Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A+/Stable’ rating on the long term bank facilities of Panchshil Techpark Private Limited (PTPL; a joint venture between Panchshil group and entities affiliated to Blackstone Inc.) 

 

Overall occupancy over the two assets of the company has improved to 87% as of July 2024 from 76% as of June 2023, owing to majority of area for Viman Nagar (VN) asset being leased out in fiscal 2024 despite reduction in the occupancy of the Tech Park One (TPO) asset due to exit of few tenants. Subsequently, the rental income increased by 59% in fiscal 2024 to Rs 184 crore in line with the previous expectations. The company has healthy revenue visibility from long-term agreements of 5 years or above for majority of tenants with escalations built-in of 5-15% every 1-3 years. Furthermore, as of July 2024, 48% of the area remains under lock in for the TPO asset while entire area for the VN asset is locked in till July 2026 providing stability to cash flows. The company also has a policy of 3-6 month notice period, which provides time for the management to replace the outgoing tenants. Further, 13% of the total area is under renewal in the current fiscal. Concentration remains moderate with top 5 tenants contributing ~43% of leased area.

 

The company’s financial risk profile also remains comfortable, driven by strong operating performance and moderate leverage. The debt stood at Rs. 859 crores as of March 2024 and the debt to lease rental ratio stood at ~4.7 times as of March 2024 (~5.7 times as of March 2023).  Company is planning to take additional debt of Rs 350 crore in parts for upstreaming to the joint venture (JV) partners through dividends and capital reduction. ~Rs 80-90 crore of dividend payout is expected in third quarter of fiscal 2025 and Rs 260-270 crore is expected to be utilized for capital reduction in the first quarter of fiscal 2026. Combined debt service coverage ratio (DSCR) of both assets is expected to remain healthy at more than 1.5 times throughout the tenure of the debt. In terms of liquidity, the company has Rs 25.6 crore in the form of debt service reserve account (DSRA) in fixed deposits (FD) equivalent to 3 months of debt obligations, cash & cash equivalents as of June 2024 are healthy at Rs 88 crore (excluding earmarked FD for DSRA).

 

The rating factors in the established development track record of the Panchshil group, supporting healthy occupancy and collection efficiency of its commercial projects in Pune, strong financial risk profile supported by moderate leverage, and healthy financial flexibility. These strengths are partially offset by exposure to geographical and tenant concentration risks, susceptibility to volatility in occupancy and interest rates, and inherent risks in the real estate sector. Any significant addition to debt and timely re-leasing of the vacant space coming up, over the medium term, on better or similar terms as existing agreements will remain key rating sensitivity factors.

Analytical Approach

For arriving at the rating, CRISIL Ratings has taken a standalone view on PTPL as there are no financial linkages with other group companies.

Key Rating Drivers & Detailed Description

Strengths:

• Steady cash flow supported by healthy occupancy with good clientele: TPO asset’s occupancy reduced from 96% during June 2023 to 75% as of July 2024 due to exit of 1 major tenant (Concentrix) and other tenants with 1.96 lsf area vacated in total. Top 5 tenants for the asset occupy around 43% of total area and consist of marquee names like JCI, IBM, Concentrix, Netcracker, and Mastercard. Renewal risk is moderate as reflected in WALE (weighted average lease expiry) of 2.3 years and 38% area coming up for renewal in next 3 years through fiscal 2027. However, basis company’s established relationships with tenants and services provided, renewals are not expected to pose a challenge. In fiscal 2024 and year-to-date (YTD) fiscal 2025, around 20% of the area has been re-leased to existing tenants and leased to new tenants above market rates with average rental increasing to around Rs 115 per square feet (psf) in July 2024 from around Rs 104 psf in June 2023.

 

Occupancy for recently completed VN asset increased to 97% as of July 2024 from 59% in June 2023. Top 5 tenants occupy around 80% of total area consisting of largely IT/ITES tenants. Renewal risk is mitigated by WALE of 6.4 years with no renewals falling due till fiscal 2028. Average rentals for the asset increased to Rs 104 psf from Rs 97 psf in June 2023.

 

• Healthy debt protection metrics: The debt protection metrics remain healthy, with average DSCR expected to remain comfortable at above 1.5 times throughout the tenure of the debt. Debt to lease rental ratio is expected to remain at ~5.2 times in fiscal 2025 post refinancing of construction finance loan for VN asset and factoring additional debt to be taken. Further, it is expected to gradually decline going forward with repayments, expected increase in leasing of TPO asset, and sustenance in occupancy of VN asset leading to higher rental income. Company is planning to take additional debt of Rs 350 crore in parts for upstreaming to the JV partners through dividends and capital reduction. ~Rs 80 -90 crore of dividend payout is expected in third quarter of fiscal 2025 and Rs 260-270 crore is expected to be utilized for capital reduction in the first quarter of fiscal 2026. Financial risk profile is also supported by requirement of a debt service reserve account (DSRA), covering three months of interest obligation. Any higher-than-expected increase in debt impacting the financial risk profile of the company will remain a key rating sensitivity factor.

 

• Established track record: PTPL benefits from the strong parentage of both parents, the Panchshil group and entities affiliated to Blackstone Inc. (Blackstone). The Panchshil group has strong brand presence and has developed around 31 mn sqft of real estate space, mostly in Pune. Blackstone owns and operates one of the largest portfolios of commercial real estate in India, spread across all major micro markets. The management’s proactive approach towards asset management to ensure tenant longevity and quality also benefits the company.

 

Weaknesses:

• Susceptibility to decline in occupancy and volatility in interest rates: Cash inflow remains susceptible to decline in occupancy levels or realisations (derived from rentals per sq ft), while cash outflow is relatively stable, except for fluctuations in interest rates (as it is floating). For the TPO asset, around 38% of the area will be up for renewal over the three fiscal periods through 2025-2027. Timely renewal or leasing of this area at similar or better terms will be critical. Although cash flow will be able to absorb the impact of fluctuations in interest rates and occupancy partially, these remain key rating sensitivity factors.

 

• Exposure to geographical and tenant concentration risk: As the company has two assets, both in Pune, it faces high geographical concentration risk. The top five licensees for the VN asset contribute to 82% of gross lease rentals (as of July 2024) of the VN asset, also exposing the company to tenant concentration risk. The largest licensee of the VN asset contributes 34% of the gross lease rentals for the VN asset (as of July 2024). While these risks are mitigated by longstanding relationships with tenants and secured leave-and-license agreement terms, with presence of a notice period and security deposit of 3-9 months. However, if any of these tenants vacate the premises, timely re-leasing of the vacant space at better or similar terms as existing agreements will remain a key rating sensitivity factor.

 

• Exposure to cyclicality in the real estate sector: Rental collection is susceptible to economic downturns, which constrain the tenant's business risk profile and, therefore, occupancy and rental rates. The economic impact of any potential industry shock poses a downside risk to occupancy level as it can materially impact market rentals and demand.

Liquidity: Strong

The DSCR ratio is expected to remain healthy at above 1.5 times throughout the tenure of the debt. The company has Rs 25.6 crore in the form of DSRA FD equivalent to 3 months of debt obligations, cash & cash equivalents as of June 2024 are healthy at Rs 88 crore (excluding earmarked FD for DSRA).

Outlook: Stable

CRISIL Ratings believes PTPL will continue to benefit from stable cash flow, backed by long term leases with reputed clients.

Rating sensitivity factors

Upward Factors:

• Increase in the overall occupancy levels to above 90% on a sustained basis
• Higher than expected lease rental income on a sustained basis, strengthening surplus generation and debt protection metrics
• Substantial reduction in debt level through prepayments or lower than expected drawal of additional debt leading to debt to lease rentals ratio of below 4.5 times, also improving the financial risk profile

 

Downward Factors:

• Overall occupancy levels falling below 80% on a sustained basis
• Lower than expected lease rental income on a sustained basis, weakening surplus generation and debt protection metrics
• Higher-than-expected debt with debt to lease rentals ratio rising beyond 5.5 – 5.75 times, also impacting the financial risk profile

About the Company

PTPL is a joint venture between the Panchshil group and Blackstone. The company operates two commercial office IT parks, namely Tech Park One in Yerwada, Pune and Panchshil Business Park in Viman Nagar, Pune. Tech Park One has been operational for around 15 years with a total leasable area of 0.93 mn sq ft. Panchshil Business Park has started operations from December 2022 with a total leasable area of 1.08 mn sq ft.

Key Financial Indicators (Standalone)*

As on/for the period ended March 31	Unit	2024^	2023#
Operating Income	Rs crore	203	129
Profit after tax (PAT)	Rs crore	75	22
PAT margins	%	37	17
Adjusted gearing	Times	3.31	4.87
Adjusted Interest coverage	Times	2.33	2.12

^Unaudited financials  

#Audited financials

*CRISIL Ratings’ adjusted numbers

Any other information: Not Applicable