Erode Textile Mall Private Limited March 21, 2018 Summary of rated instruments Current Rated Amount Instrument* Rating Action (Rs. crore) Fund Based-Long Term 45.00 [ICRA]BB(Stable); Assigned Total 45.00 *Instrument details are provided in Annexure 1 Rating action ICRA has assigned a long-term rating of [ICRA]BB (pronounced ICRA double B ) to the Rs. 45.00-crore term-loan facilities of Erode Textile Mall Private Limited (ETMPL). The outlook on the long-term rating is ‘Stable’. Rationale The assigned rating takes into account the experience of the promoters in the construction and textile industries which lend support to ETMPL’s ability in execution and marketing of the project. The rating derives comfort from the advanced stage of project execution with a major portion of the civil and interior work being completed. The rating further takes into consideration the continued funding support from the promoters in the form of equity, unsecured loans and creditor funding over the years, sustaining the project cash flows. However, the rating is constrained by incremental funding requirement for completion of the project and repayment of term loans. ICRA expects that ETMPL would require a monthly booking of around 10 units, going forward, to sustain adequate cash flows for timely debt servicing. As such, any shortfall in sales would require additional funding from promoters or external borrowing. The company also remains vulnerable to marketing risk given the sizable scale, location of the project in outskirts of Erode city, and targeted objective of the project serving as an alternative marketplace to the existing traditional wholesale markets of nearby towns. Hence, going forward, ETMPL’s ability to achieve more acceptance among end-user markets (textile buyers across the country), resulting in increased footfalls, will be the key to attract increase in units occupied by the trading and manufacturing community in the region. Outlook: Stable The Stable outlook reflects ICRA’s expectations that incremental unit bookings will sustain the cash-flow requirements in the medium term with any mismatch being met by promoters’ funding support. The outlook may be revised to ‘Positive’ if sales are more than expected, resulting in cash-surplus position and prepayment of term loans. The outlook may be revised to ‘Negative’ if the liquidity position is stretched on account of lower-than-expected sales or delayed collections, and is not complemented by promoter fund infusion. 1 Key rating drivers Credit strengths Track record of promoters in the textile and construction segment – The company is formed as a special purpose vehicle and is promoted by industrialists with established experience in the textile and construction segments. The experience of the promoters in the construction and textile industries has lent support in execution and marketing of the project. Advanced stage of project completion - The project is in advanced stage of completion with a major portion of civil and interior work being completed. With main-mart and weekly mart already achieving commercial operation, the project execution risk is low. Sustained support from promoters in the form of unsecured loans/equity – The promoters have provided continued funding support in the form of equity, unsecured loans and creditor funding over the years, sustaining the project cash flows. Credit challenges Marketing risk associated with the project: At present, only 37% of the unit has been booked out of total 1,599 units proposed. With large unsold inventory (303 completed units and 599 WIP units) as on Q3 FY2018, wider acceptance of the project as an alternative market place will be the key for incremental bookings. Significant funding requirement - Incremental funding requirement to the tune of Rs. 100 crore is required for completion of the project. While the project was initially estimated at a cost of Rs. 320 crore, the estimated cost has been escalated to Rs. 377 crore on account of change in scope and delays in execution. The additional funding requirements are to be met by additional term loan apart from promoters’ funding and collection from unit bookings. Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below. Links to applicable criteria: Corporate Credit Rating Methodology Real Estate Entities About the company Incorporated in FY2009 , Erode Textile Mall Private Limited is a SPV that was formulated to set up a textile market complex at Erode, approved under Comprehensive Power-loom Cluster Development Scheme (CPCDS) of the Ministry of Textiles. The textile market complex is being developed under the name of Texvalley and is located near Erode, Tamil Nadu. On full completion, the project envisages the textile market complex to contain 1,600 marts, 940 weekly market spaces, exposition hall, warehouse, communication centre, etc. Texvalley is designed to be the one-stop destination for the entire range of wholesale textile goods. 2 Mr. P. Periyaswamy of the Lotus Group is the Chairman of the company and is involved in business activities including transportation business, TVS auto dealership, commercial bus-transportation service, financial services etc. Mr. C. Devarajan (Managing Director of URC Construction Ltd.) is the Vice Chairman of the company And Mr. P. Raajasekhar of the Lotus Group is the Managing Director. Key financial indicators (Audited) FY2016 FY2017 Operating Income (Rs. crore) 1.1 4.7 PAT (Rs. crore) 0.9 0.9 OPBDIT/ OI (%) 5.2% 67.4% RoCE (%) -0.6% 0.6% Total Debt/ TNW (times) 1.4 1.6 Total Debt/ OPBDIT (times) 1997.5 39.6 Interest Coverage (times) NA 2.1 NWC/ OI (%) -1609% 435% Status of non-cooperation with previous CRA: Not applicable Any other information: None Rating history for last three years: Chronology of Rating History for the Current Rating (FY2018) past 3 years Date & Date & Date & Rating in Rating in Rating in Amount Amount Date &Rating FY2017 FY2016 FY2015 Rated Outstanding Instrument Type (Rs. crore) (Rs. crore) March 2018 - - - Term Loan Long 45.00 72.52* [ICRA] - - - Term BB(Stable) * Only part-amount rated Complexity level of the rated instrument: ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the website www.icra.in 3 Annexure-1: Instrument Details Coupon ISIN No Instrument Name Date of Rate Maturity Amount Current Rating and Issuance / Date Rated Outlook Sanction (Rs. crore) NA Term Loan FY2013 NA FY2020 45.00 [ICRA]BB(Stable) Source: Erode Textile Mall Private Limited 4 ANALYST CONTACTS Ravichandran K Srinivasan R +91 44 4596 4301 +91 44 4596 4315 [email protected] [email protected] Rathina Pradeep R +91 44 4297 4307 [email protected] RELATIONSHIP CONTACT Jayanta Chatterjee +91 80 4332 6401 [email protected] MEDIA AND PUBLIC RELATIONS CONTACT Ms. Naznin Prodhani Tel: +91 124 4545 860 [email protected] Helpline for business queries: +91-124-2866928 (open Monday to Friday, from 9:30 am to 6 pm) [email protected] About ICRA Limited: ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating Agency. Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit Rating Agency Moody’s Investors Service is ICRA’s largest shareholder. For more information, visit www.icra.in 5 ICRA Limited Corporate Office Building No. 8, 2nd Floor, Tower A; DLF Cyber City, Phase II; Gurgaon 122 002 Tel: +91 124 4545300 Email: [email protected] Website: www.icra.in Registered Office 1105, Kailash Building, 11th Floor; 26 Kasturba Gandhi Marg; New Delhi 110001 Tel: +91 11 23357940-50 Branches Mumbai + (91 22) 24331046/53/62/74/86/87 Chennai + (91 44) 2434 0043/9659/8080, 2433 0724/ 3293/3294, Kolkata + (91 33) 2287 8839 /2287 6617/ 2283 1411/ 2280 0008, Bangalore + (91 80) 2559 7401/4049 Ahmedabad + (91 79) 2658 4924/5049/2008 Hyderabad + (91 40) 2373 5061/7251 Pune + (91 20) 6606 9999 © Copyright, 2018 ICRA Limited. 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