Rating Rationale
March 24, 2020 | Mumbai
Elpro International Limited
Rating dowgraded to 'CRISIL BB' ; Placed on 'Watch Negative'
 
Rating Action
Total Bank Loan Facilities Rated Rs.96 Crore
Long Term Rating CRISIL BB (Rating downgraded from 'CRISIL BBB-' ; Placed on 'Rating Watch with Negative Implication')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has downgraded its rating on the long-term bank facilities of Elpro International Limited (EIL) to 'CRISIL BB' from 'CRISIL BBB-'; while placing the rating on 'Rating Watch with Negative Implications'.

The rating action follows measures taken by various state governments towards containment of COVID-19 which includes temporary closure of non-critical establishments, inter-state transportation etc. along-with advisory against travel and visiting areas of mass gatherings. These measures are likely to impact the business profile of the company as it operates a mall ' Elpro City Square, and thereby may have an impact on its credit quality, especially liquidity position.

The rating are placed on 'Watch Negative' since CRISIL does not have full clarity on the extent of the impact on the rental income due to the aforementioned directives; and thereby the company's debt servicing ability and liquidity position in the near term. Further, while, most of the state government's measures are applicable till March 31, 2020, revocation of the measures will be contingent upon directive from the Central Government and extent of spread of COVID-19. A sustained long period of closures can result in significant deterioration in credit profiles of the company. On the other hand, a faster reversal to normalcy may contain the extent of deterioration likely in credit quality of the company. That said, the ability of the business to revert back to operational stability and any relief measures given by the government will be a key monitorable, and CRISIL will continue monitoring these events.

The CRISIL will also engage with the management to get clarity on the extent of the impact of the directive on the revenue, profitability and current liquidity position of the company. The watch would be resolved once the operations normalise and/or CRISIL is able to ascertain the impact of this on the business risk profile and financial risk profile, especially liquidity risk profile.

The rating reflects the company's track record in executing real estate projects and leasing of commercial units, and steady cash flow from its lease rental agreements for commercial units resulting in comfortable debt service indicators along with presence of an escrow mechanism and debt service reserve account. These strengths are partially offset by EIL's exposure to any disruption in lease agreements and susceptibility to cyclicality in the real estate sector.

Analytical Approach

For arriving at its rating, CRISIL has considered the consolidated financials of EIL along with its wholly owned subsidiary Elpro Estates Ltd (EEL) since both companies are into similar business activities and EEL is now merged with EIL.

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:
* Track record in executing real estate projects and leasing of commercial units
EIL manufactures surge arresters; over a period of time, it diversified its business activity by undertaking real estate development projects along with leasing of office space, land and industrial shed. The company also operates one mall at Pimpri-Chinchwad, Pune. Over the years, EIL has been able to leverage on its land holdings and build a reputation by timely execution of projects. Benefits from a successful track record should continue to support the business.

* Comfortable debt service indicators along with presence of escrow mechanism and debt service reserve account for commercial properties
Steady stream of rental from all commercial properties (excluding mall) should ensure that overall DSCR remains comfortable throughout the loan tenure. Presence of an escrow mechanism and maintenance of debt service reserve account equivalent to 3 months' interest and principal payment, provides comfort for timely debt servicing.

Weaknesses
* Exposure to any disruption in lease agreements:
EIL leases commercial properties and industrial sheds. In the event of disruptions such as changes in location of the operating units of the lessees, or any external factors such as changes in fiscal incentive structures rendering other regions more attractive, or labour-related issues in and around Pimpri-Chinchwad region in Pune, debt-servicing ability could be affected.

* Susceptibility to cyclicality in the real estate sector
EIL is susceptible to risks pertaining to the real estate sector such as long gestation period of projects. Any time or cost overruns or delay in obtaining necessary approvals could affect the realizations and profitability of projects. Apart from the above-mentioned factors, the EIL's business and financial risk profiles are expected to be driven by the level of economic activity and the outlook for the real estate sector across Pune.
Liquidity Stretched

Liquidity position for loans taken against mall may get stretched in case rentals are not received timely and could lead to cash flow mismatches; amidst temporary lockdown of mall. However liquidity for the other commercial properties is expected to remain adequate as reflected in average DSCR of around 1.1 times over the loan tenure along with debt service reserve account (DSRA) equivalent to 3 months of principal and interest obligation.

Rating Sensitivity factors
Upward Factors
* Improvement in overall average debt service coverage ratio (DSCR) to over 1.5 times, led by better-than-expected lease rentals or renewal rates
* Substantial liquidity availability with company to cover debt obligation for period of 6 months in absence of normalization of operations of mall 
* Significant improvement in capital structure
 
Downward Factors
* Drop in DSCR to below 1.05 for fiscal 2020 or 2021
* Unanticipated delay in lease payments, leading to cash flow mismatches or weakening of credit profile of the counterparty
* Any major debt-funded capital expenditure, or acquisition, or significant capital withdrawal, weakening the financial risk profile, particularly liquidity
About the Company

EIL was incorporated in July 1962 as a public limited company. The company manufactures surge arresters and undertakes real estate development. Its multi-manufacturing facilities are in Pune and Hyderabad. Mr Rajendra Kumar Dabriwala and Mr Surbhit Dabriwala are the key promoters.

Elpro Estates Ltd (EEL) (Formerly known as 'Trump Properties Limited'): It is wholly owned subsidiary of EIL. It is currently operating mall - Elpro City Square in Pune.

Key Financial Indicators*
Particulars Unit 2019 2018
Revenue Rs crore 16.7 37.4
Profit after tax (PAT) Rs crore 99.9 18.5
PAT margin % 599.2 49.3
Adjusted debt/adjusted networth Times 1.19 NM
Interest coverage Times 5.7 1.6
*Consolidated Figures
NM ' not meaningful

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)
ISIN Name of instrument Date of Allotment Coupon Rate Maturity Date Issue Size (Rs Cr.) Rating Assigned with Outlook
NA Term Loan NA NA Feb-2029 89 CRISIL BB/Watch Negative
NA Proposed Long Term Bank Facility NA NA NA 7 CRISIL BB/Watch Negative
 
 
Annexure - List of entities consolidated
Names of entities consolidated Extent of consolidation Rationale for consolidation
Elpro Estates Ltd Full Common management and strong operational and financial link
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  96.00  CRISIL BB/(Watch) Negative      05-07-19  CRISIL BBB-/Stable  13-07-18  CRISIL BBB-/Stable      CRISIL BB+/Stable 
                18-05-18  CRISIL BB+/Stable (Issuer Not Cooperating)*       
Non Fund-based Bank Facilities  LT/ST    --    --    --  18-05-18  CRISIL A4+ (Issuer Not Cooperating)*      CRISIL A4+ 
All amounts are in Rs.Cr.
*Issuer did not cooperate; based on best-available information
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Proposed Long Term Bank Loan Facility 7 CRISIL BB/Watch Negative Proposed Long Term Bank Loan Facility 7 CRISIL BBB-/Stable
Term Loan 89 CRISIL BB/Watch Negative Term Loan 89 CRISIL BBB-/Stable
Total 96 -- Total 96 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs criteria for rating debt backed by lease rentals of commercial real estate properties
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings
CRISILs Criteria for Consolidation
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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