| Shriram Properties Limited | ||||
| 'CRISIL A-/Stable' assigned to Bank Debt | ||||
| 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 assigned its 'CRISIL A-/Stable' rating to the bank facilities of Shriram Properties Limited (SPL).
The rating reflects the established brand of SPL in the real estate segments of Bengaluru, Chennai and Kolkata, along with its strong cash flow visibility and improving financial flexibility. These strengths are partially offset by susceptibility to cyclicality and regulatory risk in the real estate sector and geographical concentration in revenue
Sale value and collections for the nine months of fiscal 2023 were strong at Rs 1,352 crore and Rs 887 crore, respectively. Projects aggregating 0.85 million square feet (msf) were launched during this period, and 3.2 msf and 5-6 msf are expected to be launched in the fourth quarter of fiscal 2023 and in fiscal 2024. Realization per sq.ft. has improved by ~9% in Q3 fiscal 2023 as against Q1 fiscal 2022. Consequently, scale is expected to increase at a compound annual growth rate of 21% over the next three fiscals. Timely launches along with sustained demand would be key monitorables.
Financial risk profile is supported by healthy operating cash flow. Net funds realised through IPO (Rs 250 crore raised in December 2021) enabled the group to lower debt and improve gearing. Debt-to-total-assets is expected to sustain below 20%. Capital structure is comfortable with consolidated gearing below 0.50 time. Overall bank debt (including joint ventures [JVs]) is expected to increase marginally in the medium term. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of SPL and its subsidiaries, associates (based on the consolidated financials of SPL) and joint ventures (JVs). This is because these entities, collectively referred to as SPL, have common promoters and are engaged in the same business.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
Sales and collections are likely to be healthy over the medium term because of steady demand, mainly in the affordable and middle-income projects and planned launches of 5-6 msf in FY2024 and 7-7.5 msf in FY2025 in the portfolio. The business risk profile is supported by healthy collection, backed by track record of execution and delivery. Slowdown in sales velocity and collections and delay in launches due to macroeconomic factors may constrain cash flow, and hence, will be a key monitorable.
The average cost of debt was 12.5% as on December 31, 2022. Though the rate of interest is comparatively higher than the peers, the group has a healthy refinancing ability. The group has managed to bring down the interest rate by 200 basis points since fiscal 2021. CRISIL Ratings does not expect any significant increase in debt, given SPL will continue to partner with investors for project purchases and focus on asset light model of JDA/JV and DM model; for instance, SPL has partnered with ASK Property Fund to set up investment platform for acquisition of residential real estate projects. The Ebitda (earnings before interest, taxes, depreciation, and amortisation) margin for the nine months of fiscal 2023 was 21% and is expected to be ~25% for fiscal 2024. The financial risk profile is likely to be strong over the medium term, supported by steady cash accrual and absence of large, debt-funded land acquisition.
Weaknesses:
Cyclicality in the real estate segment causes fluctuations in cash inflow. As against this, cash outflow towards projects and debt obligation are relatively fixed, resulting in substantial cash flow mismatch. The Covid-19 pandemic had caused some disruption in cash flow of real estate developers. The company experienced the same during the pandemic with collections at Rs 830.9 crore in fiscal 2021. However, pick-up in the business environment has translated into increased sales in its projects.
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Liquidity: Adequate Liquidity should remain adequate, supported by healthy saleability and collections in ongoing projects and in new launches. It will be further aided by monetisation of the land bank in Kolkata and receipt of DM fees from Xander. Financial flexibility is supported by strong refinancing ability demonstrated in the current fiscal and healthy relationships with investors. The group also has undrawn bank limit of Rs 91.4 crore as on December 31, 2022. |
Outlook: Stable CRISIL Ratings believes that the SPL will continue to benefit from its established position in the real estate markets of Bengaluru, Chennai and Kolkata and likely improvement in performance. The financial risk profile should also gain strength, aided by continued focus on deleveraging. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company SPL is a real estate development company primarily based in South India. It has been engaged in this business for over two decades and is mainly focused on the mid-market and affordable housing categories. It is a part of the Shriram group that has four decades of experience in retail financial services and various other industries. |
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 - List of Entities Consolidated
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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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This Annexure has been updated on 16-Mar-2023 in line with the lender-wise facility details as on 16-Mar-2023 received from the rated entity.
Criteria Details
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