Detailed Rationale

CRISIL Ratings has revised the outlook on its ratings of Evita Constructions Private Limited (Evita, part of Niranjan Hiranandani group of companies) to ‘Stable’ from ‘Positive’ while reaffirming the rating at ‘CRISIL BBB’. CRISIL Ratings has also withdrawn its rating on the term loan facility of Rs 75 crore, on the company’s request and receipt of relevant documents. This is in-line with CRISIL Ratings’ withdrawal policy.

 

The rating action follows draw down of incremental debt of Rs 315 crore in Q4 fiscal 2023. The proceeds of this debt are being maintained in the form of fixed deposit (FD) and FD equivalent to this debt is expected to be retained at all points in time. External debt increased substantially to Rs 723 crore as on March 31, 2023 from Rs 475 crore as on September 30, 2021.  This is contrary to CRISIL Ratings' expectation of full prepayment of external debt through monetisation of land. Nevertheless, the company prepaid Rs 104 crore from the earlier debt and is expected to prepay another ~Rs 100 crore over the next few quarters.

 

The company also generated positive cash flows from operations for fiscal 2023 given better-than-expected sale of ready inventory and plots. However, with no new launches on residential as well commercial development and weak demand in the Chennai market, the project is expected to continue to rely on promoter support and monetisation of land parcels for debt servicing. Evita is also in the process of launching an integrated township project in Pune; the company has ~110 acre of land bank in Darumbre, Hinjewadi (Pune). Approval for the same is already in process, and launch will depend on receipt of the same.

 

The rating continues to reflect expectation of strong operational, managerial, and financial support from the promoters, and their extensive experience in real estate development. These strengths are partially offset by weak project saleability, exposure to project implementation risks and cyclicality inherent in the real estate industry.

Analytical Approach

CRISIL Ratings has taken a consolidated view on the business and financial risk profiles of Evita and such wholly-owned subsidiaries which hold land parcels earmarked for the development of an integrated township – Hiranandani Park – spread over 270 acres, in Oragadam, Chennai and land parcel earmarked for the development of an integrated township spread over 110 acres, in Darumbre Pune..

 

CRISIL Ratings has also treated preference shares and unsecured loans from promoters, totaling Rs 1,979 crore (as on March 31, 2022) as neither debt nor equity. This is because these funds are sub-ordinated to external debt, do not have any scheduled interest or redemption/repayment date, and are unlikely to be redeemed/repaid, unless excess profit is generated by the project.

 

The company has also provided loans to its wholly-owned subsidiary, Persipina Developers Pvt. Ltd (Persipina, rated ‘CRISIL BBB+/Stable’ and Hiranandani Fortune City, a township project being undertaken in Panvel, Mumbai Metropolitan Region [MMR]). Evita acts as a pass-through entity between the promoter group and Persipina and will continue to provide support (from loans received from ultimate promoters) to its subsidiary as and when needed. 

 

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 operational, managerial and financial support from the promoters:

Evita benefits from strong linkages with the promoters, and their extensive experience in the real estate sector. Hiranandani Park is a large township project, being developed by the promoter group, and hence, is strategically important to them. The promoters are committed to offer support, and have infused Rs 1,180 crore in Evita till March 31, 2022 (net of loans given to related parties including Persipina). This has enabled the project to achieve healthy construction progress despite weak sales and collections.

 

The promoters are expected to continue to provide financial support as and when needed over the medium term and the same will remain a key rating sensitivity factor.

 

• Extensive experience of the promoters and association with the Hiranandani brand

The promoters have a strong track record, specifically in implementation of large townships, similar to Evita’s project. As of September 2021 the Hiranandani core group, of which Evita’s promoter, Mr Niranjan Hiranandani is a 50% partner, has developed and delivered over 200 lakh square feet (sq ft), mostly in the residential segment, and has around 112 lakh sq ft of projects under construction or planned in the development business. Presence of over three decades in the real estate segment, has enabled the promoters to develop highly saleable projects, undertake quality construction, and maintain strong relationships with key clients.

 

The project shares the Hiranandani brand, which will keep demand prospects healthy over the long run. As Evita’s operations are integrated with Hiranandani core group, its daily operations are overseen by the same personnel. This ensures timely construction and enhanced collection efficiency. Evita will continue to derive significant benefits from its association with the Hiranandani brand.

 

Weakness:

• Weak project saleability:

The company has developed 44.3 lakh sq ft under the first phase of the project, which includes residential apartments and plots, while development of common infrastructure is still being undertaken.

 

The company also generated positive cash flows from operations for fiscal 2023 given better-than-expected sale of ready inventory and plots. However, with no new launches on residential as well commercial development and weak demand in the Chennai market, the project is expected to continue to rely on promoter support and monetisation of land parcels for debt servicing. Cash flows are also expected to be generated through sale of plots and ready inventory, and hence, outflows will be limited in nature. The pick-up in saleability, owing to these developments, remains a key rating sensitivity factor.

 

• Exposure to project implementation risks:

Evita is executing a township project with overall saleable area of 153.7 lakh sq ft (including commercial development). The entire project is being executed in multiple phases. While construction for Phase I has been completed, plan for any further development has been put on hold given the weak demand scenario in the Chennai market. This has reduced project implementation risk partially. Nevertheless, Evita remains subject to project implementation risks relating to infrastructure development. Any delay in implementation, or cost overrun can adversely affect the cash flow, and hence, remains a rating sensitivity factor.

 

• Susceptibility to cyclicality inherent in the real estate sector

Cyclicality in the real estate sector could result in fluctuations in cash inflow and volatility in sales. In contrast, cash outflow, such as for debt servicing, is relatively fixed. Any decline in demand for ongoing projects could result in lower collections and impact cash flows.

Liquidity: Adequate

The company has raised additional debt of Rs 315 crore in Q4 fiscal 2023 the proceeds of this debt are being maintained in the form of fixed deposit (FD) and the company intends to retain FDs equivalent to this debt at all points in time. Also, as a result of prepayment of debt, there is a minimal scheduled repayment of Rs 8 crore for fiscal 2024. Further, Liquidity is backed by expectation of financial assistance from promoters.

Outlook: Stable

CRISIL Ratings believes Evita will continue to benefit from its association with the promoter group, and receive need-based support from them, over the medium term.

Rating Sensitivity Factors

Upward Factors

• Substantial improvement in operating cash flow, backed by healthy saleability and customer advances, leading to improvement in debt protection metrics
• Maintaining healthy capital structure with net debt of Rs 150-200 crore

 

Downward Factors

• Significant time or cost overrun in project implementation
• Lack of timely support from promoters
• Significant delay in monetisation of land or draw down of incremental debt, leading to net debt exceeding Rs 400-450 crore

About the Company

Evita, promoted by Mr Niranjan Hiranandani and family, was incorporated in fiscal 2007, to undertake real estate development projects. It took over the project, Hiranandani Park, from Hirco Plc. in 2014 in an auction initiated by its lenders.

 

The company is currently implementing an integrated township project on 270 acre at Oragadam, Chennai, near the industrial corridor. The project comprises residential, commercial and retail units. The total saleable area of the township is 153.7 lakh sq ft, of which 44.3 lakh sq ft. is being undertaken in the first phase. Evita is also developing the basic infrastructure during the initial stages, similar to the project development model, followed by the Hiranandani core group for its Powai and Thane (both situated in MMR) projects. The overall cost of the township will be Rs 5,100 crore, likely to be completed over the next 10-15 years.

 

Mr Niranjan Hiranandani is also the promoter, with 50% ownership, of the Hiranandani core group. The core group undertakes real estate development and focuses mainly on development of large, mixed-use, township projects in MMR. The group is one of the early developers to have undertaken township development projects, such as Hiranandani Gardens in Powai and Hiranandani Meadows/Hiranandani Estate in Thane.

Key Financial Indicators

Particulars	Unit	2022	2021
.Revenue	Rs crore	NM	NM
Profit After Tax (PAT)	Rs crore	NM	NM
PAT Margin	%	NM	NM
Adjusted debt/Adjusted networth	Times	NM	NM
Interest coverage	Times	NM	NM

Company follows project completion method for revenue recognition and the financials are not meaningful (NM)

Any other information: Not applicable