Rating Rationale
January 03, 2020 | Mumbai
Panchshil Infrastructure Holdings Private Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.742 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 Panchshil Infrastructure Holdings Private Limited (PIHPL).
 
The rating continues to reflect PIHPL's healthy business risk profile supported by the promoters' longstanding experience, established brand presence in the real estate and hospitality segments in Pune and prime location of properties. The rating also factors in a moderate financial risk profile, backed by limited external debt. These strengths are partially offset by modest bookings in the residential project, Panchshil Towers, and exposure to risks and cyclicality inherent in the real estate sector.
 
PIHPL has received equity funds worth Rs 350 crore in fiscals 2019 and 2020, which led to limited debt levels during the last 12 months. Nonetheless, the booking velocity for residential units has been average. Furthermore, PIHPL plans to commence a commercial project of 18 lac square feet (sq ft) in the next fiscal, which will have large fund requirement; the funding pattern remains a critical factor.

Analytical Approach

Unsecured loans (outstanding at Rs 510 crore as on March 31, 2019; this also includes intercorporate deposits) have been treated as neither debt nor equity. That is because these loans are expected to remain in the business over the medium term.

Key Rating Drivers & Detailed Description
Strengths
* Promoters' extensive experience and established brand
PIHPL is a part of the Pune-based Panchshil group headed by Mr Atul Chordia and his family members. The group has completed real estate projects in the commercial, special economic zone, residential, retail, and hospitality segments, and has tie-ups with global brands such as World Trade Centre, You, and Trump. The group is a leading player in the commercial real estate segment of Pune, with current leased area of over 120 lac sq ft.
 
PIHPL's residential project, Panchshil Towers, is in Pune's Kharadi, which is closer to the city airport. Further, the area is nearby Information Technology Corridor that extends through commercial projects such as Eon Free Zone, Word Trade Centre, and Tech Park One developed by the Panchshil group. The established brand and prime location augurs well for the project.
 
* Advanced stage of project execution
The construction progress has remained as per schedule, with about 70% completion of construction. Further, the company has received occupancy certificate for four of the nine towers. The funding support (in the form of equity infusion) has expedited the construction with limited reliance on external borrowing.
 
* Moderate financial risk profile
PIHPL's adjusted networth remained at Rs 204 crore as on March 31, 2019, owing to equity infusion of Rs 200 crore in fiscal 2019. Further, the capital structure is supported by intercorporate deposits of Rs 490 crore from group concerns. Consequently, the reliance on bank borrowing has reduced, as indicated by the drop in debt to Rs 370 crore as on March 31, 2019, from Rs 520 crore a year ago. Debt taken for Panchshil Towers is expected to remain comfortable, backed by expected realisation of customer advances. However, the company may commence a commercial project of 18 lac sq ft in fiscal 2021, costing about Rs 750 crore; the funding pattern of this project will be closely monitored.
  
* Healthy occupancy in hospitality segment
Adequate profitability ' with operating margin at 36% in fiscal 2019 -- and stable revenue flow will continue to support cash flow.
 
Weaknesses
* Modest booking and customer advances in the residential project
The project ' Panchshil Towers, has been in an advance stage of completion, and the project is expected to complete by fiscal 2022. The project witnessed moderate booking of about 54% till September, 2019. The overall incremental bookings in the last one year were modest due to few cancellations. The ramp up in the booking velocity remains critical and will be closely monitored.
 
* Risks and cyclicality inherent in the real estate sector
Cyclicality in the real estate sector could result in fluctuations in cash inflow and volatility in sales. In contrast, cash outflow, such as for debt servicing, is relatively fixed. The residential real estate sector has remained constrained by subdued demand and bearish consumer sentiment over the past few years. Demonetisation, Real Estate Regulatory Authority, and Goods and Services Tax further impacted demand as buyers adopt a 'wait and watch' attitude, thereby increasing the funding challenges for developers. Any decline in demand could adversely impact sales velocity and collections and, thus, weaken the financial risk profile.
Liquidity Adequate

PIHPL has adequate liquidity, marked by moderate level of customer advances to be received from the sold inventory. External borrowing has been used to fund only 13% (ratio of outstanding debt to total project cost of ongoing portfolio) of the project cost as of September 2019. Available sanction of Rs 610 crore (availed Rs 320 crore) cushions liquidity and funding requirement for Panchshil Towers. Further, customer advances (to be received from sold inventory) to pending project cost ratio of 52% indicates moderate cash flow cushion. Also, liquidity remains supported by equity infusion of Rs 350 crore till December 2019. The company has adequate financial flexibility to manage upcoming repayment of Rs 297 crore over the medium term. Also, the average liquidity surplus remained at Rs 43 crore for the seven months through December 2019. The company is expected to start construction of the commercial project, costing close to Rs 750 crore, in fiscal 2021. The funding tie-up (debt to equity) for this project will remain a key monitorable.

Outlook: Stable

CRISIL believes PIHPL will continue to benefit from the extensive experience of the promoters.
 
Rating sensitive factors
Upwards factors
*Strong ramp-up in booking rate (over 20% per year) and timely realisation of customer advances, leading to sizable cash flow
*Significant improvement in the financial risk profile
 
Downward factors
*Sharp decline in cash flow, triggered by slackened saleability of existing projects or delay in project execution
*Weakening of the financial risk profile because of higher-than-expected debt.

About the Company

PIHPL is promoted by Premsagar Infra Realty Pvt. Ltd. and Pune Infrarealty and Ventures Pvt Ltd, a Panchshil group company. PIHPL is engaged in the real estate and hospitality segments, and has tied up with global brands for the latter. The company is currently developing a residential project, Panchshil Towers, which has total saleable area of around 35 lakh sq ft.

Key Financial Indicators
Particulars Unit 2019 2018
Revenue Rs crore 351 231
Profit After Tax (PAT) Rs crore 19.7 15
PAT Margin % 5.6 6.5
Adjusted debt/adjusted networth Times 4.4 -8.77
Interest coverage Times 1.48 2.35

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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.Cr) Rating assigned with outlook
NA Project Loan NA NA Sept-23 610 CRISIL BBB/Stable
NA Working Capital Facility NA NA NA 7 CRISIL BBB/Stable
NA Overdraft NA NA NA 75 CRISIL BBB/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 50 CRISIL BBB/Stable
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  742.00  CRISIL BBB/Stable      23-01-19  CRISIL BBB/Stable  28-11-18  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
Overdraft 75 CRISIL BBB/Stable Project Loan 697.38 CRISIL BBB/Stable
Project Loan 610 CRISIL BBB/Stable Rupee Term Loan 37.62 CRISIL BBB/Stable
Proposed Long Term Bank Loan Facility 50 CRISIL BBB/Stable Working Capital Facility 7 CRISIL BBB/Stable
Working Capital Facility 7 CRISIL BBB/Stable -- 0 --
Total 742 -- Total 742 --
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
Rating criteria for manufaturing and service sector companies
The Rating Process

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