Detailed Rationale

CRISIL Ratings has upgraded its ratings on the debt instruments of Emerald Haven Realty Limited (EHRL) to ‘CRISIL A/Stable/CRISIL A1’ from ‘CRISIL A-/Stable/CRISIL A2+’.

 

The rating action factors in the change in the analytical approach following a change in the shareholding structure of EHRL, wherein it became a subsidiary of TVS Holdings Limited (TVSHL; 'CRISIL A1+') and there is a clearly identifiable parent for EHRL.

 

EHRL is the flagship company for real estate business of the group. The company earlier was promoted by TVS Motor Company Ltd (holding 49% stake in EHRL) and the promoter family (holding 51% stake). Post the recent group restructuring, the shareholding structure has now been changed with TVSHL holding majority stake of 77.60% in EHRL.

 

The ratings reflect, support from EHRL’s promoter, its strong market position and healthy visibility in cash flows. The ratings are, however, constrained by modest development track record, moderate leverage driven by debt expected for land acquisitions, susceptibility to risks inherent in the real estate sector and geographical concentration of projects.

Analytical Approach

For arriving at EHRL’s ratings, CRISIL Ratings has taken a standalone approach and factored in support from the parent - TVSHL. The real estate business remains critical to the parent and the brand “TVS Emerald” is also attached to all the projects of EHRL.

 

CRISIL Ratings has also combined the business and financial risk profiles of EHRL along with all its subsidiaries and associate companies, given the close financial and managerial linkages among them as EHRL is entirely responsible for the implementation, sales and marketing, and cash flow management of all of its projects. Further, the subsidiaries are in same line of business and have cash flow fungibility.

 

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:

• Support of parent: TVS Holdings Ltd is the parent of EHRL, holding majority stake of 77.60% in EHRL. The promoters are actively involved in the business and EHRL remains critical to its parent. EHRL benefits from its parent’s strong brand name and investment support. The brand “TVS Emerald” is attached to all the projects and the market standing also benefits from the same. The promoters of TVS Holdings Ltd have extended investment support in the past. Also, the parent (TVSHL) will provide need-based investment support to EHRL and its subsidiaries. Being a subsidiary of TVS Holdings Ltd, the company enjoys healthy financial flexibility which will support portfolio growth while keeping leverage levels moderate.

 

• Strong market position: EHRL has a strong market position benefiting from ‘TVS Emerald’ brand which is attached to all the projects. Further, EHRL has a satisfactory track record of timely completion and delivery of 2.50 million square feet (msf) area of housing units without any delays. The construction of the ongoing projects is on track and no delays are expected. The strong market position has enabled EHRL to improve its sales substantially in fiscal 2023 to around Rs 931 crore against Rs. 338 crore in the previous year. Moreover, owing to strong market position it sold 0.80 msf area with value of Rs 617 crore during first five months of fiscal 2024. Further, with launches of ~2.74 msf in the pipeline, the scale is expected to improve to Rs 1200-1500 crores in the medium term.

 

• Healthy visibility in cash flows: EHRL at consolidated level has witnessed healthy sales velocity in the projects in fiscal 2023 and five months period ended August 2023 with sales of 1.34 msf and 0.80 msf area at value of Rs 931 crore and Rs 617 crore, respectively on the back of good response to the company’s new project launches. The company collected Rs 800 crore in fiscal 2023 and Rs 493 crore in five months period ended August 2023 from sold project inventory. Committed receivables from launched projects will be sufficient meet debt repayments over the medium term, providing healthy visibility in cash flows.

 

Weaknesses:

• Moderate development track record: EHRL has a relatively moderate track record in the real estate business, thereby constraining the business risk profile. The group has developed and handed over 2.50 msf area in residential segment till August 2023 in Chennai, while 3.28 msf area is currently under development and 2.74 msf is in pipeline for future launches in Chennai and Bangalore. Although the development track record is limited, the saleability of the projects is healthy. Further, the market position benefits from ‘TVS Emerald’ brand.

 

• Susceptibility to risks inherent in the real estate sector and geographical concentration of projects: Exposure to risks and cyclicality inherent in the real estate sector may result in volatility in saleability as well as realisations and hence, cash flow. Macroeconomic factors, such as demonetisation, introduction of Real Estate (Regulation and Development) Act, 2016, and Goods and Services Tax have impacted saleability in the sector in the past. Hence, saleability will remain susceptible to economic cycles. In contrast, cash outflow, such as for debt servicing, is relatively fixed. EHRL’s dependence on the Chennai real estate market is elevated, which exposes the Group’s sales to any region-specific downturn in demand. While it plans to launch multiple projects in Bangalore, the extent of scale up in this territory and their contribution to the consolidated sales mix will remain a key monitorable.

Liquidity: Strong

The Group’s liquidity is strong, supported by the cash and equivalents of Rs. 254 crore and undrawn lines of Rs. 10 crore as on August 31, 2023. Additionally, the liquidity will be supported by the likely improvement in operational cash flows going forward, owing to the healthy demand outlook and a number of launches on fully-paid for and unencumbered land bank. The expected collections will be sufficient to meet the debt repayments over the medium term. Further, commitment from EHRL’s parent to extend financial support when required provides cushion.

Outlook: Stable

The Stable outlook reflects that EHRL will continue to benefit from its strong market position in Chennai real estate market, experienced management and being subsidiary of TVS Holdings Ltd.

Rating Sensitivity Factors

Upward Factors:

• Significant and sustainable improvement in scale of operations and increase in cash flows
• Significant deleveraging and strengthening of the financial risk profile, with debt to total assets sustaining under 25%
• Upgrade in the rating of the parent by one notch

 

Downward Factors:

• Weakening of the financial risk profile due to higher-than-expected debt-funded land investments, leading to an increase in debt to total assets ratio sustaining above 50%
• Sharp decline in operating cash flow, triggered by slackened saleability of existing and proposed projects or substantial delays in project execution
• Downgrade in the rating of the parent or a change in stance of support or extent of support by its parent

About the Company

EHRL, incorporated in June 2010 is a real estate development company operating in Chennai and Bangalore. It is the flagship company for Real Estate Business of the TVS group. The company earlier was promoted by TVS Motor Company Ltd (holding 49% stake in EHRL) and TVS Group promoter family (holding 51% stake). The shareholding structure has now been changed recently with TVS Holdings Limited holding majority stake of 77.60% in EHRL, making it a subsidiary of TVS Holdings Ltd (which also holds 50.26% stake in TVS Motor Company Limited). EHRL at a consolidated level has developed and handed over 2.50 msf saleable area, is currently developing 3.28 msf of residential apartments, villas and developed plots and has a pipeline for future launches of 2.74 msf of saleable area in Chennai and Bangalore.

About the Parent

TVSHL was incorporated in Chennai in 1962. The company is a leading manufacturer of aluminium die-casting components. It supplies to major automotive OEMs including TVS Motor, the Cummins group, the Volvo group, Hyundai Motor India Ltd (rated ‘CRISIL AAA/Stable/CRISIL A1+’), Ford Motors, the Daimler group, and to component suppliers such as Wabco India Ltd and the Visteon group. TVSHL was set up by the TVS group and the UK-based Clayton Dewandre Holdings Ltd. 

 

Until fiscal 2007, SCL’s financials included the CV brakes business. With effect from March 28, 2008, the Madras High Court approved the de-merger of the brakes business into a separate company, Wabco India Ltd. The non-brakes business (aluminium die-casting) and investments in the TVS group entities remained with SCL. The company has its main die-casting component production facilities at Padi, Mahindra City, and Oragadam in Chennai, and Belagondapalli at Hosur, in Tamil Nadu. During fiscal 2012, SCL restructured its businesses, hiving off the non-automotive businesses into its erstwhile subsidiary, Sundaram Investments Ltd (SIL).

 

In August 2023, the aluminium diecasting business of SCL was demerged into a separate entity, Sundaram- Clayton DCD Limited (SCL DCD) and SCL was renamed as TVS Holdings Limited (TVSHL) which retained the investments in TVS Motor Company Limited (TVSM) and another promoter entity, EHRL. The demerger was done through an elaborate scheme of arrangement.

Key Financial Indicators - (The EHRL; Consolidated)

Particulars	Unit	FY2023 Audited	FY2022 Audited
Revenue	Rs crore	71	463
Profit after tax (PAT)	Rs crore	-70	20
PAT margin	%	-99.0	4.4
Adjusted gearing	Times	1.75	1.06
Interest coverage	Times	-13.35	10.05

 

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of the instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue size (Rs.Crore)	Complexity Level	Rating assigned with outlook
NA	Non Convertible Debentures*	NA	NA	NA	100	Simple	CRISIL A/Stable
NA	Commercial Paper programme	NA	NA	7 to 365 Days	100	Simple	CRISIL A1

*Yet to be issued