Rating Rationale
September 06, 2022 | Mumbai
Ruptech Educational India
Rating Reaffirmed
 
Rating Action
Rs.20 Crore Non Convertible DebenturesCRISIL BB+/Stable (Reaffirmed)
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1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL BB+/Stable’ rating on the non-convertible debentures of Ruptech Educational India (REI).

 

The rating reflects established market position of Scottish High International School (SHIS) running under REI, long term experience of REI's promoters in the education segment and healthy growth potential of International Board (IB) schools in the National Capital Region (NCR) providing a healthy revenue visibility for SHIS. These strengths are partially offset by its vulnerability to stringent regulations and adverse changes in government regulations, volatility in operating margins and an average financial risk profile.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position of the school: SHIS is an established name and commands a high market position in Delhi NCR. It is one of the few schools in the region providing various academic curriculum like IB, ICSE, ISC and Cambridge curriculum. The students studying in the school are from upper middle class and affluent families and hence there are no major challenges for payment of school fees. The strong market position is also reflected in the student occupancy of 90-95% during the last 4 academic years ending 2022-23 and the same is despite ~10% yearly fees increase. REI has reported an operating income of Rs 70.7 crore (estimated) in fiscal 2022, a 41% y-o-y growth which was driven by the recovery in fee collection during the fiscal. The expected healthy occupancy and yearly fee increase will continue to drive the steady revenue growth over the medium term.

 

  • Extensive experience of REI's promoters in the education segment: The promoters have extensive track record of experience in education industry. Dr. Cdr. Kartikay Saini (Founder Chairman) has won numerous awards and recognitions in education industry which are both nationally and internationally acknowledged. The other members of the core management team also have an extensive experience in education industry. They have developed a strong brand for SHIS as a provider of quality education, backed by strong infrastructural facilities.

 

  • Healthy growth potential of IB schools in the NCR region: The past decade has witnessed a rapid increase in IB schools in India. Growth potential of such schools in the NCR is also driven by increase in the number of high networth individuals in the region. SHIS is well positioned to benefit from growth in demand for premium education. The strong reputation of the school has led to healthy student enrolment year-on-year, reflected in healthy occupancy of 90-95%.

 

Weaknesses:

  • Vulnerability to stringent regulations and adverse changes in government regulations: Establishment and operations of educational institutions are regulated by various governmental and quasi-governmental agencies, such as the Council for the Indian School Certificate Examination (CISCE), International Baccalaureate for Primary Years Programme (IB PYP),  International Baccalaureate Diploma Programme (IBDP), International General Certificate of Secondary Education (IGCSE),  State government  etc. Each body has detailed procedures for granting permission to set up schools, and approvals need to be renewed every three or five years. Any non-compliance will result in cancellation of affiliation, license etc. leading to loss of reputation and revenue for the school. The education sector is highly exposed to such regulatory environment. Schools are also required to comply with Supreme Court directions related to fees.  Any adverse changes in fees structure by state administration or judicial system may lead to impact on the cash flow and credit profile of REI.

 

  • Volatility in operating margin: SHIS’s operating margin has remained volatile and has fluctuated in the range of 7% to 16% in the last five fiscals ended FY22. SHIS has reported higher margin of 10.2% and 16.1% (estimated) in FY21 and FY22, respectively) due to the reduction in operating expenses on account of online classes being conducted during the Covid-19 pandemic and due to the cost control measures taken by the management. Going ahead, operating margin is expected to be around 16% over the near to medium term, supported by fees hike and as certain non-cash provisions cease to exist. Operating margin continues to remain volatile due to competition from local schools that have established brands. Organized players such as SHIS benefit from brand recall and standardized curricula, which enables quality education.

 

  • Average financial risk profile: Networth is moderate at Rs 21.2 crore (estimated) as on March 31, 2022. REI has extended advances of Rs 90.7 crores (outstanding as on Mar 31, 2022; Rs 92.3 crore as on Mar 31, 2021) towards purchase of land and for new school project. The said advances have been party funded by bank debt. Accordingly, there is moderately high reliance on external debt and hence gearing is 2.35 times (estimated) as on Mar 31, 2022. However, with no major debt funded capex plans over the near to medium term and with yearly debt repayment obligations, the debt quantum is expected to reduce and hence the gearing is expected to witness gradual improvement year-on-year. Moderate debt protection metrics with interest cover and net cash accruals to adjusted debt ratio estimated at 1.47 times and 0.08 time for fiscal 2022.

Liquidity: Adequate

The school is generating steady cash flows with quarterly fees receipt structure. The cash flows continue to remain steady and the gap between cash accruals (including non-cash provisions) and repayments is expected to be adequate: Average ADSCR (adjusted debt service coverage ratio) of 1.31 times is expected over the next three fiscals ending FY25. Expected cash and bank balances built up through school fees shall support the debt repayments over the medium term. The month end cash balance has been around Rs 12-13 crore, on an average, over the last 10 months ended Jun-22. There is also a clear waterfall mechanism to take care of the repayments – there is an escrow mechanism that clearly stipulates that 14% of the proceeds will be parked under debt servicing account which will be first utilized towards meeting debt obligations and then towards any other operational expenses.

Outlook: Stable

CRISIL Ratings believes REI will continue to benefit over the medium term from its established position and management’s extensive experience in the education sector.

Rating Sensitivity Factors

Upward factors

  • Improvement in average ADSCR of over 1.5 times on a sustainable basis driven by improved profitability
  • Improvement in financial risk profile metrics

 

Downward factors

  • Any delays in fees receipts leading to stretch in receivables and deterioration in the liquidity profile
  • Average ADSCR below 1.2 times
  • Higher than expected debt funded capex plans resulting in deterioration in financial risk profile and liquidity

About the Company

Set up in 2005, REI operates a school under the name “Scottish High International School” in Gurgaon-Haryana. It provides education from kindergarten to standard XII. It’s an authorized IB World School and imparts International Baccalaureate Diploma Program (IBDP) for XI & XII standards. The school is also certified with ISO 21001:2018 by the National Accreditation Board for Education and Training (NABET), Government of India. REI is currently managed by Dr. Kartikay Saini, Chairman.

Key Financial Indicators

As on/for the period ended March 31

 Unit

2022*

2021

Operating income

Rs.Crore

70.67

50.10

Reported profit after tax

Rs.Crore

1.61

-2.66

PAT margins

%

2.27

-5.31

Adjusted Debt/Adjusted Networth

Times

2.35

2.56

Interest coverage

Times

1.47

1.05

*Provisional

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` 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.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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)

Complexity

level

Rating assigned

with outlook

INE0I4407010

Non-Convertible Debentures

3-Sep-21

SBI PLR linked

3-Sep-29

19.50

Highly Complex

CRISIL BB+/Stable

NA

Non-Convertible Debentures*

NA

NA

NA

0.50

Highly Complex

CRISIL BB+/Stable

*Proposed 

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Convertible Debentures LT 20.0 CRISIL BB+/Stable   -- 24-08-21 CRISIL BB+/Stable   --   -- --
All amounts are in Rs.Cr.

   

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Bank Loan Ratings
Understanding CRISILs Ratings and Rating Scales
CRISILs criteria for rating Education institutions

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