Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the bank facilities of SRM Institute of Science and Technology (SRMIST) at ‘CRISIL A+/Stable/CRISIL A1’.

 

The reaffirmation reflects the healthy and sustained improvement in the trust’s operating performance, driven by increase in enrollment, fee hikes undertaken and expectations of continued sustenance of the same. The financial risk profile has also improved and is expected to strengthen further with the trust likely to fund its capital expenditure (capex) and operating requirements from internal accrual. This, despite the implementation of a scheme of arrangement approved by the board of trustees of SRMIST, wherein some of its business is being transferred to associate trust, SRM Institute of Medical and Technical Research (SRM IMTR, rated ‘CRISIL BBB-/Stable’), and SRM Education and Research Institute (SRM ERI).

 

CRISIL Ratings has taken note of the donation of assets by SRMIST to SRM IMTR and SRM ERI. Book value of assets donated were Rs 743 crore in fiscal 2024 and Rs 480 crore in fiscal 2023, pertaining to SIMS Hospital in Chennai, and land and building pertaining to institutions in Ramapuram and Trichy (both in Tamil Nadu) campuses. SRMIST is expected to continue running some of the institutions in the campuses by leasing back the assets donated to SRM IMTR, thereby aiding continued revenue generation from these campuses. Revenue loss for SRM IST on account of the scheme was estimated at ~Rs 440 crore as of fiscal 2024. However, this will be mitigated by higher student intake in engineering courses across campuses, increase in medical seats and higher intake of foreign students leading to revenue in fiscal 2025 remaining in line with fiscal 2024 levels, and thereafter grow 10-12% annually.

 

Revenue increased 16% to Rs 2,676 crore in fiscal 2024 from Rs 2,314 crore in fiscal 2023 on account of continued increase in enrollment and fee hikes, especially for courses undertaken at the trust’s Kattankulathur (Tamil Nadu) campus. Engineering courses contribute ~55% to the revenue of SRMIST, medical courses contribute ~22%, hospitals over 6%, and the remaining courses contribute ~17%. Business risk profile continues to benefit from the trust’s established brand, strong market position in the education sector of Tamil Nadu (as seen in increase in student intake in fiscal 2025) and healthy occupancy rate of new courses.

 

Operating margin remained stable at 24.1% in fiscal 2024 against 23.9% previous fiscal on account of adjusting donations to other trusts as part of operating expenses, in line with the recent changes in regulations. Excluding donations, operating margin improved to 35.4% from 35% because of rationalisation of some expenses and reduced repairs and maintenance cost. Since the margins of the transferred institutions were much lower that others managed by SRMIST, this is expected to increase the trust’s profitability to 26-27% over the medium term, after considering donations to other trusts that are expected to be Rs 300-375 crore annually.

 

SRMIST incurred large capex on its existing campuses over the past 4-5 fiscals, thereby restricting further scope for expansion. In fiscal 2024, it incurred capex of ~Rs 640 crore to construct law college, hostel block (~2,000 students), academic block and also purchase land for Rs 29.31 crore. While capex this fiscal is expected to be limited to ~Rs 300 crore, it may touch Rs 450-500 crore per annum over the medium term in order to set up new campuses and undertake regular maintenance at existing campuses. These capex plans are expected to be fully funded through internal accrual, which is expected to be Rs 600-700 crore after donations to other trusts.

 

Debt has moderated as on date, driven by progressive reduction over the past few fiscals. At the end of fiscal 2025, total debt is expected at ~Rs 800 crore (long-term debt of Rs 55 crore compared with Rs 917 crore as on March 31, 2024), comprising short-term debt of Rs 722 crore and long-term debt of Rs 195 crore. The financial risk profile is likely to improve over the medium term despite donations to other trusts. Debt/earnings before interest tax depreciation and amortisation (Ebitda) is estimated to further improve to under 1.5 times in fiscal 2025 from 1.42 times in fiscal 2024 after progressive debt repayment and the trust’s ability to prudently manage working capital. However, more-than-anticipated asset transfers and donations to trusts and larger-than-expected, debt-funded plans will remain monitorable.

 

The ratings continue to factor in the diversified revenue streams of SRMIST, strong operating profitability, availability of adequate infrastructure, improving financial risk profile and faculty, and strong placement record. These strengths are partially offset by the exposure to increasing competition from other deemed universities in South India and susceptibility to adverse regulatory changes in the industry.

Analytical Approach

CRISIL Ratings has considered the standalone credit risk profile of SRMIST. Although there has been regular fund outflows to other trusts managed by the promoter family, CRISIL Ratings has not consolidated these since they are managed independently by a separate team with no business linkages to SRMIST.

Key Rating Drivers & Detailed Description

Strengths:

• Established market position in the education sector in Tamil Nadu, and diversified revenue streams and healthy occupancy rates: SRMIST has been in the education sector in Tamil Nadu for close to three decades, during which it has established a strong market position. It is one of the largest private deemed universities in India with ~1,00,000 students enrolled across five campuses (including 4 in Tamil Nadu and 1 in Uttar Pradesh [Modinagar]). The institution offers a wide range of undergraduate, postgraduate and doctoral programmes in various streams such as engineering, management, medicine, dentistry, law, arts, science and humanities. The trust recorded healthy turnover of Rs 2,676 crore in fiscal 2024 against Rs 2,315 crore in fiscal 2023, supported by diversified revenue streams, fee hikes across various courses, sharp increase in occupancy rates and addition of new courses. It is also expanding capacities and is set to increase student offtake for law, agriculture and engineering courses over the medium term. Hence, revenue is expected to register steady growth over the medium term.

 

• Strong operating profitability owing to premium market position: Owing to its established market position and strong brand, SRMIST attracts a large number of applications from students across India, leading to healthy occupancies across all the courses. This premium positioning and high occupancies have enabled the trust to sustain a strong operating margin of over 30% in the past. However, in fiscals 2023 and 2024, margin dipped to ~24% due to change in accounting treatment of donations to other trusts as part of its operating costs, and increased expenses that were curbed during the pandemic. Operating profitability is expected to be 26-27% (after considering donations to other trusts under operating costs) and over 35% (excluding donations to other trusts) over the medium term, thereby ensuring healthy cash generation.

 

• Availability of adequate infrastructure and faculty and strong placement record: SRMIST has ~3,800 teaching staff and ~4,400 non-teaching staff across all its campuses with a comfortable teacher-student ratio of 1 teaching faculty for every 17-18 students on average. The institution also offers adequate infrastructure and research facilities in-house, providing avenues for students and faculties alike to pursue advanced research projects in their respective fields. The institution also has the highest A++ grade from National Assessment and Accreditation Council. SRMIST has tie-ups with leading universities across the globe for student exchange programmes. Academic excellence through adequate infrastructure, research facilities and abled faculty enable the institution to attract leading companies for placements. The trust also enjoys healthy relationship with corporates and has a strong placement record.

 

• Improving financial risk profile; albeit constrained by seasonal utilisation of short-term debt: Financial risk profile improved in fiscal 2024 on account of continued debt reduction, despite high capital spending of Rs 640 crore and donations of over Rs 758 crore made to other trusts. Debt level reduced to Rs 917 crore as on March 31, 2024, from Rs 1,314 crore as on March 31, 2021. Progressive repayment has enabled the trust to reduce its long-term debt to Rs 195 crore as on March 31, 2024, from Rs 901 crore as on March 31, 2021; however, short-term debt has seen moderate rise to Rs 722 crore from Rs 413 crore on account of seasonality factors with fourth quarter being a dry period since admissions start from April-May every year. This is mainly on account of increased operating expenses since some costs that were cut down during Covid have returned, coupled with increasing number of students across all its campuses.

 

However, capex plans of Rs 400-450 crore over the medium term will be largely met through internal accrual. Donations to other trusts are also expected to continue at Rs 300-375 crore per annum. Gearing moderately weakened to ~1.55 times as of March 2024 from 1.08 times as of March 2023 due to reduction in networth following transfer of fixed assets of over ~Rs 1,200 crore to another trust held by promoters and relatives.

 

Given the minimal debt obligation of Rs 140 crore in fiscal 2025 and Rs 55 crore in fiscal 2026, the adjusted debt service coverage ratio is expected to remain healthy at 1.2-2.9 times over the medium term (similar to levels seen in the past) since capex plans are to be fully met through internal accrual. Nevertheless, the trust has a policy of maintaining cash and equivalent of Rs 120-150 crore (2-3 months of operating expenses) at any point of time to cover for any contingencies and mismatches in fee collection and expenses.

 

Weaknesses:

• Exposure to increasing competition from other deemed universities in South India: With the presence of many established deemed universities and major engineering colleges in South India, SRMIST's ability to maintain market position will largely depend on its capability of attracting students with superior infrastructure and research facilities.

 

• Susceptibility to adverse regulatory changes: The education industry in India is highly regulated and the trust needs to invest in workforce and infrastructure regularly to comply with specific operational and infrastructure norms set by the All India Council for Technical Education (AICTE), Anna University, and other authorities. Setting up of institutes, increasing the number of seats, and making any change in the fee structure also requires regulatory approvals. Non-compliance by the trust could lead to withdrawal of its deemed university status and affiliation to various boards. Revenue may, therefore, remain constrained by the regulated nature of the education sector.

Liquidity: Strong

SRMIST enjoys strong liquidity driven by expected cash accrual of more than Rs 600-650 crore per annum over the medium term. Cash and equivalent was at Rs 247 crore as on March 31, 2024. The trust has a policy of maintaining cash and cash equivalents for 2-3 months of operating expenses which is over ~Rs.120-150 crore per month at any point of time to cover for any contingencies, and mismatches in fee collection and expenses. SRMIST also has access to fund-based limit of Rs 435 crore, which was utilised ~82% on average over the 12 months through October 2024. Capex of Rs 400-450 crore and debt obligation of Rs 140 crore and Rs 55 crore in fiscals 2025 and fiscal 2026, respectively, are expected to be funded through internal accrual. The trust also enjoys a strong reputation with the lending community and is expected to refinance balance debt obligation in case of any shortfall in cash flows.

Outlook: Stable

SRMIST will continue to benefit from its strong business risk profile, driven by its healthy brand, diverse revenue streams, strong profitability and improved placement records; financial risk profile is also expected to substantially improve due to healthy cash generation and progressive debt repayment, leading to better debt metrics over the medium term.

Rating sensitivity factors

Upward factors

• Higher-than-anticipated revenue growth and operating profitability (adjusted for donations to trusts) sustaining at 26-28%, leading to substantial cash generation
• Continuous improvement in financial risk profile and sustained healthy liquid surpluses

 

Downward factors

• Steep decline in occupancy in key courses leading to dip in operating profitability below 20-22%, thereby impacting cash generation
• Larger-than-expected debt-funded capex or material fund infusion/large asset transfer to other trusts in turn leading to deterioration in financial risk profile - debt/Ebitda increasing to over 2.25.2.50 times on a sustained basis

About the trust

SRMIST was formed in 1985 by Dr T R Pachamuthu (alias Dr T R Paarivendhar) and offers courses across various streams such as engineering, medicine, dental, nursing, law, science and humanities, arts, management, and agricultural sciences. The trust has five main campuses – Kattankulathur, Ramapuram, Vadapalani (Tamil Nadu), Trichy and Modinagar.

Any other information: Not Applicable