Rating Rationale
Saha Infratech Private Limited
Rating
Instrument / Amount(Rs. crore) / Rating[1] / Rating Action
Non-convertible Debenture issue / 160
(Rupees One hundred Sixty crore only) / CARE BB; Stable
(Double B); Outlook: Stable / Reaffirmed
Rating Rationale
The rating assigned to the Non-convertible Debentures (NCDs) of Saha Infratech Private Limited (SIPL), continue to be constrained on account of maiden project of the entity, weak financial risk profile, excessive dependence on customer advances for the execution of the project and inherent risk associated with the real estate industry.
The rating, however, continues to derive strength from long track record of the promoters and experienced management team and availability of major approvals for the project.
The ability of the company to maintain the sales momentum and timely recovery of sales receipts/advances from the customers and timely execution of the project within envisaged cost remain the key rating sensitivities.
Background
SIPL was incorporated in 2012 and was promoted by Mr Aniel Kuumar Saha (Chairman & Managing Director) who is a professional architect and holds a degree of Master of Architecture and has over 25 years of experience in real estate development. Mr Ashok Kumar Sirohi (Joint Managing Director) has experience of over a decade in real estate sector and is responsible for making strategic decisions for the company.
SIPL along with its group companies is engaged in real estate development and is currently developing three residential housing projects involving development of 21.90 lakh sq. ft of saleable area with a projected cost of Rs.894 crore. All of these projects (Amadeus, Eminence and Encore) are located in Noida; Uttar Pradesh.
Credit Risk Assessment
Long track record of promoters’ in real estate sector and experienced management team
Saha Infratech Private Limited (SIPL) is promoted by Mr Aniel Kuumar Saha (Chairman & Managing Director) in June, 2011. He is an architect by profession and has been involved in construction and development activities for the past 25+ years. Mr Saha was one of the founder promoters and whole-time directors of ATS Infrastructure Limited and still hold stake (25%) in that company but is not actively involved in the day to day operations. Mr Ashok Kumar Sirohi, Joint Managing Director (PhD, MSc Statistics), is responsible for administration and finance function and has more than three decades of experience of serving the Government of Uttar Pradesh. He has served as the Head of Finance Department for about fourteen years at NOIDA Authority and Greater NOIDA Authority. In addition to this he also served at National Highway Authority and Delhi Electricity Board earning him experience of city building and infrastructure development. The Management of SIPL is supported by a team of experienced & qualified professionals who are involved in day to day operations of the company.
Major approvals in place
All the major requisite approvals for the project such as land use conversion, fire safety approval, layout plan, High rise clearance, Environmental clearance, NOC from pollution control board and others from relevant authorities are in place. Building plans for the projects has been approved by Noida Development Authority.
Maiden venture of the entity in competitive real estate sector
SIPL was incorporated in 2011 and is currently developing its maiden project(s), the entity is relatively new in the field of real estate development, this lack of track record and experience in this sector often considered as a critical factor for the successful implementation of real estate development. However, this is mitigated by long track record of promotors in real estate development.
Geographical concentration of the projects
The on-going projects namely ‘Amadeus’, Eminence and ‘Encore’ which are being developed by the Saha group are located in the Noida area which might leads towards potential geographical concentration risk. This might lead to fluctuations in revenue due to geographical factors affecting sales of the residential as well as commercial properties in the area.
Weak financial risk profile and excessive dependence on customer advances for the execution of the project
The financial profile of SIPL is marked by low profitability, high gearing and low interest coverage indicator. Profit for FY16 stood at Rs.0.15 crore as against Rs.0.52 crore for FY15 (refers to the period April 01 to March 31), further, the overall gearing as on March 31, 2016 stood at 19.22x as against 24.89x as on march 31, 2015, the improvement in the gearing indicator is due to decrease in deferred credit liability. Furthermore, the company has shown excessive dependence on customer advances as a means for project execution. For the on-going projects, SIPL has projected to fund ~77% of the total project cost by utilizing proceeds from customer advances. Excessive dependence on customer advances for project execution might impact the schedule of the project if the advances are not timely received.
Inherent risk associated with the real estate industry - Industry Risk
The real estate sector is a critical sector of our economy. It has a huge multiplier effect on the economy and therefore, is a big driver of economic growth. It is the second-largest employment-generating sector after agriculture. This sector has been contributing about 5-6% to India’s GDP. Not only does it generate a high level of direct employment, but it also stimulates the demand in over 250 ancillary industries such as cement, steel, paint, brick, building materials, consumer durables and so on.
A stable government at the center has been one of the important reasons for the improved sentiment in the real estate market. In addition, the Smart Cities Mission, the Atal Mission for Rejuvenation and Urban Transformation (AMRUT), and the Pradhan Mantri Awas Yojana (PMAY) have all been initiated by the Government in an endeavor to rejuvenate urban development and revive large scale affordable housing in the country. Residential sales were positively impacted by flexibility in pricing and payment schedules, especially for projects with quality construction, appropriate sizes and prime locations. Home buyer interest continues to be dependent on developer profile, corresponding price points and project delivery timelines offered by the developer. Furthermore, on account of lower inflation and excessive liquidity in the banking system due to demonetization, banks has reduced the key interest rates, which in turn is expected to bring down the borrowing rates down from the current levels. Some of the measures announced by Government for the real estate sector include incentives for affordable housing, announcement of guidelines for Real Estate Investment Trusts (REITs), relaxation of norms for FDI in construction sector etc.
To conclude, competitive pricing, increased transparency, speedy approvals process, clear land titles, improved delivery and project execution will aid in faster growth of the real estate sector.
Financial Performance
(Rs. Cr)
For the period ended / as at March 31, / 2014 / 2015 / 2016(12m, A) / (12m, A) / (12m, A)
Working Results
Total Operating income / 0.03 / 0.77 / 0.18
PBILDT / 6.38 / 11.43 / 12.56
Interest / 5.84 / 8.70 / 10.14
Depreciation / 0.51 / 1.96 / 2.24
PBT / 0.04 / 0.76 / 0.21
PAT (after deferred tax) / 0.02 / 0.52 / 0.15
Gross Cash Accruals / 0.54 / 2.48 / 2.38
Financial Position
Equity Share Capital / 4.90 / 4.90 / 4.90
Tangible Net-worth / 4.93 / 5.45 / 5.59
Total Debt / 131.64 / 132.74 / 107.49
Key Ratios
Growth
Growth in Total income (%) / 0.00 / 2958.97 / NM
Growth in PAT (after D.Tax) (%) / 869.55 / 2070.18 / NM
Profitability
PBILDT/Total Op. income (%) / 25201.50 / 1476.13 / 6846.85
PAT (after deferred tax)/ Total income (%) / 94.95 / 67.36 / 79.34
ROCE (%) / 5.39 / 6.89 / 8.24
Solvency
Long Term Debt Equity ratio (times) / 17.79 / 16.06 / 11.02
Overall gearing ratio(times) / 26.72 / 24.36 / 19.22
Interest coverage(times) / 1.09 / 1.31 / 1.24
Term debt/Gross cash accruals(years) / 162.86 / 35.30 / 25.85
Liquidity
Current ratio(times) / 1.51 / 1.30 / 1.11
Quick ratio(times) / 0.03 / 0.02 / 0.04
A: Audited
NM: Not Meaningful
Details of Rated Facilities
1.Long-term facilities
1 .A. Non-convertible Debentures
Lender / Rated Amount(Rs. Crore) / Repayment
Long-term Instrument- NCDs / 160 / 72 months from the date of allotment
Total / 160
Total facilities: Rs.160 crore
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In case of partnership/proprietary concerns, the rating assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors.
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