| Praviz Developers Private Limited | ||||
| Rating reaffirmed at 'CRISIL BBB+/Stable' | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL BBB+/Stable’ rating on the long-term bank facilities of Praviz Developers Private Limited (Praviz; a part of the Godrej group).
The rating reflects the steadily improving performance of the company as demonstrated in healthy rental collection and improved occupancy. It has been able to achieve contractual rental escalations year on year. The rating also factors in the strong management and operational support from Godrej group as well as consequent financial flexibility enjoyed by the company as reflected in material reduction in interest costs over the past few years.
The rating continues to reflect the steady cash flow of Praviz, supported by the advantageous location of the property and good clientele. These strengths are partially offset by modest debt protection metrics, high tenant concentration risk, modest scale and exposure to volatility in occupancy.
As the fund’s investment life in the asset is maturing in Aug-2023, Godrej fund is exploring sale of the asset, however, the fund has an option to extend the investment tenor for an additional year. Fund has invited bids/quotations from potential buyers; however, the details have not been finalised yet. Godrej Funds may choose to exercise the option to extend for the additional year. Development of the transaction will be a key monitorable. |
Analytical Approach CRISIL Ratings has taken a standalone view of Praviz as there is only one asset on its books.
CRISIL Ratings has applied its group notch-up framework to factor in the extent of support available from the Godrej group.
Compulsorily convertible debentures of Rs 189 crore as on March 31, 2022 have been treated as neither debt nor equity because these instruments have been subscribed by the sponsor group, have a tenure of 15 years with a coupon rate of 12%, which is payable. |
Key Rating Drivers & Detailed Description Strengths Steady cash flow supported by healthy rental collections and stable occupancy Praviz had leased about 96% of the total leasable area of 2 lakh square feet (sq ft) as of March 2023, improved from 88% as of December 2021. The company has also been able to realize contractual rental escalations as per agreement. The commercial building is in Bandra Kurla Complex (BKC), the central business district of Mumbai Metropolitan Region (MMR). BKC is an attractive destination for leading domestic and global corporates, and banking and financial services companies. The company is expected to benefit from limited supply in the BKC micro-market as well as recent infrastructure development in the vicinity. Furthermore, the asset is leased to reputed tenants. The rating also factors in the well-secured lease structure, with lock-in and lease period of 5-10 years and an in-built revenue escalation clause of 5-15% every 1-3 years for all tenants.
Strong operational, management support from the Godrej group and consequent financial flexibility The Godrej group, through its real estate arm, Godrej Properties Ltd (GPL; rated CRISIL A1+), has significant experience in the real estate segment in India with presence across all major micro markets. Through its real estate private equity arm, Godrej Fund Management, the group owns and manages commercial office spaces in India. It derives significant synergies from its association with the Godrej group, as reflected in the proactive asset maintenance to ensure tenant stickiness and quality. It is also involved in the daily operations of the entity. Further, Praviz has financial flexibility to refinance debt at a low cost on account of being part of the Godrej group.
Adequate debt protection metrics Average debt service coverage ratio (DSCR) is expected to remain at around 1.3 times over the tenure of the debt, supported by steady cash flow from rentals and ballooning debt repayment structure. However, minimum DSCR for the tenor of loan is low at <1x. The total outstanding debt as on December 31, 2022 was Rs 344 crore and no additional top-up loan is expected over the medium term. Nevertheless, any increase in debt, in the absence of an additional revenue stream, will impact the financial risk profile, and remain a key rating sensitivity factor. Also, the interest rates are floating in nature. Although cash flow will be able to partially absorb the impact of fluctuations in interest rates, these remain rating sensitivity factors.
Weaknesses: Modest scale of operations While the property is located in a prime location, the overall leasable area and operating income for PDPL is low as compared to its peers. Although, operating income increased to Rs 63 crore during fiscal 2022 from Rs 55 crore in fiscal 2020, it continues to remain modest. Leasable area stands at 0.2 m sq. feet, which is spread across 3 floors.
High concentration risk and susceptibility to volatility in occupancy Cash inflow is exposed to volatility in occupancy or realizations (a function of rentals per sq ft), while cash outflow is relatively fixed. The entire property is leased to six tenants, leading to high concentration in revenue, and surrender of lease by any of these tenants will significantly weaken the financial risk profile. |
Liquidity: Adequate Liquidity is likely to remain healthy. Cash accrual should sufficiently cover the yearly debt servicing obligation of Rs 29-38 crore for the three fiscals from 2024 to 2026. Outstanding debt-to-lease rentals ratio is expected to be around 5.3 times as on March 31, 2023 and should improve with gradual repayment of debt and provide cushion in terms of raising additional borrowings, if required. Cash and equivalents were Rs 15.4 crore as on December 31, 2022. |
Outlook: Stable Praviz should continue to benefit from stable cash flow, backed by existing lease contracts. |
Rating Sensitivity factors Upward factors • Sustained increase in rental income by over 15% per annum year-on-year while maintaining costs, thereby strengthening surplus generation and debt protection metrics • Reduction in debt level leading to further improvement in DSCR
Downward factors • Weakening of debt protection metrics owing to lower-than-expected cash flow, driven by vacancy of 20% or lower-than-expected lease rental rates • Draw down of incremental debt • Exit of Godrej Group and new sponsor having weaker credit profile than Godrej Group |
About the Company Praviz, incorporated in December 2017, owns and operates a commercial asset, Godrej BKC, in BKC, MMR. It is one of the marquee assets in the region, with leasable area of around 13 lakh sq ft of which 2 lakh sq ft is owned by Praviz. It has been operational for over three years. Praviz is held by Anamudi Real Estates LLP (Godrej group entity) and GOF I (Master A) Pte Ltd. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||||||||
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Criteria Details
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