Rating Rationale
June 30, 2020 | Mumbai
Infraschool Services Chintamani Private Limited
'CRISIL BBB/Stable' assigned to bank debt
 
Rating Action
Total Bank Loan Facilities Rated Rs.10.65 Crore
Long Term Rating CRISIL BBB/Stable (Assigned)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL BBB/Stable' rating to the long-term bank facility of Infraschool Services Chintamani Pvt Ltd (ISCPL; a part of the Infraschool group).

The rating reflects the group's long-term lease agreement and steady cash flow in the form of lease rentals from ARKA Educational and Cultural Trust (ARKA; a part of the Jain group), secured payment structure with a robust escrow mechanism, and adequate liquidity, supported by a debt service reserve account (DSRA) and an undrawn overdraft account. These strengths are partially offset by high dependence on a single counterparty and modest debt service coverage ratio (DSCR).

Analytical Approach

For arriving at the rating, CRISIL has consolidated the business and financial risk profiles of ISCPL, Infraschool Services Kadiri Pvt Ltd (ISKPL), Infraschool Services Korba Pvt Ltd (ISKOPL) and Infraschool Services Tumkur Pvt Ltd (ISTPL), collectively referred to as the Infraschool group. This is because all the assets are leased to the same counterparty and cash flows are fungible between entities. 

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:
* Long-term lease agreement and steady cash flow
All the companies of the Infraschool group have leased their assets (land and buildings) to ARKA and receive steady cash flow in the form of monthly rentals. The lease is for a period of 20-30 years with a lock-in period of over 15 years, which mitigates the risk of premature termination of the lease by the lessee. Moreover, the lessee, ARKA, is an established player in the education segment. Though cash flow is currently impacted by the nationwide lockdown imposed by the government to curb Covid-19, which includes temporary shutdown of educational institutions, the impact is likely to be for short-term only and rents are expected to start once the schools open.  
 
* Secured payment structure
Payments have been secured by a robust escrow structure. Fees received from the students are deposited in the fee collection account, from which the amount is transferred on a daily basis to the master escrow account. Fees received between 23rd of a month and 7th of the next month are then transferred from the master escrow account to the individual rent escrow account of the special purpose vehicles (SPV); this money is used for payment of the equated monthly installment. In case of a shortfall in the receipt of rent, ARKA/the Jain group funds the deficit as per the rent shortfall undertaking. Further, DSRA of four months' rent is being maintained in the form of fixed deposits. Additionally, there is an undrawn overdraft limit equivalent to three months' rent, which can be used in case of rent shortfall. The secured escrow mechanism ensures timely debt servicing and maintenance of adequate liquidity.
 
Weaknesses
* High dependence on a single counterparty
As the entire rent is derived from a single tenant, the company is exposed to risks related to timely payment from the counterparty. Any significant delay in receipt of lease rent or termination of contract by the tenant may drastically impact the business. However long-term agreement with lock-in period of over 15 years and notice period of 3 years partly mitigates the risk of termination of lease by the lessee or delays in payment of rent.
 
* Modest DSCR
Average DSCR is projected at 1.12 times for the entire tenure of the loan (excluding 2028-29).
Liquidity Adequate

Cash flow is likely to be adequate to meet the debt obligation. Average DSCR is expected to remain at 1.12 times during the entire tenure of the loan (excluding the last year). Additionally, liquidity buffer available in the form of a DSRA equivalent to four months' rent, and an undrawn overdraft limit equivalent to three months' rent provide liquidity cushion. 

Outlook: Stable

The Infraschool group should continue to benefit from its stable cash flow and secured payment mechanism. 

Rating Sensitivity factors
Upward factors
* Average DSCR increasing to more than 1.25 times, resulting in sizeable surplus
* Refinancing of debt with longer tenure and lower rate of interest
 
Downward factors
* Average DSCR declining to below 1.05 times
* Significant delays in payment of rentals by the counterparty
About the Company

ISCPL is an SPV floated by CIT to acquire the assets (land and building) of Jain Public School ' Chintamani (Karnataka), run by ARKA. The assets were leased by ISCPL (lessor) back to ARKA (lessee). ISCPL funded the acquisition through a mix of equity, OCDs, and lease rental discounting loan.

CIT has also floated other SPVs, which includes ISKPL, ISKOPL and ISTPL that have acquired the assets of Jain Public Schools in the respective locations run by ARKA and also entered into a long-term lease agreement with the trust.

Key Financial Indicators
Particulars Unit 2019 2018
Revenue Rs crore 8.08 7.59
Profit after tax (PAT) Rs crore (1.52) (4.12)
PAT margin % (18.7) (54.3)
Adjusted debt/adjusted networth Times 12.77 9.18
Interest coverage Times 1.11 0.75

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL 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. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
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 Lease Rental Discounting Loan NA NA 5-Oct-28 10.65 NA CRISIL BBB/Stable
 
Annexure - List of entities consolidated
Names of entities consolidated Extent of consolidation Rationale for consolidation
ISCPL Full Same line of business with the same lender and lessee for all the assets leased. Also, cash flows are fungible between the entities
ISKPL Full Same line of business with the same lender and lessee for all the assets leased. Also, cash flows are fungible between the entities
ISKOPL Full Same line of business with the same lender and lessee for all the assets leased. Also, cash flows are fungible between the entities
ISTPL Full Same line of business with the same lender and lessee for all the assets leased. Also, cash flows are fungible between the entities
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  10.65  CRISIL BBB/Stable    --    --    --    --  -- 
All amounts are in Rs.Cr.
 
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Lease Rental Discounting Loan 10.65 CRISIL BBB/Stable -- 0 --
Total 10.65 -- Total 0 --
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 Criteria for Consolidation

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