Key Rating Drivers & Detailed Description
Strengths
Established track record in developing and managing real estate and infrastructure projects
TRIL, which began its operations in 2007, has developed a strong track record in developing and managing the projects in its portfolio. The company’s key focus verticals include commercial real estate projects in the realty business and roads and urban transport in the infrastructure business. The company has an operational commercial real estate portfolio covering ~62 lakh sq ft, under-construction real estate portfolio measuring ~115lakh sq ft and a road portfolio totalling 1,545 lane kilometre (km).
The company has four operational commercial assets (including one retail asset), of which Intellion Edge Phase I, Gurugram became operational in February 2020. Intellion Park, Chennai (Ramanujam IT City) and Intellion Square, Mumbai (TRIL IT 4) with operational track record of over nine years, continue to generate stable cash flow backed by strong occupancy of over 90%. These properties continued to show strong occupancy even during the second wave of the Covid-19 pandemic as office spaces were leased out to marquee tenants mainly from the information technology (IT) and banking, financial services and insurance (BFSI) sector. Intellion Edge Gurugram Phase I saw strong demand for leasing new spaces from large tech giants and has currently leased out 94% of its space, despite the pandemic, on account of strong competitive positioning of TRIL’s properties. The projects have progressed at a steady pace, with completion of Intellion Park, Gurugram (Tower 1 – Phase 1A) in January 2021 in the real estate segment. TRIL has recently acquired 26% stake in TRIL IT4 Pvt Ltd. Post-acquisition, TRIL IT4 Pvt Ltd is now a wholly owned subsidiary of TRIL.
TRIL also achieved COD for both its under-construction road projects - Hampi Expressways and Uchit Expressways and has started 100% toll collection in the first quarter of 2022. All four road projects are operational. While toll collections were briefly impacted because of the second wave of the pandemic, it has currently surpassed pre-covid levels. Dharamshala ropeway is expected to commence operations during FY 22.
In September 2019, TRIL, through its urban transport vertical, TUTPL, in a joint venture with Siemens Project Ventures GMBH, had signed a concession agreement with Pune Metro Region Development Authority (PMRDA) for the Pune Metro Line III project on a design, build, finance, operate and transfer basis. The financial closure for the Pune Metro project has been achieved. ROW of 97% is available. The project is in advanced stage of receiving an Appointed Date. It is in nascent stage of execution and remains exposed to implementation risk.
The company’s strong track record in developing and managing project operations should support the execution of these projects.
Strong managerial and financial support from Tata Sons
TRIL, a wholly owned subsidiary of Tata Sons, is a key vehicle for implementation of the Tata group’s long-term strategy in the real estate and infrastructure sectors. Furthermore, Tata Sons has infused capital of Rs 2,375 crore in TRIL till date (Rs 1,200 crore infused in fiscal 2020). The financial and management support from the parent is expected to continue.
Expected prudent management policies
TRIL is likely to follow prudent practices in the selection of projects while pursuing its growth strategy. The experienced management will continue to support the adoption of prudent management policies.
Weaknesses
Leveraged capital structure because of major ongoing projects and growth plans
Capital structure is expected to remain leveraged, over the medium term, because of significant growth plans. Gearing remained at around 1 time as on March 31, 2021 (0.94 time as on March 31, 2020) with equity infusion of Rs 1,200 crore by Tata Sons in fiscal 2020. However, given the plans of continued growth in the commercial real estate portfolio, gearing is expected to increase over the medium term. However, it is expected to remain below 2 times, thereby supporting the overall capital structure. Higher-than-expected leverage to support under-construction projects will remain a key rating sensitivity factor.
Furthermore, owing to high proportion of short- to medium-term debt, TRIL is exposed to refinancing risk given large bullet repayment. However, TRIL can successfully refinance its obligation, as seen in the past. The company had around Rs 725 crore of debt repayment due on its NCDs in fiscal 2022 (already repaid in first quarter).
Exposure to implementation risk for greenfield projects and moderate equity requirement towards under-construction company:
A large part of TRIL’s project portfolio, across its operating verticals, is in the early stages of development and involves critical approvals from various authorities, significant funding requirement and large construction periods, exposing the portfolio to implementation challenges. Furthermore, TRIL has equity requirement of around Rs 1,400 crore towards under construction and operational projects, including the Pune Metro project, over the next three fiscals (fiscal 2022-2024). The equity will be funded through a mix of asset monetisation, borrowings and equity infusion by Tata Sons.
In addition, a number of projects are being executed in joint ventures with other partners, which may require intervention from TRIL in order to oversee the execution. Although TRIL has successfully implemented several greenfield projects in the past, any delay in receipt of approvals or project completion may lead to cost overrun and could change the project dynamics.