Rating Rationale
August 03, 2023 | Mumbai
Brigade Enterprises Limited
Rating upgraded to 'CRISIL AA-/Stable'
 
Rating Action
Total Bank Loan Facilities RatedRs.350 Crore
Long Term RatingCRISIL AA-/Stable (Upgraded from 'CRISIL A+/Positive')
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has upgraded its rating on the long-term bank facilities of Brigade Enterprises Limited (BEL; a part of the Brigade group) to ‘CRISIL AA-/Stable’ from 'CRISIL A+/Positive'

 

The rating upgrade reflects expected improvement in business and financial risk profile of BEL. Driven by BEL’s established market position and healthy launch pipeline, the performance of the residential segment is expected to remain healthy with sales expected to be in the range of 6.5-7.5 msf in FY2024, similar to FY2023.

 

Rental income from commercial segment is also expected to increase with 2 under construction commercial assets becoming operational in a phased manner from next fiscal onwards. Additionally, there is 1 under construction asset in hospitality segment which is also expected to contribute to incremental growth post its operationalization. Diversity and stability of business risk profile of BEL is expected to strengthen further with increase in rental and hospitality revenues, backed by expected increase in occupancies and sustenance of demand in hospitality segment.

 

BEL had achieved all time high real estate sales and collections of 6.3 million sq ft (msf) and Rs 3884 crore respectively in real estate segment in FY2023, which is a healthy 35% and 21% growth in sales area and collections over FY2022. Launch pipeline for FY2024 stands at healthy levels of 7-8 msf.

 

Further, performance of commercial and retail segments has also improved with an increase in rental income by 29% in FY2023 to Rs 625 crore. This was supported by occupancy for the leased portfolio increasing to 85% from 71% and overall leased area increasing to 7.39 msf from 6.22 msf in FY2023 from FY2022. This includes 1.31 msf of area from retail assets, for which occupancy has already reached to 95% as of March 2023.

 

Financial risk profile has improved in fiscal 2023 and should remain healthy in the medium term, with overall gross debt likely to remain at in the range of Rs 4000-4500 crore. Composition of debt has changed, with around 76% of total debt backed by stable lease generating assets as of March 31, 2023, as against 58% on March 31, 2022. Share of LRD debt is expected to remain at around 70% of overall debt in the medium term. Lease rental discounting (LRD) loans are expected to be maintained at 6 times or lower of lease rentals. Debt protection metrics should remain strong over the medium term, with debt-to-total assets ratio (for the development business) below 10.0% and average debt service coverage ratio (for lease business) at above 1.5 times.  

 

The rating continues to reflect the strong track record of the group in the real estate market in Bengaluru, sound saleability of projects and the diverse revenue profile. Financial flexibility is supported by the demonstrated refinancing ability and steady progress in construction of ongoing projects. These strengths are partially offset by exposure to risks inherent in the real estate segment, intense competition and cyclicality in the hospitality sector.

Analytical Approach

For arriving at the rating, CRISIL Ratings has fully combined the business and financial risk profiles of all ongoing and planned projects in BEL and those in its subsidiaries and associate companies. All these entities, collectively referred to as the Brigade group, are in the same business, have common promoters, and share significant operational, managerial, and financial linkages.

 

The fully convertible debentures of Rs 250 crore (as on March 31, 2023) from GIC, have been treated as neither debt nor equity. These are long-tenured instruments (converted into equity at the end of 20 years; March 9, 2036, for Rs 231 crore and April 6, 2037, for Rs 19 crore), and the coupon and principal payment ave no scheduled due date. GIC and BEL have jointly invested in three land parcels till date.

 

Also, unsecured loans (Rs 119 crore as on March 31, 2023) from promoters have been treated as neither debt nor equity as these are interest-free with no fixed repayment schedule.

 

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 track record and established position in Bengaluru market

The Brigade group is a prominent developer in Bengaluru, with a healthy track record of over three decades in the real estate business. It has developed over 76+ Mn sq ft, mostly in the residential segment. Strong position is evident from its established brand, and the healthy market share of 6-7% in Bengaluru, considering the high fragmentation in the real estate industry.

 

It has ongoing projects of around 197 lakh sq ft of saleable area in the real estate development. These projects witnessed healthy sales (basis value) and construction progress of 77% and 55%, respectively, as on March 31, 2023. Sales and collections are expected to sustain at 6.5-7.5 msf and over Rs 4000 crore, respectively, over the medium term, supported by new launches, healthy sales of ongoing projects and liquidation of completed projects.

 

Moderately diversified revenue profile

The Brigade group derives its income mainly from three segments: real estate development, leasing assets and hospitality. Real estate development contributed 72% of the total cash inflow of Rs 3,884 crore in FY2023. The group also has a leased asset portfolio of 8.7 msf and eight operational hotels (four in Bengaluru and one each in Mysuru, Chennai, Kochi and Gujarat International Finance Tec-City), with total of 1,474 keys as on March 31, 2023. Diversification both in terms of geography and revenue is expected to improve with share of new development increasing in Hyderabad and Chennai and increase in lease rental income respectively. 

 

Strong financial flexibility

Financial risk profile is characterised by healthy collections from the real estate segment, which is likely to generate annual customer advances of over Rs 4000 crore over the medium term. Financial flexibility is further supplemented by the demonstrated refinancing ability of the group, its access to an unutilised bank limit of about Rs.1,500 crore as on March 31, 2023, and cash and equivalents of Rs 1,690 crore as on March 31, 2023. The group also has room to raise an additional lease rental discounting loan against the expected lease income of over Rs 800 crore per annum. LRD loans formed 76% of the total debt as on March 31, 2023 (vis-a-vis 58% as on March 31, 2022) and their share may sustain at around 70% over the medium term. The group had also raised Rs 500 crores through QIP in fiscal 2022,  which  is fully deployed towards land acquisition, repayment of debt & other business purpose of the group. The group is unlikely to raise further equity to acquire any new large land parcel in the medium term. Any sharp increase in debt due to aggressive land acquisition, or construction debt due to subdued sales or substantial vacancy in commercial and retail portfolio will remain key rating sensitivity factors.

 

Weaknesses:

Exposure to risks inherent in the real estate sector

Cyclicality in the domestic real estate sector leads to volatility in saleability and realisations and thus, fluctuations in cash inflow. However, outflows such as construction cost and debt repayment are relatively fixed. Muted demand could also reduce collections and cash flow. Nevertheless, the strong track record of the Brigade group in the real estate space in Bengaluru mitigates the implementation and demand risk.

 

The rental collection from commercial segment is also susceptible to economic downturns, which constrains the tenant’s business risk profile and, therefore, occupancy and rental rates. Leasing occupancy has improved to 85% as of March 2023 from 71% as of March 2022. While majority of the tenants are established corporates and may continue to occupy the property, any industry shock leading to vacancies may make it difficult to find alternate lessees within the stipulated time. Emergence of competing facilities in the vicinity could also have the potential to cannibalise tenants or rental rates. These could adversely impact cash flow, and hence, will be key rating sensitivity factors.

 

Susceptibility to intense competition and cyclicality in the hospitality sector

Competition in the hotel industry in India is increasing due to the growing presence of international chains and expansion by domestic players. The hospitality industry is susceptible to downturns in the domestic and international economies, and typically follows a six-year cycle. In fiscals 2021 and 2022, the industry has been highly impacted by the pandemic and the ensuing lockdowns and travel restrictions. However, the segment has seen a revival in demand. Occupancies have surpassed pre-covid levels in FY2023 at 69% as against 62% pre-covid. Though post pandemic, there has been revival of demand in the hospitality segment, sustenance of the demand remains a key monitorable over the medium term.

Liquidity: Strong

Liquidity remains strong, supported by good saleability and collections in ongoing projects and expected even for fresh launches. Financial flexibility is supported by strong refinancing ability. The Brigade group has unsold finished inventory of over Rs 505 crore as on March 31, 2023 and a land bank with development potential of around 46.0 million sq. ft against which additional debt can be raised, if required. Furthermore, undrawn bank lines of over Rs 1,500 crore and cash and equivalents of Rs 1,690 crore as of March 31, 2023 supports the  liquidity. Liquidity is further supplemented by steady cash flow from lease business and the ability to raise additional lease rental discounting loans, if required.

Outlook: Stable

CRISIL Ratings believes the credit profile of Brigade group will remain healthy over the medium term, driven by its established market position. Financial risk profile is also likely to remain healthy, aided by low leverage of the residential business, limited commercial capex and cap on leveraging the leasing business.

Rating Sensitivity factors

Upward factors

  • Substantial and sustained increase in the cash flow, driven by increase in scale of residential portfolio or substantial scale up of lease rentals, and improvement in geographic diversity.   
  • Sustenance of leverage levels indicated by debt-to-total assets below 5-8% for real estate development or a steady debt service coverage ratio (DSCR) of over 2-2.25 times for leasing business.  

 

Downward factors

  • Steep decline in operating cash flow, triggered by slackened saleability or significant increase in vacancy
  • Weaker debt protection metrics with DSCR of less than 1.5 times for the leasing business or debt-to-total assets sustaining over 15-20% for the real estate development business
  • Increase in bank borrowing for land acquisition or substantial outflows towards land purchase

About the Company

BEL is the flagship company of the Brigade group, which was established by Mr MR Jaishankar in 1986, and is one of the largest real estate players in South India. Till date, it has developed over 76+ Mn sq. ft, 80% of which has been in the residential segment. Though it mainly focuses on the Bengaluru market, Chennai is emerging as the second large market for the entity. The group has developed projects in Mysuru, Cochin, Chennai, Hyderabad, and Ahmedabad.

Key Financial Indicators

As on/for the period ended March 31,   2023 (Actual) 2022 (Actual)
Operating Income Rs crore 3445 2999
Profit after tax Rs crore 222 -65
PAT margin % 6.4 -2.2
Adjusted debt/adjusted networth Times 1.2 1.5
Interest coverage Times 2.25 1.8

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of instrument Date of
allotment
Coupon
rate (%)
Maturity
date
Issue size
(Rs.Crore)
Complexity 
levels
Rating assigned
with outlook
NA Proposed Long Term Bank Loan Facility NA NA NA 350 NA CRISIL AA-/Stable

Annexure – List of entities consolidated*

Names of entities consolidated Extent of consolidation Rationale for consolidation
BCV Developers Pvt. Ltd Full Subsidiary
Brigade Properties Pvt. Ltd Full Subsidiary
Perungudi Real Estates Pvt. Ltd Full Subsidiary
SRP Prosperita Hotel Ventures Ltd Full Subsidiary
Brigade Hospitality Services Ltd Full Subsidiary
Celebrations Private Ltd (Formerly known as Celebrations LLP) Full Subsidiary
Brigade Hotel Ventures Ltd Full Subsidiary
Augusta Club Pvt. Ltd Full Subsidiary
WTC Trades and Projects Pvt. Ltd Full Subsidiary
Brigade Tetrarch Pvt. Ltd Full Subsidiary
Brigade Estates and Projects Pvt. Ltd Full Subsidiary
Brigade Infrastructure and Power Pvt. Ltd Full Subsidiary
Brigade (Gujarat) Projects Pvt. Ltd Full Subsidiary
Mysore Projects Pvt. Ltd Full Subsidiary
Brigade Innovations LLP Full Subsidiary
Brigade Flexible Office Spaces Private Ltd (Formerly known as Brigade Flexible Office Spaces LLP) Full Subsidiary
Tetrarch Developers Limited Full Subsidiary
Vibrancy Real Estates Private Limited Full Subsidiary
Venusta Ventures Private Limited Full Subsidiary
Zoiros Projects Private Limited Full Subsidiary
Propel Capital Ventures LLP Full Subsidiary
Tetrarch Real Estates Private Limited Full Subsidiary
Tandem Allied Services Pvt. Ltd Full Subsidiary
BCV Real Estates Private Limited Full Subsidiary

*Details as on March 31, 2023

Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 350.0 CRISIL AA-/Stable   -- 21-11-22 CRISIL A+/Positive 23-08-21 CRISIL A+/Stable 31-08-20 CRISIL A/Stable CRISIL A/Stable
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Proposed Long Term Bank Loan Facility 350 Not Applicable CRISIL AA-/Stable
Criteria Details
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Rating criteria for Real Estate Developers
CRISILs Criteria for Consolidation

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