| Darshita Infrastructure Private Limited | ||||
| Rating reaffirmed at 'CRISIL A '; outlook revised to 'Positive' | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its rating outlook on the long-term bank facilities of Darshita Infrastructure Private Limited (DIPL; part of the Salarpuria-Sattva group) to ‘Positive’ from ‘Stable’ while reaffirming the rating at 'CRISIL A’.
The outlook revision reflects CRISIL Ratings’ belief that the group's increasing contribution from the steady lease rental business and healthy financial risk profile would help overcome challenges posed by subdued economic activity in the real estate sector on account of the Covid-19 pandemic.
Revenue is expected to improve with an increase in income from leased assets to 55-70% of the total income over the medium term, from 40-50% till fiscal 2020. The leasable assets of the group are expected to reach over 180 lakh square foot (sq ft) in fiscal 2023 from 113 lakh sq ft as of November 2020, and this business should drive growth over the medium term. The resulting increased diversification will help offset the higher volatility in the residential segment. The group had added around 46 lakh sq ft of leasable area since April 2019, taking the under-construction to operational area to less than 1 time against over 1.5 times till fiscal 2019, thus reducing the execution risk. Annualised committed lease rental income had also increased to Rs 857 crore as of November 2020, over 70% increase from that as of March 2019. Though extended work-from-home by certain corporates may lead to build up of vacancy and affect leasing of new spaces, this risk is expected to be lower in case of Grade-A office buildings and might be partially offset by reversal of the densification trend on account of increased social distancing norms in offices. The operational assets maintained their occupancy at 91% as of November 2020 with collection efficiency of 99.2% for the first eight months of fiscal 2021.
Due to the pandemic, new project launches have been affected and sales may also slowdown, as compared with earlier expectations for fiscal 2021, amidst the weak market sentiment. Nevertheless, sales were 6.9 lakh sq ft in the eight months ended November 30, 2020, while collections were Rs 427 crore, which are 82% and 66% of sales and collection, respectively, in fiscal 2020,. Despite the weak industry sentiment, well-established players with stronger balance sheets are enjoying better demand prospects compared with smaller and financially weaker players in the industry. Launches deferred to fiscal 2022 along with strong saleability of ongoing projects and healthy pace of liquidation of finished inventory are expected to improve sales over the medium term.
The ratings continue to reflect the group’s established development track record and sound saleability of its residential projects, strong commercial portfolio supported by healthy occupancy and marquee clientele, and a healthy financial risk profile. These strengths are partially offset by exposure to risks related to the execution of the large commercial real estate development plans and subsequent leasing, and exposure to inherent risks in the real estate sector. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has combined the financial and business risk profiles of all the entities of the Salarpuria-Sattva Group (refer to Annexure – List of entities consolidated) that have contracted external debt and have ongoing or planned projects. That’s because all these entities are managed by the same promoters and have fungible cash flows. The financial and business risk profiles of the group’s joint ventures (JVs) have also been combined because of the group’s significant control over their operations, and because it is likely to provide need-based financial support to them for timely servicing of term debt. All the entities are collectively referred to as the Salarpuria-Sattva group. CRISIL Ratings has not consolidated the other businesses such as co-working spaces, co-living spaces, ecommerce, aerospace, technology, finance and investment as these are not related to the group’s core real estate business. Also, the scale of operations in these businesses is very small vis-à-vis the group’s networth. |
Key Rating Drivers & Detailed Description Strengths
With a track record of over three decades, the group has an established position in the real estate market in Bengaluru. It has developed over 554 lakh sq ft of residential and commercial area (built up) till date, mainly in Bengaluru and Hyderabad, which includes 46 lakh sq ft of built up office area which was completed in Hyderabad since April 2019. It also has a hotel in Kolkata that became operational in September 2014. The group benefits from its healthy reputation and strong relationship with customers.
It has ongoing projects of around 53 lakh sq ft of saleable area in the residential segment. These projects had healthy sales and construction progress of 41% and 62% as on November 30, 2020. Collections are expected to remain at Rs 570- 670 crore over the medium term, supported by new launches, healthy sales of ongoing projects and liquidation of completed projects.
The group had healthy occupancy of 91% in its 113 lakh sq ft operational commercial portfolio as of November 30, 2020, which has remained steady despite addition of substantial space in fiscal 2020. Healthy occupancy demonstrates the established position in the commercial business segment in Bengaluru and Hyderabad. Customer concentration is moderate with the top 10 tenants occupying close to 50% of the total leasable area. The tenants are established players and multi-national companies such as JP Morgan, Novartis, Microsoft, and Google, which ensure timely receipt of rentals. 4-10% of the total leasable area is coming up for renewal every year till fiscal 2024; however, this is not expected to pose a major challenge as the group should benefit from their experience and ensure renewals are done smoothly. Also, many of tenants have renewal options and have incurred large fit-out cost, which offsets the vacancy and renewal risks. The commercial asset portfolio is expected to ramp up substantially over the medium term with new developments in Hyderabad and Bengaluru. 17 lakh sq ft of commercial leasable area is expected to be completed by the end of March 2021, of which over 60% has been already leased.
The capital structure is comfortable, supported by a healthy networth of Rs 5,312 crore and bank debt of around Rs 5,551 crore as on March 31, 2020. Bank debt has increased from Rs 4,400 crore as on March 31, 2019, with the incremental debt primarily comprising LRD loans.
While debt is expected to increase significantly over the medium term on account of under-construction commercial office space, the construction loans are likely to be converted into long-tenure LRD loans once the properties become operational and are leased. The leverage will remain steady with LRD debt to lease rentals expected to remain less than 6-6.5 times and more than 60% of the total debt likely to be backed by lease rentals.
Weaknesses
The group had acquired many assets in Hyderabad and Bengaluru, most of which are under construction and the remaining under planning. Lease rental income is expected to ramp up over the medium term because of the under-construction commercial portfolio of around 92 lakh sq ft (as on date) in phases. Any delay in completion or cost overrun and decline in demand and subsequent leasing could hit the cash flow adversely and the group may have to raise more debt to meet obligation on construction finance loans.
Saleability of the ongoing projects in the residential portfolio is expected to be moderate in the near term. Cyclicality in the domestic real estate sector leads to fluctuations in cash inflow because of volatility in saleability and realisations, while outflows such as construction cost and debt repayment remain fixed. Lower-than-expected demand could result in lower collection and adversely impact cash flow. However, the strong track record in the real estate space mitigates the implementation and demand risks. |
Liquidity: Strong The group had cash and equivalents of Rs 220 crore as of March 31, 2020, and unutilised bank lines of around Rs 1,385 crore as on November 30, 2020. Long-term debt repayment is expected to be over Rs 1,100 in fiscal 2022 of which over 50% is construction finance loans that are expected to converted to LRD given that around 60% of the commercial area has been leased. The group is expected to have sufficient cash accruals to meet the repayments. Liquidity is also supported by strong financial flexibility with a healthy LTV ratio of 40-45% and is further supplemented by steady cash flow from the lease business and the ability to raise additional LRD loans, if required. The group also has ready unsold inventory available from its completed projects. |
Outlook Positive The Salarpuria-Sattva group’s financial risk profile should improve with the increased share of stable lease rental income and lower-than-expected incremental debt. |
Rating Sensitivity Factors Upward Factors:
Downward Factors:
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About the Group The Salarpuria-Sattva group was founded by the late Mr G D Salarpuria in 1986 in Kolkata. Mr Bijay Agarwal, Managing Director, manages the operations of the group. The group has been involved in construction and development of real estate for 34 years. Salarpuria Properties Pvt Ltd and Sattva Developers Pvt Ltd are the two flagship companies of the group. The other group entities are mainly involved in individual projects. It has ISO 9001:2008, 14001:2004, and 18001:2007 certifications. Till date, 554 lakh sq ft of built up area has been developed, of which, around 56% comprises commercial development (in Bengaluru and Hyderabad). The group also has a presence in Pune (Maharashtra), Coimbatore (Tamil Nadh), and Goa. |
Key Financial Indicators for group
*Fiscal 2020 are provisional numbers |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||
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