| Shriram Upscale Spaces Private Limited | ||||
| Rating outlook revised to 'Positive'; Rating Reaffirmed | ||||
| 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 revised its outlook on the long-term bank facilities of Shriram Upscale Spaces Pvt Ltd (SUPL); a subsidiary of Shriram Properties Ltd (SPL), to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘CRISIL A-’
The revision in outlook reflects expectation of improvement in the financial risk profile of the parent, SPL, driven by healthy operating performance and debt protection metrics.
The rating continues to reflect benefits from the strong operational, financial and managerial support provided to SUPL by SPL. The parent has provided a corporate guarantee for the debt under SUPL and will ensure timely servicing of debt as well.
SUPL is developing a commercial project, Shriram Hebbal One, in Northern Bengaluru, spread across 0.27 million square feet (msf), of which 0.14 msf area is earmarked for SUPL. Arrangement of SUPL, designated as a leased property, has been altered to facilitate sale of assets based on latest joint development agreement (JDA) signed on October 3, 2023. SUPL has sold 66% of the area, with 56% of construction completed as on March 31, 2024. Collection efficiency for the area sold was highest at 99%, as units were offered at discounted rates below the prevailing rate. With the ongoing momentum and strong traction, the remaining area is likely to be sold at the current market value over the next two fiscals. Strong brand and established position of SPL in the real estate market of Bengaluru should support project saleability further.
Collection from incremental sales will suffice to cover the remaining construction cost of the phases launched so far. That said, SPL will infuse equity in case of any cash flow mismatch, arising from lower realisations over the medium term.
SPL’s financial risk profile was comfortable, supported by strong operating performance and low leverage. Debt for residential projects remained range-bound at Rs 724 crore as on March 31, 2024 (including joint ventures [JVs]), as against Rs 757 crore as on March 31, 2023, primarily due to healthy sales and collection.
Debt protection metrics as characterised by gross debt to cash flow from operations (CFO) and CFO to interest remain healthy. Gross debt to CFO ratio is expected to improve to below 1.5 times from 2.3 times in fiscal 2024, and CFO to interest ratio is expected to improve above 6 times in fiscal 2025 from 3.7 times in fiscal 2024 supported by sustained healthy collection and expected land monetisation of Rs 100-120 crore. Land monetisation inflow will be credit monitorable. Moreover, the debt to CFO ratio is expected to improve to below 2 times and CFO to interest ratio to remain above 4.5 times over the medium term. The cost of debt was high at 11.6% in fiscal 2024; though the company has demonstrated ability to bring down cost of debt from 13.7% in fiscal 2021, further reduction in cost of borrowing will be monitorable.
Overall bank debt is expected at Rs 650-750 crore (including JVs) over the medium term. Financial flexibility is supported by the company’s refinancing ability and steady construction progress in ongoing projects. The rating duly factors in the established development track record of the SPL group, supporting healthy saleability of its projects in Bengaluru and Chennai, along with comfortable cash flow and adequate financial flexibility. |
Analytical Approach CRISIL Ratings has notched up the standalone rating of SUPL, based on expectation of strong support from the parent, SPL, both on an ongoing basis and in case of distress. This is in line with its criteria for notching up standalone ratings of companies based on parent support. |
Key Rating Drivers & Detailed Description Strengths: Strong business, managerial and financial support from the parent: SSPL benefits from its robust linkages with SPL. SPL has been engaged in the real estate industry for over two decades and is focused on the mid-market and affordable housing categories. Projects are diversified geographically, with less than 50% in Bengaluru, around 22% in Chennai and around 15% in Kolkata. SPL will continue to adopt the asset-light model under joint ventures (JVs), and focus on joint development agreements (JDAs) and development management (DM) models, which will account for over 75% of its portfolio. SPL aims to leverage its leadership position to become a partner of choice for landowners through JV/JDA and DM projects.
Healthy saleability of the project: Arrangement of the Shriram Hebbal One project, designated as a leased property, has been altered to facilitate the sale of assets, based on the JV agreement signed on October 3, 2023. SUPL is developing a commercial project – Hebbal one, having saleable area of 0.27 msf (of which 0.14 msf area is earmarked for SUPL). The company has witnessed good traction in terms of sales and construction progress, with 66% of area sold and 56% of construction cost incurred as on March 31, 2024.
Low funding risk with significant customer advance: The project will be funded through advances received against value sold. SUPL offered commercial units at discounted rates of 10-15% below the prevailing rate, contingent upon full payment of the entire agreement amount, resulting in an exceptional collection of Rs 80 crore. With remarkable collection efficiency (99%) and an undisbursed limit, the company will be able to fund the balance cost, and limit reliance on additional sales.
Weakness: Susceptibility to cyclicality inherent in the real estate industry: Inherent risks and cyclicality in the real estate sector may result in volatility in both, saleability and realisations, and consequently, cash flow. Saleability was impacted in the past few years due to macroeconomic factors such as demonetisation, the Real Estate (Regulation and Development) Act, 2016 and the Goods and Services Tax and will remain susceptible to economic cycles. |
Liquidity: Adequate Liquidity remains adequate, supported by healthy collections of Rs 80 crore and adequate undrawn construction finance loan of Rs 50 crore. Support from the parent, SPL, lends further comfort. |
Outlook: Positive The positive outlook on SUPL is driven by a corresponding outlook on the parent. The financial risk profile of the parent is expected to improve driven by healthy operating performance and debt protection metrics. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company SUPL is a special-purpose vehicle floated by SPL for development of the project, Shriram Hebbal One, in Northern Bengaluru, spread across 0.27 million square feet (msf).
SPL is a real estate development company in south India with experience of more than two decades, and is focused on mid-market and affordable housing categories. It is part of the Shriram group, which has four decades of experience in the retail financial services sector and several 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 - 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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