Rating Rationale
September 15, 2023 | Mumbai
Gamma Constructions Private Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.250 Crore
Long Term RatingCRISIL AA-/Stable (Reaffirmed)
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 reaffirmed its ‘CRISIL AA-/Stable’ rating on the long-term bank loan facility of Gamma Constructions Private Limited (Gamma; a part of the Hiranandani core group).

 

Operating performance of the group’s sales business has improved on account of higher collections. Collections under the ‘sales/residential’ business was Rs. 2314 crore in fiscal 2023 as against Rs. 1526 crore for fiscal 2022 driven by collections from sold units & receipt of Occupancy certificate (OC) in various buildings. Majority of the projects got completed by fiscal 2023. Income from leasing business has also increased by 4.5% to Rs. 416 crore for fiscal 2023 as compared to Rs. Rs. 398 crore for fiscal 2022.

 

Gross Debt for the group has increased to Rs. 3,842 crore as on Mar-2023 as against Rs. 3100 crore as on March -2022. However, the profile of total debt has improved with 80% of total debt for fiscal 2023 is against lease rentals discounting (LRD) against 67% for fiscal 2022. Also, company has maintained cash & cash equivalents of Rs. 1598 crore for fiscal 2023 which has increased from Rs. 865 crore in fiscal 2022.

 

The rating continues to reflect the Hiranandani core group’s established brand and strong positioning in the Mumbai metropolitan region (MMR), its diverse revenue profile and strong financial flexibility. These strengths are partially offset by concentration in operations to Powai and Thane regions of MMR, Loans & Advances to group entities & Withdrawal by promoters and exposure to cyclicality and regulatory risks in the real estate segment.

Analytical Approach

For arriving at its rating, CRISIL Ratings has combined the business and financial risks profiles of Gamma and six group entities, in line with its criteria for rating entities in homogeneous groups. These entities have high business, managerial and operational linkages and significant financial fungibility. Other entities jointly held by the brothers have not been consolidated as they mainly hold land and are debt-free. CRISIL Ratings has not consolidated the entities wherein projects by the Niranjan and Surendra Hiranandani families are being undertaken individually as they are managed separately.

 

Also, CRISIL Ratings has treated non-convertible debentures from the promoters as neither debt nor equity as they are long-tenured, interest-free and do not have 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: 

Established brand and strong market position in the real estate sector in MMR

Presence of over three decades in the real estate segment has enabled the Hiranandani group to develop highly saleable projects, undertake quality construction and maintain strong relationships with key clients. As of June 2023, the group had developed and delivered over 250 lakh sq ft, mostly in the residential segment, and had around 30 lakh sq ft under construction or planned. The group has strong brand equity and reputation for quality in construction, which is reflected in the pricing premium of Rs 5,000-10,000 per sq ft commanded by its projects vis-à-vis other projects in the vicinity. Its market position is further underpinned by its large, low-cost land bank of around 590 acres across MMR, which supports profitability. Strong operating efficiency backed by internal construction capabilities reduce cost and help pace construction according to requirement.

 

Diversified revenue profile

The group derives income from two businesses: real estate development and lease assets. It generated Rs 2,730 crore of cash inflow in fiscal 2023 (compared with Rs 1,924 crore in fiscal 2022), with real estate development contributing close to 85% of the inflow. In addition to the ongoing & planned development portfolio of around 30 lakh sq ft, the group has a lease asset portfolio of 53.0 lakh sq ft. The group is expected to add around 22.3 lakh sq ft of leasable commercial area over the next 18-24 months. This should improve lease income of the group over the long term. Customer concentration for commercial lease assets will remain high, with Tata Consultancy Services Ltd contributing around 45% of the total rental. However, track record of relationship between the two groups, long-term lease agreements (balance lock-in of more than 10 years) and high fit-out cost incurred by the tenant offset the revenue concentration risk.

 

Strong financial flexibility

The group's financial risk profile is characterised by healthy collections from the real estate segment, which is likely to generate customer advances of over Rs 1,500 crore over the medium term. Furthermore, financial flexibility is supplemented by the group’s demonstrated refinancing ability, access to cash and equivalents of Rs 1598 crore maintained as on Mar-23, unutilised bank limit of about Rs 700 crore, and flexibility to top-up LRD loans against expected lease income of over Rs 450 crore per annum.

 

Weaknesses:

Geographical concentration in revenue

Projects in Powai and Thane are the major contributors to revenue. Therefore, significant slowdown in demand or oversupply in the region will impact revenue, and hence, will be a key rating sensitivity factor.  

 

Loans & Advances to group entities & Withdrawal by promoters

Net outflows to group companies & withdrawal by promoters for fiscal 2023 stood at Rs. 1591 crore. Management has indicated that funds were withdrawn from group only after repayment of debt since there was significant cash surplus due to strong collections in fiscal 2023. Withdrawal of surplus by promoters going forward will remain key monitorable.

 

Susceptibility to cyclicality and regulatory risks in the real estate sector

Cyclicality in the real estate sector may lead to fluctuations in cash inflow because of variations in realisations and saleability. In contrast, cash outflow related to completion of projects and servicing debt are relatively fixed. The real estate sector is characterised by multiplicity of property laws and non-standardised government regulations across states. The group’s saleability in Powai was impacted by the stay order on sales in the past, and thus regulatory risks persist.

Liquidity: Strong

The group’s liquidity will remain strong supported by good saleability and collections in the ongoing projects and new launches. External borrowing was used to fund 14.1% (outstanding debt to total assets) of project cost and capital expenditure as of March 2023. Term debt obligation is expected around Rs 915 crore in fiscal 2024, and the group has adequate financial flexibility to manage upcoming repayments. The group has unsold inventory of around Rs 1,763 crore, along with almost fully paid-up land bank of around 590 acres against which additional debt can be raised, if required. Furthermore, undrawn bank lines of around Rs 700 crore and cash and equivalent of over Rs 1598 crore support liquidity. Liquidity is further supplemented by steady cash flow from lease rentals and ability to raise additional LRD loans.

Outlook: Stable

CRISIL Ratings believes that the Hiranandani core group will continue to benefit from its established position in the MMR real estate market. The financial risk profile will remain supported by the cap on incremental debt and healthy financial flexibility.

Rating Sensitivity Factors

Upward factors

  • Sale value exceeding Rs 2200 crore in fiscal 2024, thereby improving cash flow
  • Substantial progress in leasing of under-construction assets and sizeable increase in share of lease income in the overall revenue mix
  • Prepayment of debt, strengthening the financial risk profile

 

Downward factors

  • Substantial dividend pay-outs or withdrawal by promoter groups
  • Sharp decline in operating cash flow, triggered by slackened saleability of existing and proposed projects or delay in project execution
  • Debt in the lease business exceeding 6.5 times of lease rental or higher-than-expected debt drawn in the development business, thereby weakening the financial risk profile

Key Financial Indicators: The Hiranandani core group

Particulars

Unit

2022

2021

 

 

Actual

Actual

Revenue

Rs crore

2,326

3,015

Profit After Tax (PAT)

Rs crore

354

616

PAT margin

%

15.2

20.4

Adjusted debt/adjusted networth

Times

0.99

1.13

Interest coverage

Times

2.50

3.77

 

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 level

Rating assigned with outlook

NA

Rupee Term Loan

NA

NA

Sep-26

250

NA

CRISIL AA-/Stable

Annexure – List of Entities Consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Classique Associates

Full

100% held by same promoter group

Roma Builders Pvt Ltd

Full

100% held by same promoter group

HGP Community Pvt Ltd

Full

100% held by same promoter group

Hiranandani Constructions Pvt Ltd

Full

100% held by same promoter group

Hiranandani Properties Pvt Ltd

Full

100% held by same promoter group

Melronia Hospitality Pvt Ltd

Full

100% held by same promoter group
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 250.0 CRISIL AA-/Stable   -- 28-07-22 CRISIL AA-/Stable 23-12-21 CRISIL AA-/Stable 31-10-20 CRISIL A+/Stable CRISIL A+/Positive
      --   -- 17-06-22 CRISIL AA-/Stable   --   -- --
      --   -- 29-03-22 CRISIL AA-/Watch Developing   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Rupee Term Loan 250 ICICI Bank Limited CRISIL AA-/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Rating criteria for Real Estate Developers
CRISILs criteria for rating debt backed by lease rentals of commercial real estate properties
CRISILs Criteria for Consolidation

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