Rating Rationale

31 March 2020 Graphic Era Educational Society

Brickwork Ratings reaffirms the long term and short term ratings for the Bank Loan Facilities amounting to ₹ 325 Crs of Graphic Era Educational Society (‘GEES’ or ‘The Society’).

Particulars

Amount (₹ Crs) Rating*

Facility** Tenure Previous^ Previous Present Present (Feb, 2019)

Fund based O.D. Limits 50.10 47.90 Long BWR BBB+/Stable BWR BBB+/Stable Term Loans 202.45 208.97 Term (Reaffirmed) Proposed Term Loans 67.45 63.13

Non Fund Based Short BWR A3+ BWR A3+ BG 5.00 5.00 Term (Reaffirmed)

Total 325.00 325.00 INR Three Hundred and Twenty Five Crores Only

*Please refer to BWR website www.brickworkratings.com/ for definition of the ratings ​ ​ ^BWR issued Rating Not Reviewed advisory on 17Feb20 for the previous ratings **Complete details of Bank facilities is provided in Annexure-I

RATING ACTION/OUTLOOK:

The reaffirmation in the ratings factor in the steady operational and financial risk profile of the Society, experienced trustees in the educational sector, consistent growth in revenue receipts driven by increase in student strengths across all the courses year-on-year, healthy operating surplus with adequate coverage indicators, healthy financial risk profile with adequate capital structure and liquidity position.

The ratings are, however, constrained by the delays in achieving COD of its proposed hospital project, intense competition from other state private universities in North India and regulatory risk faced by the university. BWR also noted that the management sought approval for the extension of the COD of its hospital project, which is yet to be approved by the bank.

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RATING OUTLOOK: STABLE

There is a delay in achieving the COD of the hospital project which requires additional time, effort and cost. The society also availed additional long-term loans for its existing campuses which are proposed to repay from the next financial year.

BWR believes that the Society's business risk profile will be maintained over the medium term. The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. The rating outlook may be revised to ‘Positive’ in case Society is able to ramp up in operations of new debt-funded capex incurred, maintain growth in student strengths across all courses offered and efficient proposed project execution without cost and time over-run. The rating outlook may be revised to ‘Negative’ if the society is unable to generate sufficient accruals for its increased fixed debt obligations or if there is any delay in hospital project implementation over the medium term.

KEY RATING DRIVERS

Credit Strengths:

Established position of its institutes with long operational track record: The Society is running ​ Graphic Era (Deemed to be University) at , which is present in the higher education sector for over two decades and has an established presence in the region. This deemed to be University is also accredited by National Assessment and Accreditation Council (NAAC) with grade ‘A’. The society also runs a state private university i.e. Graphic Era Hill University having two campuses viz. Dehradun Campus (main campus) and Bhimtal Campus. Both universities have student strength of 7629 for 2019-batch.

Healthy financial risk profile with comfortable coverage indicators: The Society’s gearing ratio ​ remains low at 0.71x during FY19, driven by comfortable capital structure, coverage indicators and strong liquidity position. Despite regular capex towards infrastructure development, the Society generates surplus cash accruals, which facilitated prepayment of loan instalments over the years. Despite increase in overall debt position, its gearing ratio is expected to remain below 1x. The Society has a large cash reserve of Rs. 353.12 Cr as of March 31, 2019.

Consistent increase in revenue receipts: The Society has reported growth in its revenue receipts due to the rise in student strength across all the courses offered by the universities. It has generated revenue of Rs. 216.02 Cr in 9MFY20 and expects to reach over Rs. 250 Cr for FY20. Being a , GEU enjoys flexibility in fee fixation and increase in student strength of all the courses offered, as per the demand and requisite infrastructure available. BWR also takes note that the deemed to be university offers a diversified set of courses at graduate and post-graduate level coupled with a high proportion of 3-year courses which provides revenue visibility over the medium.

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Credit Risks:

Delays in COD of its proposed hospital project: Commercial Operation Date (COD) of its proposed 100-bedded hospital project is again revised from July 2020 to March 2021 owing to changes in structure of the project as load bearing capacity of the soil was not ideal. The management already submitted a request to the bank for the extension of its COD, drawdown date and repayment schedule, which is yet to be approved by the bank. The total cost of the said project has been revised from Rs. 115 Cr to Rs. 150 Cr due to increase in plant, equipment & furniture cost while civil works cost is same as in initial project. Society has also submitted a proposal for enhancement in its existing term loan to the bank. The same will be considered by the bank post submission of its LIE report.

Regulatory Risk: The education sector in India is highly exposed to regulatory risk. As various institutes and universities need to abide by the rules framed by various regulatory bodies such as University Grants Commission (UGC), Medical Council of India (MCI), Dental Council of India (DCI) etc.

ANALYTICAL APPROACH AND APPLICABLE RATING CRITERIA

BWR has considered the standalone business and financial risk profile of the Society, as detailed in the Rating Criteria (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Positive: To generate additional revenues from its regular capex incurred, complete its proposed-hospital ​ project without cost and time overrun, maintain growth in its revenue receipts and operation surplus over the medium term.

Negative: The rating may be downgraded if there is a decline in cash accruals of the society and fails to ​ achieve its financial closure for enhancement and complete its proposed project in a timely manner.

LIQUIDITY POSITION:

The Society has a sizable capex (including regular capex for its infrastructure development) which resulted in an increase in its annual fixed debt obligations year-on-year. Overdraft utilization levels also remain high at above 90% throughout the year; mainly driven by high capital advances reported. This has resulted in the current ratio to remaining low at below 1x. The Society availed drop line limits of Rs. 20 Cr which had reduced the mismatch in its FY19 balance sheet and thus, improved current ratio up to some extent.

Despite increasing overall annual fixed debt obligations, its liquidity position remains comfortable owing to generating strong cash accruals each year; aided by robust operating surplus. The Society also has an unencumbered cash balance of Rs. 18 Cr approximately which provides further support to its current liquidity position.

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ABOUT THE SOCIETY:

Graphic Era Education Society (GEES) is a Society which was established in 1996. GEES’s registered office is located at Dehradun, Uttrakhand (UK). Presently, the Society runs Graphic Era (Deemed to be University) and a state private university, Graphic Era Hill University.

Graphic Era (Deemed to be University) (GEU) was established in the year 1998. It has one campus, located at Dehradun, . It offers around 44 courses and has also added a few more courses related to commerce, PHd courses, technology etc. during FY18. Student strength for the 2019 batch stood at 3257 (increased from 2196 students). GEU (deemed to be University) is accredited by National Assessment and Accreditation Council (NAAC) whereby it has been accredited with grade ‘A’.

Graphic Era Hill University is a state private university, established in 2011. It has two campuses – Dehradun campus (main campus) & Bhimtal campus (near Nainital, UK). It also offers courses similar to the GEU campus. Student strength of the 2019-batch for both campuses stood at 4372 (increased from 2540 students).

The Society has also proposed to set up a 100-bedded hospital & Medical college, located at Dehradun (near GEU campus). This project is likely to be completed in 3 Phases with COD for Phase I in March 2021 (proposed to be shifted from July 2020). Total cost of Phase I project is Rs. 115 Cr which is expected to be revised to Rs. 150 Cr. Out of the total project cost, it has incurred Rs. 67.60 Cr (debt - Rs. 42 Cr and equity - Rs. 25.60 Cr) till Feb 2020.

KEY FINANCIAL INDICATORS:

Key Parameters Units 2018 2019 Result Type Audited Audited Total Revenue Rs. Crores 217.49 227.59 Operating Surplus Rs. Crores 82.29 78.15 Net Surplus Rs. Crores 45.74 38.13 Total Corpus Funds Rs. Crores 301.28 353.12 Total debt/Total Capital Times 0.72 0.71 Interest Coverage Ratio Times 4.53 4.53

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Rating History for the last three years (including ratings suspended/withdrawn)

Current Rating Rating History

31 Mar 2020 17Feb 2020^ 2018 17 Nov 2017

Faciliti Type Amt Rating es Rs. Cr Faciliti Amt Rating Facilities Amt Rating es Rs. Cr Rs. Cr Long BWR FB Term 320.00 BBB+/Stabl FB 320.00 BWR FB 322.26 BWR e BBB+/Stable - BBB+/Stable

NFB 5.00 BWR A3+ NFB 5.00 BWR A3+ NFB Short 5.00 BWR A3+ Term Total 325.00 Total 327.26 Total 325.00

Status of non-cooperation with previous CRA (if applicable)- N.A. Any other information: Nil

Annexure I Details of Bank Facilities rated by BWR

S No. Name of the Bank Type of Long Term Short Term Total Facility (Rs. Cr) (Rs. Cr) (Rs. Cr)

O.D. Limits 27.90 1 Axis Bank Term Loans 56.45 - 84.35

O.D. Limits 20.00 - 72.68 2 HDFC Bank Term Loans 52.68

3 Indian Overseas Bank Term Loan 20.30 - 20.30

4 Nainital Bank Term Loans 79.54 5.00 84.54 B.G.

5 Proposed Limits Term Loans 63.13 - 63.13

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Total 320.00 5.00 325.00

Hyperlink/Reference to applicable Criteria

● General Criteria

● Approach to Financial Ratios

● Short Term Debt

Analytical Contacts Investor and Media Relations

Peeush Middha Assistant Manager - Ratings +91 172 5032295 Liena Thakur [email protected] Assistant Vice President - Corporate Communications

M : +91 84339 94686 Ashwini Mital [email protected] Director - Ratings ​ +91 172 5032295 [email protected] ​

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DISCLAIMER Brickwork Ratings (BWR) has assigned the rating based on the information obtained from the issuer and other reliable sources, which are deemed to be accurate. BWR has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the

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information obtained. And hence, the information in this report is presented “as is” without any express or implied warranty of any kind. BWR does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by BWR should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses incurred by users from any use of this report or its contents. BWR has the right to change, suspend or withdraw the ratings at any time for any reasons

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