sale, the company’s business as well as leverage plans towards the real estate division post conclusion of this transaction, post which the ‘watch’ would be resolved.
 

Operating income improved to Rs 3,267 crore, growing 14% on-year for the first nine months of fiscal 2025; however, Ebitda significantly moderated to Rs 241 crore from Rs 436 crore due to intense pricing pressure from lower priced imports, higher raw material costs and sluggish demand. Operating performance in fiscal 2025 is expected to remain moderate for the paper segment, with margin at 6-7% in line with performance seen during the first nine months of fiscal 2025.

 

ABREL has continued to achieve healthy sales traction across its residential projects and is generating healthy bookings, signifying the company’s strong brand name, attractive project features and ability to achieve sales booking, which will help sustain the business even after sale of the manufacturing business. Between April and December 2024, the company achieved sales value of ~Rs 2,350 crore with collection of Rs 1,633 crore. This includes over 95% of project value booking achieved for its four projects - Birla Navya, Birla Tisya, Birla Trimaya (Phase 1) and Birla Alokya. 

 

ABREL has purchased several new land banks across Mumbai, Delhi, Bengaluru, and Pune apart from spending on approvals costs for new project launches during fiscals 2024 and 2025, and the same was funded through a mix of internal cash accrual and debt. This resulted in gross debt increasing to Rs 5,020 crore as on December 31, 2024, from Rs 2,482 crore on March 31, 2024 (Rs 1,038 crore on March 31, 2023); while continuing with construction on existing projects using customer collections. The residential real estate projects of ABREL on owned land and joint development agreements (JDA) may continue to generate healthy sales booking with continuing collections supporting ongoing project construction costs. However, given high investments towards approval costs for new launches, land banks and JDAs totalling Rs 1,000-1,500 crore annually to improve residential project pipeline, gross debt levels are expected to further increase over the medium term and are expected at ~Rs 6,000 crore in fiscal 2026 (not factoring in the usage of sale proceeds of paper business for reduction of debt). The company will continue to follow a flexible approach with a mix of asset-light JDA model as well as outright land purchases to create a healthy pipeline of projects. Any larger-than-expected investment in JDAs or new projects could adversely impact the capital structure of the company and will remain a key monitorable. The company continues to benefit from business diversity, healthy financial risk profile and adequate liquidity buffer. Furthermore, the ratings benefit from strong, need-based and timely financial support from the AB group.

 

The ratings continue to reflect ABREL’s increasing presence in the domestic real estate residential segment, steady cash flow generation from the commercial real estate segment, adequate and stable financial risk profile and continuing support from the AB group. These strengths are partially offset by exposure of the residential real estate development business to demand and implementation risks, although it is mitigated by the group’s development track record in commercial real estate and focus on quality and timely project completion with healthy bookings seen for launched projects. Also, the commoditised nature of businesses and susceptibility to intense competition and cyclical business conditions, renders some volatility to its paper business.

Analytical Approach

• Crisil Ratings has applied its criteria for notch-up of ratings based on group support.
• Crisil Ratings has followed a full consolidation approach for the real estate and other subsidiaries, given financial fungibility, and included share of profits from joint-venture, Birla Advanced Knits Pvt Ltd

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Strong collection expected from launched residential projects, which will help sustain business despite expected loss of steady cash flow of paper business post sale: ABREL entered the development of residential projects in 2019 through a mix of owned land and JDAs with purchase of land banks to improve its project pipeline. While ABREL is still a relatively new entrant in the real estate project, it has entered new JDAs and has also purchased land across Mumbai, Delhi, Bengaluru and Pune, enhancing its project pipeline with gross development value (GDV) of Rs 63,350 crore. For projects launched till the first nine months of fiscal 2025, the company has seen average bookings of over 85%, which gives visibility of steady cash flow in the near to medium term. Strong reception to the launched projects supported by the Birla brand provides additional support.

 

While cash inflow of Rs 400-500 crore from the paper business in the past few fiscals provided additional support, post sale of the division, the investment requirement in residential real estate development projects would be met through a mix of collections from customers and additional debt and possibly receipts from sale of the paper division. The company’s major debt obligation of Rs 400 crore (relating to nonconvertible debentures) is due in fiscal 2026, while Rs 650 crore is due in fiscal 2027, which can be refinanced or met from sale proceeds of the paper division. The extent of investment in real estate business, ramp-up of projects and the resultant cash flow and debt levels will be monitorable over the medium term.

 

• Steady cash inflow from commercial real estate assets: ABREL has a 22-storey (15 floors for lease and the rest for car parking) commercial building, Birla Aurora, at Worli in Mumbai, has been fully leased out and generates steady rentals. The company’s second commercial building, Birla Centurion, located at its Worli mill compound, is also fully leased out. Both these properties benefit from a diversified clientele, long-term lease contracts with in-built escalation of 10-15% every three years. Steady annual lease rental income of Rs 140-150 crore annually from commercial real estate assets is expected to support cash flow over the medium term.

 

• Stable financial risk profile, supported by need-based timely financial support from the AB group: The increased investments in real estate has led to gross debt increasing to Rs 5,020 crore as on December 31, 2024, from Rs 2,483 crore on March 31, 2024, resulting in gearing doubling to about 1.25 times from 0.6 time. The company is in the growth phase and the increase in debt has primarily come to fund the land for projects which are coming up over the medium to long term – as for the first nine months of fiscal 2025, the company plans to launch projects with GDV of Rs 48,367 crore, with saleable area of 25.9 million square feet (MSF) across Mumbai Metropolitan region (MMR), National Capital Region (NCR), Bengaluru and Pune. The company has launched 11 projects of which construction finance has been availed for only four projects totaling Rs ~906 crore. The residential real estate projects of ABREL on owned land and JDA are expected to continue to generate healthy sales booking with collections to support ongoing project construction costs. However, given high investments towards approval costs for new launches, land banks and JDAs expected of Rs 1,200-1,500 crore annually, gross debt levels may increase further while net debt to Ebitda may peak at 1.3-1.6 times given lumpy residential real estate profit booking. However, the proceeds expected from the sale of the paper business may help improve the leverage position and continues to be monitorable.

 

Debt protection metrics remain healthy, with interest coverage ratio of 7.4 times during the first nine months of fiscal 2025, with interest cost related to projects being inventorised. Debt levels as compared to cash flow from real estate segment are high; however, with expected inflow from launched projects where bookings are already in place, these metrics are expected to improve over the medium to long term. ABREL also benefits from the strong and need-based timely financial support of the AB group. The promoter group will continue to provide timely financial support in future, in case of exigencies, as has been demonstrated in the past.

 

Weaknesses:

• Exposure to demand and implementation risks in the residential real estate business: ABREL plans to substantially expand its residential real estate business. It has launched projects across locations totalling 8 MSF with Rs 14,980 crore with subsequent additional phases and projects totaling 25.9 MSF to have GDV of Rs 48,367 crore which will be launched over the next 2-3 years.

 

The company has achieved healthy sales traction in the launched residential projects having achieved total booking value of ~Rs 11,516 crore or ~85% of aggregate launched project value across all projects till the first nine months of fiscal 2025. Various new project launches are planned over the next few quarters, and hence at an early stage of development exposes ABREL to demand and implementation risks. These new project launches and early stage of project development continue to expose the company to demand risk, which in turn could impact the overall business risk profile of the company.

 

Nevertheless, it is expected to benefit from the established Birla brand, as demonstrated in healthy sales booking. Furthermore, the development track record of ABREL of completing 6.6 lakh sq ft of Grade A commercial projects in Mumbai, and strong booking on launched projects on 8.0 MSF along with the phased launches and tie-ups with reputed contractors mitigate project implementation risks. Progress on the projects and ramp-up in scale will, nevertheless, be closely monitored.

 

• Geographic concentration in revenue: Majority of the inventory (68% of the ongoing area) is concentrated in MMR, wherein the company commenced projects on owned land banks, though the risk is mitigated by the healthy sales in the region. For the upcoming projects with GDV of 48,367 crore as well, around 58% of revenue potential is from MMR. However, the company is growing and expanding its presence in markets across Pune, Bengaluru and NCR that is also indicated by the recent land acquisition and launches in these areas. Hence higher geographical diversification and presence is expected over the medium to long term.

Liquidity: Strong

Liquidity is backed by healthy net cash accrual and prudent working capital management. Liquid surplus was Rs 724 crore as on December 31, 2024, along with nominal utilisation of the bank limit over the six months through February 2025. Debt obligation of Rs 400 crore (relating to nonconvertible debentures) is due in fiscal 2026, while Rs 650 crore is due in fiscal 2027, which can be refinanced or met out of sale proceeds of the paper division. Moderate gearing, huge networth and large owned land bank provide strong financial flexibility. ABREL is expected to maintain adequate liquidity in the near to medium term. Besides, timely support from the AB group is also expected to be forthcoming in the event of any exigencies.

 

ESG Profile

The environment, social, and governance (ESG) profile of ABREL supports its already strong credit risk profile.

 

The paper, textiles and real estate sectors can have a significant impact on the environment owing to high water consumption, waste generation and greenhouse gas emissions. The sector’s social impact is characterised by health hazards, leading to higher focus on employee safety and wellbeing and the impact on local community, given the nature of its operations. ABREL has continuously focused on mitigating its environmental and social risks.

 

Key ESG highlights

• ABREL has released its detailed sustainability report in fiscal 2024 with detailed description (including quantitative details) along with BRSR.
• The company has been consistently improving on its emission intensity with green-house gas related Scope 1 and 2 emissions of 1.92 tco2 in fiscal 2023.
• It is continuously seeking to improve energy savings through process optimisation and alternate energy. In fiscal 2023, about 40% of its energy needs was generated using renewable sources.
• Its loss-time injury frequency rate of 0.37 in fiscal 2023 for workers is lower than last year, representing healthy employee safety and well-being standards. Gender diversity is an improvement area with only 3% of employees being women of fiscal 2023.
• The governance structure is characterised by 57% of the board comprising independent directors, split in chairman and CEO positions, and presence of an investor grievance redressal mechanism and extensive disclosures.

 

There is growing importance of ESG among investors and lenders. ABREL’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given its high share of market borrowings in its overall debt and access to both domestic and foreign capital markets.

Rating sensitivity factors

Upward factors:

• Sustained improvement in business risk profile, backed by healthy sales and collections, along with well-balanced distribution of projects in different stages
• Improvement in the capital structure, with sustained debt reduction and gross debt (excluding lease rental discounting debt) to operating cash flow remaining below 2 times on a sustained basis, while maintaining adequate liquidity.
• Improvement in credit risk profile of the AB group

 

Downward factors:

• Material weakening in business risk profile triggered by slackened saleability of projects or substantial delays in project execution.
• Weakening of the financial risk profile, due to higher-than-expected debt including for land acquisition, and lower than expected cash flow, leading to operating cash flow to interest remaining below 5 times on a sustained basis
• Material reduction in the liquidity position
• Deterioration in the credit risk profile of AB group

About the Company

Incorporated in 1897, ABREL is promoted by Mr BK Birla and remains the flagship company of the BK Birla group which operated under the name, Century Textiles and industries Ltd (Century). Following equity infusion in March and December 2015, the AB group is a significant stakeholder in the company. As of December 2024, the promoters held ~50% stake in the company. Mr Kumar Mangalam Birla was appointed as Chairman of the company effective July 20, 2019, following the demise of Mr BK Birla. Century operated a cotton textile mill until 1951, which was divested in fiscal 2023. Since then, it has progressively expanded into diverse fields including pulp and paper segments.

 

In fiscal 2018, the company incorporated a wholly owned subsidiary, Birla Estates, to focus on the residential real estate business and in October 2024 the company changed its name to ABREL

 

In the first nine months of fiscal 2025, the company achieved revenue of Rs 3,234 crore with profit after tax (PAT) of Rs 3.4 crore, as compared to Rs 2,828 crore and Rs 145 crore, respectively, during the same period in the previous fiscal.

Any other information: Not applicable