Rating Rationale
November 03, 2020 | Mumbai
Pacifica (India) Projects Private Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.120 Crore
Long Term Rating CRISIL BBB+/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL BBB+/Stable' rating on the long-term bank facilities of Pacifica (India) Projects Pvt Ltd (PIPPL; part of the Pacifica group).
 
The rating continues to reflect healthy saleability of projects, supported by the company's established brand and favourable project locations. The rating also factors in healthy financial risk profile and low funding risk, arising from access to undrawn bank lines, and moderate collections expected from booked sales. These strengths are partially offset by exposure to project risks and cyclicality inherent in the real estate sector.
 
Construction activity was suspended from March 23, 2020, until the first week of June 2020 because of the nationwide lockdown imposed by the government of India to contain the spread of the Covid-19 pandemic. While construction activity has gone back to 50-60% of pre-Covid levels, it will take some more time to recover fully. This, in turn, will affect future collections, while weak market sentiment may lead to slowdown in sales. On the other hand, a fast reversal to normalcy may contain the extent of decline.
 
Impact of the pandemic on PIPPL is mitigated by its low expected fixed debt obligation (Rs 78 crore outstanding as of March 2020) in fiscal 2021 and prepayment done until fiscal 2020. Fixed debt obligation including interest is likely to be around Rs 36 crore in fiscal 2021 and any additional repayment will be dependent on inflow of advances during the year. That said, the ability to regain operational stability will be closely monitored.

Analytical Approach

For arriving at the rating, CRISIL has combined the business and financial risk profiles of PIPPL and its wholly-owned subsidiary, Pacifica Constructions Pvt Ltd (PCPL). PCPL is executing one affordable housing project in Hyderabad. Both the companies are managed by the same promoters, and PIPPL has provided a corporate guarantee for the bank loan facility availed by PCPL. CRISIL has also moderately consolidated another subsidiary, E-Lights Techno Park Pvt Ltd (E-Lights), which operates a commercial property in Chennai, to the extent of support required over the medium term. PIPPL has provided a shortfall undertaking to the debt availed by E-Lights.
 
Compulsorily convertible debentures (CCDs) of Rs 277 crore as on March 31, 2020, from the promoters have been treated as equity because interest payment on them has been deferred till date. Moreover, no interest payment is expected to be made towards the CCDs until existing external debt has been repaid.

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: 
* Favourable project location and established brand, supporting saleability:
PIPPL (along with PCPL) has four residential projects in Ahmedabad and three in Hyderabad, which are marketed under the Pacifica brand. Established brand and favourable project location have supported saleability in these units, with total sales of about 81% achieved as of June 2021. Furthermore, new projects have been launched in the affordable housing segment, with ticket size varying from Rs 10 lakh to Rs 25 lakh, ensuring healthy sales momentum. New sales may however witness a slowdown due to the pandemic and hence will be closely monitored.
 
* Healthy financial risk profile:
The financial risk profile is moderate, driven by a comfortable capital structure. Gearing was low at 0.24 time as on March 31, 2020. External debt as of March 2020 stood at Rs 78 crore, which is only about 5.3% of the total project cost. Capital structure should remain stable over the medium term, as PIPPL plans to complete significant work in its under-construction projects before venturing into new ones. The policy of developing most projects under joint development agreements with land owners also reduces reliance on debt for land acquisition.
 
Infusion of CCDs by the promoters (Rs 277 crore as on March 31, 2019) has minimised dependence on external debt. However, the company has extended intercorporate deposits of a similar quantum to other group companies, which do not have a specific repayment schedule.
 
* Low funding risk:   
Funding risk for the under-development projects is expected to be low because of healthy saleability in other projects. As of June 2020, the company was expected to receive over Rs 722 crore of advances from its sold units (post payment to land owners). Against this, the company is expected to incur construction cost of Rs 546 crore. In addition, access to undrawn bank lines of Rs 81 crore as of August 2020 (Rs 114 crore as of September 2020) further mitigates funding risk. Unsold inventory of over Rs 500 crore as on June 30, 2020, will also provide revenue visibility over the medium term.
 
Weaknesses:
* Exposure to risks associated with ongoing projects: PIPPL has seven residential projects, of which one is complete, two are in advanced stages, while one is in the early stages of construction. As of June 2020, under-development projects had achieved about 50% progress, and hence, are exposed to moderate project implementation risk. Delay in construction can impact customer advances, and thus affect funding. Construction has slowed down in fiscal 2021 due to the lockdown in the initial months of the fiscal and shortage in labour thereafter. While construction activity has gone back to 50-60% of pre-Covid levels, it will take some more time to recover fully. The ability of PIPPL to regain operational stability at all sites will remain a key monitorable.
 
* Susceptibility to cyclicality inherent in the real estate sector: Cyclicality in the real estate segment could lead to fluctuations in cash inflow because of volatility in realisations and saleability. In contrast, cash outflow, such as debt obligation, is relatively fixed. The company has not launched any major project in the last one year due to subdued market sentiment in real estate. The ability to launch new projects while maintaining healthy business risk profile will also be a key monitorable.
Liquidity Adequate

Liquidity is supported by healthy saleability in projects. About 81% of sales have been achieved as of June 2020. Collections may be under pressure in fiscal 2021 due to the impact of the pandemic. However, liquidity should remain adequate due to modest expected debt obligation in fiscal 2021 (Rs 78 crore outstanding as of March 2020) and prepayment made until fiscal 2020. Fixed debt obligation is likely to be around Rs 37 crore in fiscal 2021, and any additional repayment will depend on inflow of advances during the year (flexible payments).

Outlook: Stable

CRISIL believes PIPPL will continue to benefit from its global brand and healthy saleability of its projects. The financial risk profile should remain healthy supported by low reliance on external debt.

Rating Sensitivity factors
Upward factors
* Recovery in sales and construction activity along with advances of over Rs 330 crore in fiscal 2022
* Faster-than-expected project execution and saleability 
* Further lowering of debt through sizeable prepayments.
 
Downward factors
* Advances falling below Rs 165 crore in fiscal 2021 as well as slow recovery of collection in fiscal 2022, with collection remaining below Rs 230 crore
* Significant delay or cost overrun in projects
* Higher-than-expected borrowings weakening the debt protection metrics
About the Company

PIPPL is part of the Pacifica group. It has six residential projects of 49 lakh sq ft: four in Ahmedabad and two in Hyderabad, while PCPL has one residential project in Hyderabad. The company's subsidiary, E-Lights, owns commercial property in Chennai.
 
About the Pacifica group
The Pacifica group, founded by Mr Ashok Israni in 1978, is headquartered in San Diego (California, United States). Pacifica companies' real estate portfolio includes hotels, mixed-use projects, development projects, master planned communities, office, industrial buildings, retail shopping centers, senior housing assets, single tenant leases, multifamily for rent and sale projects and single-family communities throughout the US, Mexico and India. The US operations are managed by Mr Ashok Israni and Mr Deepak Israni, and the Indian operations are managed by Mr Rakesh Israni.

The Pacifica group in India (including companies other than PIPPL and PCPL) is developing real estate projects at Ahmedabad and Vadodara in Gujarat, and in Chennai, Bengaluru and Hyderabad. The group has also developed hotels for renowned entities, such as Marriott, Ahmedabad, and Wyndham, Dwarka. PIPPL's wholly owned subsidiary, E-Lights owns a commercial property in Chennai.

Key Financial Indicators
Particulars Unit 2020 2019
Revenue Rs crore 185 65
Profit after tax (PAT) Rs crore 2 (2)
PAT margin % 1.3 (3.3)
Adjusted debt / adjusted networth Times 0.24 0.31
Adjusted interest coverage Times 1.21 1.12

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 Complexity Issue size (Rs crore) Rating assigned with outlook
NA Drop line overdraft facility NA NA NA NA 50 CRISIL BBB+/Stable
NA Rupee term loan NA NA 15-Nov-22 NA 70 CRISIL BBB+/Stable
 
Annexure - List of entities consolidated
Entity consolidated Extent of consolidation Rationale for consolidation
Pacifica Constructions Pvt Ltd Full Corporate guarantee extended by PIPPL
E-Lights Techno Park Pvt Ltd Moderate Shortfall undertaking extended by PIPPL; consolidation to the extent of shortfall anticipated in E-lights
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  120.00  CRISIL BBB+/Stable  19-05-20  CRISIL BBB+/Stable  29-11-19  CRISIL BBB+/Stable  31-08-18  CRISIL BBB+/Stable  29-05-17  CRISIL BBB+/Stable  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
Drop Line Overdraft Facility 50 CRISIL BBB+/Stable Drop Line Overdraft Facility 50 CRISIL BBB+/Stable
Rupee Term Loan 70 CRISIL BBB+/Stable Rupee Term Loan 70 CRISIL BBB+/Stable
Total 120 -- Total 120 --
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 Consolidation

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