Rating Rationale
June 25, 2020 | Mumbai
Jindal Realty Limited
'CRISIL BBB-' assigned to bank debt; Rating placed on 'Watch Negative' 
 
Rating Action
Total Bank Loan Facilities Rated Rs.200 Crore
Long Term Rating CRISIL BBB- (Assigned; Placed on 'Rating Watch with Negative Implications')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL BBB-' rating on the long-term bank facility of Jindal Realty Limited (JRL). The rating has been placed on 'Rating Watch with Negative Implications', in line with the existing rating of the company's ultimate parent, Jindal Steel & Power Ltd (JSPL).
 
The rating factors in the managerial and financial support from JSPL and the promoter group due to the strategic importance of JRL's project. The rating also derives strength from the large additional land bank available with the company, which provides financial flexibility to JRL as well as high economic incentive for the parent to support the former. These strengths are partially offset by the limited track record of the OP Jindal group in the real estate segment, weak demand outlook, and susceptibility to inherent cyclicality in the domestic real estate sector.
 
CRISIL believes impact on the long term rating on resolution, if any, is not expected to be more than one notch.

Analytical Approach

To arrive at its rating, CRISIL has considered the standalone business and financial risk profiles of JRL. CRISIL has not consolidated the business and financial risk profiles of Jagran Developers Pvt Ltd (JDPL, subsidiary of JRL) as JDPL does not rely on JRL for any funding support.
 
CRISIL has also applied its parent notch-up framework to factor in the support available to JRL from its ultimate parent, JSPL.

Key Rating Drivers & Detailed Description
Strengths
* Strong operational and financial support from JSPL and the promoter group
JRL is developing a residential-cum-commercial real estate project, Jindal Global City (JGC), across 214 acres in Sonipat, Haryana. The project is a part of the promoter's (Mr Naveen Jindal) initiative to develop high-quality educational infrastructure in Sonipat with OP Jindal Global University (OPJGU, another promoter group entity) in close proximity to the project site. JRL has been deriving continued managerial and financial support from the promoter group. The promoter, through various group companies, has provided steady financial support to JRL to acquire land and meet any cash shortfalls. Unsecured loans and bulk advances from the promoter stood at Rs 1,132 crore as on December 31, 2019.
 
Additionally, the operations of JRL are overlooked by Jindal Power Ltd (JPL; parent of JRL). The rating, therefore, centrally factors in the continued support, both managerial and financial, from JPL and the ultimate parent, JSPL.
 
* Additional land bank providing financial flexibility and high economic incentive for the parent to support
JRL, along with other associate companies, has a total land bank of 650 acres in Sonipat. Of this, JRL is currently developing JGC on 214 acres. Thus, the company has additional land bank of 436 acres which is currently classified as agricultural land. The land bank has locational advantage driven by factors such as proximity to the Delhi border, nearby National Highway and presence of established universities such as OPJGU and Ashoka University in its vicinity. This leads to significant financial value to the surplus land bank and provides healthy financial flexibility to JRL as well as high economic incentive for the parent to extend support if required.
 
* Low reliance on external debt due to funding support from the group
For the total project cost of Rs 911 crore, the company has contracted debt of only Rs 200 crore. The remaining has been funded through equity and promoter loans of Rs 336 crore, and customer advances. Total bank debt as on December 31, 2019, was around Rs 60 crore. The debt has been repaid over the years through promoter support and project cash flows.
 
Weaknesses
* Slower-than-expected sales resulting in project delays and exposure to residual project execution risk
JRL is developing JGC in three phases, of which the first phase has been launched and is nearing completion. While more than 90% of the units and 78% of the area in this phase have been sold, the project has witnessed delays on account of a weak real estate segment over the years. Sales and realisation of customer advances are likely to be impacted in fiscal 2021 by Covid-19.
The company plans to launch the remaining two phases (mainly comprise residential plots) in fiscals 2021 and 2022, which mitigates residual project risk.
 
* Weak financial risk profile reflected in continued losses
Operations have been impacted by muted sales and slow realisation of customer advances, which have resulted in low operating income and continued net losses over the past few years. Hence, the company has had to rely on promoter support.
 
* Susceptibility to cyclicality inherent in the domestic real estate sector
Cyclicality in the domestic real estate segment leads to fluctuations in cash inflow because of volatility in saleability and realisations. On the other hand, cash outflow, relating to project cost and debt repayment, is relatively fixed. This could lead to substantial mismatches in cash flow. Additionally, the sector has numerous unorganised regional players, high transaction cost, and opaque transactions.
Liquidity Stretched

Liquidity has been stretched due to cash flow mismatches. This has resulted in continued reliance on parent and other promoter group companies for financial support. JRL had outstanding cash balance of around Rs 5 crore as on May 31, 2020. Also, fund-based limit was almost fully utilised during the six months through March 2020. Additionally, to support liquidity, JRL has availed moratorium on its term debt obligation as per the Reserve Bank of India's guidelines, after approval from the respective lender.

Ratings Sensitivity Factors
Upward Factors
* Change in the credit risk profile of JSPL resulting in an upgrade in its rating
* Better-than-expected saleability and inflow of customer advances from project.

Downward Factors
* Weakening in the credit risk profile of JSPL resulting in a downgrade in its rating
* Decline in operating cash flows triggered by slackened saleability of project
* Change in promoter's support philosophy.

About the Company

Incorporated in August 2005, JRL is promoted by Mr Naveen Jindal and is a 100% subsidiary of JPL. JRL is the real estate arm of the OP Jindal group and is currently developing a residential-cum-commercial township in Sonipat.

Key Financial Indicators (CRISIL Adjusted Numbers)
Particulars Unit 2019 2018
Revenue Rs.Crore 82 63
Profit After Tax (PAT) Rs.Crore (7) (9)
PAT Margin % (8.4) (13.9)
Adjusted debt/adjusted networth Times (10.86) (37.29)
Interest coverage Times 0.82 0.71

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.Cr) Complexity Level Rating assigned with outlook
NA Proposed Rupee Term Loan NA NA NA 200 NA CRISIL BBB-/Watch Negative
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  200.00  CRISIL BBB-/Watch Negative    --    --    --    --  -- 
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
Proposed Rupee Term Loan 200 CRISIL BBB-/Watch Negative -- 0 --
Total 200 -- Total 0 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition

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