Detailed Rationale

CRISIL Ratings has upgraded its rating on the non convertible debentures of TVS Emerald Limited (formerly known as Emerald Haven Realty Limited (EHRL)) to ‘CRISIL A+/Stable' from ‘CRISIL A/Stable'. The commercial paper has been reaffirmed at 'CRISIL A1’.

 

The upgrade in rating reflects the improvement in business risk profile due to improving scale of its sales bookings and collections. The rating action also factors in the resultant improvement in the financial risk profile due to lower-than-expected debt resulting in an improved leverage profile. Additionally, the rating action takes into account the change in outlook of its parent TVS Holdings Ltd (TVSHL- CRISIL AA) from Stable to Positive.

 

Healthy collections of Rs. 1,280 crores for the fiscal 2024 resulted in lower debt and a resultant improvement in financial risk profile of the company. Going forward, the company is expected to be aggressive with land purchases for new project launches which will be largely funded through a mix of internal accruals (~30%), external debt (40%) and structured debt/ equity instruments (~30%). The funding mix and healthy saleability and collection efficiency from ongoing and to be launched projects are expected to support the company’s debt servicing ability with debt to CFO expected to remain comfortable at 1.5 to 2.5 times in the medium term.

 

The company had achieved all time high sales and collections of Rs 1328 crore and Rs 1280 crore, respectively in FY2024, which is a healthy ~43% and ~60% growth respectively in sales (in value terms) and collections over FY2023. The sales (in value terms) are expected to reach ~Rs. 1200-1500 crores in the medium term, while maintaining the debt levels.  Additionally, the company has a land bank with a developable value of ~Rs. 2000 crores as of Aug’24

 

TVS Emerald Limited is the flagship company for real estate business of the group with TVS Holding Limited (TVSHL) holding of 100% of the stake in the company.

 

The ratings reflect, support from the company’s parent, its strong market position and healthy visibility in cash flows. The ratings are, however, constrained by modest development track record, moderate leverage driven by debt expected for land acquisitions, susceptibility to risks inherent in the real estate sector and geographical concentration of projects.

Analytical Approach

For arriving at the company’s ratings, CRISIL Ratings has taken a standalone approach and factored in support from the parent - TVSHL. The real estate business remains critical to the parent and the brand “TVS Emerald” is also attached to all the projects of the company.

 

CRISIL Ratings has also combined the business and financial risk profiles of TVS Emerald Limited along with all its subsidiaries and associate companies, given the close financial and managerial linkages among them as the company is entirely responsible for the implementation, sales and marketing, and cash flow management of all of its projects. Further, the subsidiaries are in same line of business and have cash flow fungibility.

 

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:

• Support of parent: TVS Holdings Ltd is the parent of TVS Emerald Limited, holding 100% in company. The promoters are actively involved in the business and TVS Emerald Limited remains critical to its parent. The company benefits from its parent’s strong brand name and investment support. The brand “TVS Emerald” is attached to all the projects and the market standing also benefits from the same. The promoters of TVS Holdings Ltd have extended investment support in the past. Also, the parent (TVSHL) will provide need-based investment support to TVS Emerald Limited and its subsidiaries. Being a fully owned subsidiary of TVS Holdings Ltd, the company enjoys healthy financial flexibility which will support portfolio growth while keeping leverage levels moderate.

 

• Comfortable financial risk profile: The company has healthy salability and profitability across all the ongoing projects. Further, TVS Emerald Limited’s ability to accelerate the collections through healthy sales at the launch of any project reduces the dependence on external funding for construction. Healthy collections for the year resulted in lower dependence on debt which supported the debt coverage indicators marked by healthy Debt/ CFO (Adj.) of 0.75 in fiscal 2024. While, going forward, it is expected to moderate to 2.5-3 times in Fiscal 2025 due to expected debt for land acquisition, it is expected to remain comfortable at 1.5-2.5 times in the medium term. Additionally, the company has a healthy launch pipeline of projects which are expected to be largely funded through a internal accruals and a mix of external debt and structured debt/ equity investments hence, no major deviation in the debt coverage indicators is expected.

 

• Healthy visibility in cash flows: TVS Emerald Limited at consolidated level has witnessed healthy sales velocity in the projects in fiscal 2024 with sales of 2.29 msf at a value of Rs 1328 crore on the back of good response to the company’s new project launches. The company collected Rs 1280 crore in fiscal 2024 from sold project inventory. Additionally, the company has a fully paid up land bank with a developable value of ~Rs. 2000 crores as on Aug’24 providing healthy visibility of cash flows.

 

Weaknesses:

• Moderate development track record: TVS Emerald Limited has a relatively moderate track record in the real estate business, thereby constraining the business risk profile. The group has developed and handed over 3.25 msf area in residential segment till August 2024 in Chennai, while 4.51 msf area is currently under development and 1.94 msf is in pipeline for future launches in Chennai and Bangalore. Although the development track record is limited, the saleability of the projects is healthy. Further, the market position benefits from ‘TVS Emerald’ brand.

 

• Susceptibility to risks inherent in the real estate sector and geographical concentration of projects: Exposure to 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 Goods and Services Tax have impacted saleability in the sector in the past. Hence, saleability will remain susceptible to economic cycles. In contrast, cash outflow, such as for debt servicing, is relatively fixed. The company’s dependence on the Chennai real estate market is elevated, which exposes the Group’s sales to any region-specific downturn in demand. While it plans to launch multiple projects in Bangalore, the extent of scale up in this territory and their contribution to the consolidated sales mix will remain a key monitorable.

Liquidity: Strong

The Group’s liquidity is strong, supported by the cash and equivalents of Rs. 524 crores as on August 31, 2024. Additionally, the liquidity will be supported by the likely improvement in operational cash flows going forward, owing to the healthy demand outlook and a number of launches on fully paid for and unencumbered land bank. The expected collections will be sufficient to meet the debt repayments over the medium term. Further, commitment from the company’s parent to extend financial support when required provides cushion.

Outlook: Stable

The Stable outlook reflects that TVS Emerald Limited will continue to benefit from its strong market position in Chennai real estate market, experienced management and being subsidiary of TVS Holdings Ltd.

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/CFO sustaining below 2 times on a sustained basis
• Couple of notch upgrade in the rating of the parent 

 

Downward Factors

• Weakening of the financial risk profile due to higher-than-expected debt-funded land investments, leading to an increase in debt/CFO remaining above 2.75-3 times 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
• Downgrade in the rating of the parent. Change in stance of support or extent of support by its parent

About the Company

TVS Emerald Limited, incorporated in June 2010 is a real estate development company operating in Chennai and Bangalore. It is the flagship company for Real Estate Business of the group. TVS Holdings Limited earlier held majority stake of 77.60% in TVS Emerald Limited and has now acquired the balance stake in the company, making it a fully owned subsidiary of TVS Holdings Ltd (which also holds 50.26% stake in TVS Motor Company Limited). TVS Emerald Limited at a consolidated level has developed and handed over 3.25 msf saleable area, is currently developing 4.51 msf of residential apartments, villas and developed plots and has a pipeline for future launches of 1.94 msf of saleable area in Chennai and Bangalore.

About the Parent

TVSHL was incorporated in Chennai in the year 1962. The company was a leading manufacturer of aluminium die-casting components. It supplied to major automotive OEMs including TVS Motor, the Cummins group, the Volvo group, Hyundai Motor India Ltd (rated ‘CRISIL AAA/Stable/CRISIL A1+’), Ford Motors, the Daimler group, and to component suppliers such as Wabco India Ltd and the Visteon group. TVSHL was set up by the TVS group and the UK-based Clayton Dewandre Holdings Ltd.

 

Until fiscal 2007, the company's financials included the CV brakes business. With effect from March 28, 2008, the Madras High Court approved the de-merger of the brakes business into a separate company, Wabco India Ltd. The non-brakes business (aluminium die-casting) and investments in the TVS group entities remained with the company. The company had its main die-casting component production facilities at Padi, Mahindra City, and Oragadam in Chennai, and Belagondapalli at Hosur, in Tamil Nadu. During fiscal 2012, the company restructured its businesses, hiving off the non-automotive businesses into its erstwhile subsidiary, Sundaram Investments Ltd (SIL).

 

In August 2023, the aluminum diecasting business of the company was demerged into a separate entity, SCL DCD and the company was renamed as TVSHL which retained the investments in TVSM and TVS Emerald Limited. The demerger was done through an elaborate scheme of arrangement.

Any other information: Not Applicable