| Shreno Limited | ||||
| Long-term rating reaffirmed; CP withdrawn | ||||
| Rating Action | ||||
| ||||
| ||||
| & @Not issued in last three years | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A/Stable’ ratings on the bank facilities of Shreno Ltd (Shreno). CRISIL Ratings has also withdrawn its ratings on the Rs 20 crore commercial paper of Shreno on receipt of withdrawal request from the client; commercial paper had not been placed. This is in line with CRISIL Ratings’ policy on withdrawal of capital market instruments.
The ratings continue to reflect the strong parentage of Nirayu Ltd (Nirayu, ‘CRISIL AA+/Stable’) and its expected financial support, if required, along with Shreno’s moderate business risk profile and moderate track record in the real estate sector. These strengths are partially offset by small scale of operations and moderate profitability in the glass division and exposure to demand and implementation risks arising from the two recently launched real estate projects in Vadodara and Bengaluru respectively.
With the completion of the scheme of arrangement between Shreno, Nirayu and Alembic Ltd (Alembic) in fiscal 2019, Shreno deals primarily in the glass and real estate business. Post production disruption and lower operating performance due to the Covid-19 pandemic in fiscal 2021, Shreno is expected to register 20% revenue growth this fiscal on lower base of fiscal 2021. Furthermore, various productivity improvement measures and healthy sales volume is expected to improve operating profitability in glass business in the medium term.
The company has launched two new real estate projects to be constructed over the next three years – a residential project in Vadodara and a commercial office complex in Whitefield, Bengaluru -- and plans to further capitalise on its large land bank in the two cities in the medium term. These projects are expected to be funded largely through debt, and with shortfalls being funded through the equity infused by the promoters.
As per the scheme of arrangement, Nirayu had earlier issued 7% non-convertible, redeemable preference shares (redeemable after five years) to Shreno’s shareholders. Additionally, the project management consultancy business and a real estate project within Alembic had been transferred to Shreno, which in turn issued 7% non-convertible, redeemable preference shares to Alembic’s shareholders; this has been redeemed by Nirayu (in its capacity as the first transferee company) in September 2021. Following approval from the National Company Law Tribunal, the scheme was implemented with effect from November 1, 2018. With this scheme, Nirayu became a 83.87% shareholder in Shreno. Nirayu holds 35.63% in Alembic Pharmaceuticals Ltd (Alembic Pharma; ‘CRISIL AA+/Stable/CRISIL A1+’), 62.59% in Alembic and 53.18% in Paushak Ltd (‘CRISIL A-/Stable/CRISIL A1’) as on September 30, 2021. |
Analytical Approach CRISIL Ratings has applied its parent notch-up framework to factor in support for Shreno from Nirayu. Furthermore, preference shares of Rs 412 crore have been treated partly as equity, as the share is held by the promoter group, has a remaining tenure of two years and is likely to be refinanced. |
Key Rating Drivers & Detailed Description Strengths Strong parentage and expected financial support from Nirayu Shreno benefits from the strong parentage and need-based support of Nirayu, which has healthy financial flexibility. This arises from an ability to raise additional funds by sale or pledge of investments, mainly in equity shares of Alembic Pharma. As on September 30, 2021, the combined market value of promoters’ holding companies’ shares in Alembic Pharma, Alembic and Paushak Ltd was over Rs 11,000 crore against minimal debt. Furthermore, Nirayu has provided financial support for the preference share redemption in September 2021 and is expected to provide financial support, if required, in the future.
Moderate track record in the real estate sector Shreno has completed two projects, one each in Vadodara and Bengaluru. The promoters have experience in the real estate and demonstrated track record of no delays in project completion as well as strong funding capacity. Shreno is expected to benefit from the promoter’s experience in this sector, while capitalizing on its land bank in developing real estate projects.
Weaknesses Exposure to demand and implementation risks in the real estate projects and susceptibility to cyclicality inherent in the real estate sector The company has launched new premium residential real estate project on owned land bank in Vadodara and commercial real estate project on owned land bank in Bengaluru. These projects are at nascent stage, with limited sales recorded so far. Furthermore, the domestic real estate sector is cyclical, and cash inflow is volatile on account of fluctuations in real estate prices and demand. In comparison, cash outflow, relating to completion of projects and debt obligation, is relatively fixed. Shreno is exposed to demand and implementation risk associated with launched projects. Any delay in implementation or saleability/ leasing of project could strain cashflow position and would remain the key monitorable.
Moderate profitability in the glass division Performance of the glass division, which turned profitable in fiscal 2018, continues to be constrained by moderate capacity utilisation and intense competition from the unorganised market. The segment recorded revenue of about Rs 55 crore in fiscal 2021, with operating losses due to high fixed cost of employees and fuel. However, with improving sales volumes and revenue, operating profitability should improve over the medium term. |
Liquidity Adequate Shreno has only Rs 10 crore of outstanding debt, and the fund-based bank limit of Rs 36 crore is sparingly utilised. The company had liquid surplus above Rs 13 crore as on December 31, 2021, with no major capital expenditure planned over the medium term for the glass segment. The company is expected to incur significant debt to fund its real estate projects, which would be long-tenured with moratorium period of few fiscals during the construction phase. Liquidity is further supported by the expectation of need-based financial support from the parent, Nirayu. |
Outlook Stable Shreno will continue to benefit from the support and parentage of Nirayu and its moderate business risk profile in the real estate business. |
Rating Sensitivity factors Upward factors
Downward factors
|
About the Company Incorporated in 1962, Shreno has presence across diverse sectors such as real estate and glassware. In the glassware division, the company sells its products under the brand, Yera. The company undertakes real estate projects under the brand, Alembic Real Estate.
About the parent Nirayu held 35.63% in Alembic Pharma and 63.06% in Alembic (both listed on the Bombay Stock Exchange) as on March 31, 2021. The promoters—Mr Chirayu Amin and his family members—held 69.48% and 70.88% in Alembic Pharma and Alembic, respectively, as on March 31, 2021. |
Key Financial Indicators
*Operating revenue |
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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
*Interchangeable with non-fund-based limit ^One way interchangeable from fund-based to non-fund-based limit @ Not issued in last three years |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||
|
This Annexure has been updated on 30-Mar-2022 in line with the lender-wise facility details as on 23-Aug-2021 received from the rated entity.
Criteria Details
|