Rating Rationale
June 23, 2023 | Mumbai
Sweta Estates Private Limited
Rating upgraded to 'CRISIL A-/Stable'
 
Rating Action
Total Bank Loan Facilities RatedRs.400 Crore
Long Term RatingCRISIL A-/Stable (Upgraded from 'CRISIL BBB+/Stable')
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 upgraded the rating on the long-term bank facility of Sweta Estates Private Limited (SEPL; flagship company of the real estate arm of the Oriental group) to ‘CRISIL A-/Stable’ from ‘CRISIL BBB+/Stable’.

 

The upgrade reflects the improved market position of the real estate business (including SEPL and St. Patricks Realty Private Limited) marked by healthy saleability and collection efficiency for projects. The group witnessed healthy sales velocity in the projects in fiscal 2023, with sales of 7.52 lakh square feet (lsf) and Rs 904 crore in value, driven by the quality of projects and their favourable location. While total debt (including related party loans) rose to Rs 1,161 crore as on March 31, 2023, from Rs 819 crore a year earlier, it is expected to reduce gradually over the medium term. With substantial increase in collections to Rs 825 crore in fiscal 2023 from Rs 466 crore in the previous fiscal, the management has linked loan repayment with collections and have repaid loans prior to their actual due dates. With collection expected to increase further in the medium term, the prepayments are also expected to increase in line. The group also has two hotels — the Aloft Hotel close to the Delhi airport, and Le Meridian in Gurugram — which cater to both leisure and business travellers. Both the hotels witnessed significant improvement in operating metrics in fiscal 2023 amid the waned impact of Covid-19 pandemic and upscale hospitality segment in their respective micro markets. The rating also reflects the moderate financial risk profile with healthy financial flexibility of the group.

 

The strengths are partially offset by exposure to risks inherent in the real estate sector, geographical concentration of projects (the group’s dependence on the Gurugram real estate market is elevated), exposure to intense competition and vulnerability to cyclicality and risks inherent in the hospitality industry.

Analytical Approach

CRISIL Ratings has consolidated the business and financial risk profiles of SEPL and St Patricks Realty Pvt Ltd as both the companies are held by the same promoter, engaged in the same business and have significant linkages. CRISIL Ratings has also consolidated Oriental South Delhi Hotels Pvt Ltd and Central Park Infrastructure Development Pvt Ltd in its assessment, given the common promoter, similar business, financial linkages and SEPL having extended a corporate guarantee for the latter’s debt.

 

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:

Healthy saleability and collection efficiency of projects: The group registered sales of 7.52 lsf area in fiscal 2023 (3.56 lsf in the previous fiscal) and Rs 904 crore (Previous year: Rs 383 crore) in value on the back of good market response for its projects because of their high quality and favourable location. The group collected Rs 825 crore in fiscal 2023, against Rs 466 crore in the previous fiscal. It had sold 68% of the area in its ongoing projects and realised 64% of value sold as on March 31, 2023. Sales potential is estimated over 12 lsf with value of Rs 1,800-2,000 crore for fiscal 2024, and is likely to further improve over the medium term driven by launch of new projects and healthy sales of ongoing projects.

 

Hospitality business witnessed strong recovery in operating metrices in fiscal 2023: The two hotels of the group, the Aloft Hotel and Le Meridian, witnessed significant improvement in operating metrics in fiscal 2023, reporting combined occupancy of 85.4% (65.1% in the previous fiscal), revenue of Rs 229 crore (Rs 111 crore) and earnings before interest, tax, depreciation and amortisation (Ebitda) margin of 42% (28%). The revenue profile is well diversified, with food and beverage, banquet, and other services contributing around 40% to total revenue. The hotels, with total of 538 keys, have been operational for over six years. 

 

Moderate financial risk profile with healthy financial flexibility: The real estate development business had debt to total assets of 44% (excluding related party debt) and 50% (including related party debt) as on March 31, 2023, which are expected to decline below 25% and 27%, respectively, over the medium term. Total debt (including related party loans) increased to Rs 1,161 crore in fiscal 2023 from Rs 819 crore in fiscal 2022. While there was an increase in debt levels availed for financing the construction, land purchase of ~Rs 279 crore in fiscal 2023 was funded entirely through internal accrual — land acquisitions are funded internally and not through debt. Cash and bank balance of Rs 255 crore and undrawn bank limit of Rs 35 crore (including the hospitality business) as on March 31, 2023, and considerable unencumbered land bank of over 300 acres (book value of over Rs 900 crore) enhance the financial flexibility.

 

Cash flow coverage was healthy at 1.37 times for fiscal 2023 and is expected to improve to 2.1-2.2 times for fiscal 2024 aided by high-margin projects and larger back-ended repayment, starting from fiscal 2026. Comfortable coverage from committed receivables also lend stability to cash flow.

 

Weakness:

Exposure to risks inherent in the real estate sector and geographical concentration of projects

The risks and cyclicality inherent in the real estate sector may result in volatility in saleability as well as realisations and hence, cash flow. Macroeconomic factors, such as demonetisation, introduction of Real Estate (Regulation and Development) Act, 2016, and implementation of the Goods and Services Tax (GST) have impacted saleability in the past. Hence, saleability will remain susceptible to economic cycles. In contrast, cash outflow, such as for debt servicing, is relatively fixed. The group also operates in the premium segment for which demand may be volatile, thus impacting collections. However, the demand for premium housing has picked up in the National Capital Region (NCR) which mitigates the risk to some extent. The ability to timely launch new projects while maintaining healthy saleability will also be a key monitorable.

 

The group’s dependence on the Gurgaon real estate market is elevated, which exposes its sales to any region-specific downturn in demand.

 

Susceptibility to intense competition and cyclicality in the hospitality industry

Competition in the hotel industry in India is increasing due to the growing presence of international chains and expansion by domestic players. While the group’s hotels are strategically located with access to a good catchment area, they remain susceptible to competition from any new hotel coming up in the area. Moreover, the industry is vulnerable to downturns in the domestic and global economies. During a downturn, premium hotels are affected more as their revenue per available room declines more sharply compared with midsize or economy hotels, while operating cost remains high. Thus, cash flow from premium properties is more susceptible to downturns. 

Liquidity: Strong

The group has strong liquidity, supported by a conservative policy towards external debt. The expected collections will be sufficient to meet external debt obligation of Rs 250-300 crore per annum in fiscals 2024 and 2025. Cash and bank balance of Rs 255 crore and undrawn bank limit of Rs 35 crore (including hospitality business) as on March 31, 2023, and considerable unencumbered land bank of over 300 acres (book value of over Rs 900 crore) enhance the financial flexibility. The liquidity will also be supported by the likely improvement in operational cash flow over the medium term, owing to the healthy demand outlook and a number of launches on unencumbered land bank.

Rating Sensitivity Factors

Upward Factors:

  • Significant and sustainable improvement in scale of operations and increase in cash flows
  • Significant deleveraging and strengthening of the financial risk profile, with debt to total assets sustaining under 25% on a sustained basis.

 

Downward Factors:

  • Weakening of the financial risk profile due to higher-than-expected debt-funded construction finance or land investments, leading to an increase in debt to total assets ratio sustaining above 45% on a sustained basis.
  • Sharp decline in operating cash flow, triggered by slackened saleability of existing and proposed projects or substantial delays in project execution

About the Company

SEPL, incorporated in July 1991, is engaged in real estate development in the NCR. It is the flagship company for the real estate business of the Oriental group. The promoter brothers, Mr Amarjit Singh Bakshi and Mr Kanwaljit Singh Bakshi, hold 45.45% and 40.71% stake, respectively, in the company. SEPL is developing the project Central Park II in Sector 48, Sohna Road, Gurugram.

Key Financial Indicators - (Consolidated; CRISIL Ratings-adjusted)

As on/for the period ended March 31

2022

2021

Operating income

Rs crore

601

199

Reported profit after tax (PAT)

Rs crore

-72.4

-102.6

PAT margin

%

-12.1

-51.5

Total debt/total networth

Times

1.86

1.13

Adjusted interest coverage ratio

Times

0.98

0.59

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.Crore)

Complexity level

Rating assigned with outlook

NA

Term Loan

28-Dec-2021

10.05% to 10.50%

Oct-26

400

NA

CRISIL A-/Stable

Annexure - List of Entities Consolidated

Names of Entities Consolidated

Extent of consolidation

Rationale for consolidation

Sweta Estates Private Limited

Full

Common promoter; same line of business, significant financial linkages.

St. Patricks Realty Pvt Ltd

Oriental South Delhi Hotels Pvt Ltd

Common promoter; similar line of business, significant financial linkages and SEPL has extended corporate guarantee for its debt.

Central Park Infrastructure Development Pvt Ltd
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 400.0 CRISIL A-/Stable   -- 28-03-22 CRISIL BBB+/Stable   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Term Loan 400 ICICI Bank Limited CRISIL A-/Stable
Criteria Details
Links to related criteria
CRISILs Rating criteria for Real Estate Developers
CRISILs Criteria for Consolidation

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