Rating Rationale
October 31, 2020 | Mumbai
Hiranandani Properties Private Limited
Rating outlook revised to 'Stable', rating reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.100 Crore
Long Term RatingCRISIL A+/Stable (Outlook revised from 'Positive' and rating reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has revised its outlook on the long-term bank facilities of Hiranandani Properties Private Limited (HPPL; a part of the Hiranandani core group) to 'Stable' from 'Positive' while reaffirming the rating at 'CRISIL A+'.
 
The outlook revision follows measures taken by the central and state governments towards containment of the Covid-19 pandemic. Construction activity was suspended from March 23, 2020, until the mid of May 2020, due to the nationwide lockdown. While construction activity has resumed to over 90% of pre-pandemic level since July 2020, this has affected collections in the interim. New project launches and sales may also witness a slowdown, as compared to earlier expectations, amidst the weak market sentiment. Nevertheless, the group achieved sales of 4.6 lakh square feet (sq. ft) in the five months ended August 31, 2020, while collections were Rs 241 crore, against 10.2 lakh sq. ft and Rs 1,465 crore, respectively, for fiscal 2020. Strong brand of the Hiranandani core group and its established market position led to a 26% jump in group sales year-on-year for fiscal 2020, and the momentum should continue over the medium term. Collections too are expected to be maintained at over Rs 1,000 crore.
 
Operational office assets continued to perform well with rental collection efficiency of almost 100% by September 2020. However, subdued economic activity or extended period of work-from-home adopted by certain corporates may lead to build up of vacancy and also affect leasing of new spaces; the group is expected to add close to 6.0 lakh sq. ft of incremental space in the next 3-6 months, while another 20.0 lakh sq. ft is under development. Planned construction activity has witnessed delay on account of the lockdown, and has further been deferred by 12-18 months, due to low demand. As a consequence, revenue profile may remain concentrated, with over 75% of inflows being derived from the development business. Furthermore, while the retail and hospitality assets have opened, following relaxation in lockdown norms, the outlook for these segments remains bleak. Nevertheless, these segments contribute to around 15% of the group's lease business.
 
The promoters have withdrawn Rs 143 crore from the core group and Rs 250 crore were invested in non-core group companies, contrary to the management's earlier articulation of no capital withdrawal from the core group. Debt protection metrics will however, remain adequate over the medium term, with debt-to-total assets ratio (for the development business) below 30.0% and debt service coverage ratio (for the lease business) at around 1.2 times. Liquidity is sufficient, with cash and equivalents of over Rs 500 crore and undrawn bank limit of about Rs 875 crore. Nevertheless, substantial withdrawal of surplus from the core group remains a key rating sensitivity factor. Financial risk profile is also supported by ' a) maintenance of lease rental discounting (LRD) loans at 6 times or lower, of lease rentals, b) construction finance (CF) at or below Rs 1,000 crore, c) maintenance of cash and bank balances equivalent to the outstanding CF loans, and d) prepayment of inventory funding loans.
 
CRISIL will closely monitor the events around the pandemic. Ability of the Hiranandani core group to resume operational normalcy, while maintaining its financial risk profile will remain a rating sensitivity factor.
 
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, and exposure to cyclicality and regulatory risks in the real estate segment.
Analytical Approach

For arriving at the rating, CRISIL has fully combined the business and financial risks profile of all ongoing and planned projects in HPPL and six other group entities, collectively referred to as the Hiranandani core group, in-line with its criteria for rating entities in homogeneous groups. These entities that are owned jointly by brothers, Mr. Niranjan Hiranandani and Mr. Surendra Hiranandani, have high degree of business, managerial and operational linkages and significant financial fungibility. Other entities held by the brothers jointly, have not been consolidated, as they mainly hold land and are debt-free. CRISIL has not consolidated the entities wherein projects by the Niranjan and Surendra Hiranandani families are being undertaken individually, as these entities are managed separately.

CRISIL has treated non-convertible debentures from the promoters as neither debt nor equity. The instruments are long-tenured, are 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 segment 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 September 2020, the group has developed and delivered over 200 lakh sq. ft, mostly in the residential segment, and has around 110 lakh sq. ft of projects under construction or planned in the development business. The group's established market position is evident from its strong brand equity and reputation for quality in construction, which is also reflected in the pricing premium of Rs 5,000-10,000 per sq. ft commanded by its projects vis-a-vis other projects in the vicinity, despite subdued demand in the residential segment. Market position is further underpinned by the large, low-cost, land bank of over 500 acres across MMR, which supports profitability of projects. Strong operating efficiencies aided by internal construction capabilities further reduce cost and help pace construction according to requirement.

* Diversified revenue profile
The group derives its income mainly from two businesses: real estate development and lease assets. It generated Rs 1,810 crore of cash inflow in fiscal 2020, with real estate development contributing close to 80% of the inflow. In addition to the ongoing development portfolio of around 110.0 lakh sq. ft, the group has a lease asset portfolio of 44.1 lakh sq. ft. The group is expected to add around 26.0 lakh sq. ft of leasable commercial area over the next 18-24 months. This should improve the overall lease income of the group over the long term. Customer concentration for commercial lease assets will remain high, with Tata Consultancy Services Ltd contributing close to 60% of the total rentals. However, track record of relationship between the two groups, long-tenured lease agreements 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 1,000 crore over the medium term. Furthermore, financial flexibility is supplemented by the group's demonstrated refinancing ability, access to cash and equivalents of over Rs 500 crore, unutilised bank limit of about Rs 875 crore, and flexibility to top-up LRD loans against expected lease income of over Rs 375 crore per annum.

Weaknesses
* Geographical concentration in revenue profile
The Hiranandani core group's revenue is concentrated in Powai and Thane areas within MMR. This may impact revenue in case of any significant slowdown in demand or oversupply in the region and will, hence, remain a key rating sensitivity factor.

* Susceptibility to cyclicality and regulatory risks in the real estate sector
Cyclicality in the real estate sector could lead to fluctuations in cash inflow because of variations in realisations and saleability. In contrast, cash outflows related to completion of projects and debt repayment, are relatively fixed. The real estate segment is further 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 operations are exposed to regulatory risk.
Liquidity Strong

The Hiranandani core group's liquidity should remain adequate, supported by good saleability and collections in the ongoing projects as well as in new launches. External borrowing has been used to fund 24.3% (outstanding debt to total assets) of project cost and capital expenditure as of March 2020. Long-term debt repayment is expected to be around Rs 410 crore in fiscal 2021, and the group has adequate financial flexibility to manage the upcoming repayments. The group has unsold inventory of around Rs 8,100 crore in completed, ongoing and planned projects, along with almost fully paid-up land bank of over 500 acres against which additional debt can be raised, if required. Furthermore, undrawn bank lines of around Rs 875 crore and cash and equivalents of over Rs 500 crore, support liquidity. Liquidity is further supplemented by steady cash flows from lease rentals and ability to raise additional LRD loans, if required.
Outlook: Stable

CRISIL 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
*Sales exceeding 12.0 lakh sq. ft in fiscal 2021, 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
 
About the Core Group
The Hiranandani group was established in the late 1970s by brothers - Mr. Niranjan Hiranandani and Mr. Surendra Hiranandani. The group is closely held by the Hiranandani family and comprises partnership firms and private limited companies. The 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 - The Hiranandani Core Group 
Particulars Unit 2019 2018
Revenue Rs.Crore 2,409 1,894
Profit After Tax (PAT) Rs.Crore 364 363
PAT Margin % 15.1 19.1
Adjusted debt/Adjusted networth Times 2.51 0.48
Interest coverage Times 3.41 2.59

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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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.Crore) Complexity level Rating assigned with outlook
NA Proposed Long Term Bank Loan Facility NA NA NA 100 NA CRISIL A+/Stable
 
Annexure - List of Entities Consolidated
Fully consolidated entities Extent of consolidation Rationale for consolidation
Classique Associates Full 100% held by same promoter group
Gamma Constructions 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
Melronia Hospitality Pvt. Ltd Full 100% held by same promoter group
Roma Builders Pvt. Ltd Full 100% held by same promoter group
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  100.00  CRISIL A+/Stable      09-10-19  CRISIL A+/Positive          CRISIL AA/Stable 
All amounts are in Rs.Cr.
 
Annexure - Details of Bank Lenders & Facilities
Facility Name of Lender Amount (Rs.Crore) Rating
Proposed Long Term Bank Loan Facility Not Applicable 100 CRISIL A+/Stable

This Annexure has been updated on 7-Sep-2021 in line with the lender-wise facility details as on 30-Jul-2021 received from the rated entity.

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
Criteria for rating entities belonging to homogenous groups

Media Relations
Analytical Contacts
Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
 naireen.ahmed@crisil.com
Sachin Gupta
Senior Director
CRISIL Ratings Limited
D:+91 22 3342 3023
Sachin.Gupta@crisil.com

Saina S Kathawala
Associate Director
CRISIL Ratings Limited
D:+91 22 3342 3325
saina.kathawala@crisil.com

Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Ratings Limited (A subsidiary of CRISIL Limited)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ("CRISIL Ratings") is a wholly-owned subsidiary of CRISIL Limited ("CRISIL"). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 



About CRISIL Limited

CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.

CRISIL is majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.

DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale (each a "Report") that is provided by CRISIL Ratings Limited  (hereinafter referred to as "CRISIL Ratings") . For the avoidance of doubt, the term "Report" includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. Rating by CRISIL Ratings contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way. CRISIL Ratings or its associates may have other commercial transactions with the company/entity.

Neither CRISIL Ratings nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, "CRISIL Ratings Parties") guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Ratings Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL RATINGS' PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL Rating's public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee - more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: http://www.crisil.com/ratings/highlightedpolicy.html

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL Ratings you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings Limited is a wholly owned subsidiary of CRISIL Limited.

CRISIL Ratings uses the prefix ‘PP-MLD’ for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011 to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratiings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: www.crisil.com/ratings/credit-rating-scale.html