Indo Global Ranjangaon Infrastructure and Utility Services Pvt Ltd: Rating Reaffirmed

July 10, 2020

Indo Global Ranjangaon Infrastructure And Utility Services Pvt Ltd: Rating reaffirmed

Summary of rating action Previous Rated Amount Current Rated Amount Instrument* Rating Action (Rs. crore) (Rs. crore) Term Loans 114.00 114.00 [ICRA]A- (Stable); reaffirmed Unallocated Limits 6.00 6.00 [ICRA]A- (Stable); reaffirmed Total 120.00 120.00 *Instrument details are provided in Annexure-1

Rationale The rating reaffirmation for the bank lines of Indo Global Ranjangaon Infrastructure and Utility Services Pvt Ltd (IGR) continues to factor in the healthy occupancy level and the established operating track record of the asset. The rating also continues to consider the strong operational profile of ESR Group (‘the Group’) in the global industrial and warehousing real estate and the resultant financial flexibility enjoyed by IGR. ICRA notes that IGR has strategic importance to the Group as it is the first operational project in ESR’s India portfolio. The rating takes comfort from the adequate debt coverage ratio despite recent rental renegotiation with its largest tenant. Further, availability of debt service reserve account (DSRA) amounting to three months equated monthly instalments (EMI) supports liquidity. The rating, however, continues to be constrained by higher than market rentals for the current leases, which may expose the company to risks of renegotiations of rentals to lower rates as well as increased vacancy. The Covid-19 pandemic and resultant possible weakening of tenants may accentuate the risks. The same is reflected in sizeable reduction in the rental rate for a large tenant in the recent past. ICRA however notes that the current facilities are customised as per tenants’ requirements which have resulted in higher rentals and replacement cost will remain a key consideration for the tenants. Though no other tenant has asked for a reduction as informed by the management, ICRA will continue to closely monitor the situation. Further, the company is exposed to cash flow mismatches due to delay in rental payments by the tenants. ICRA notes that some of the tenants have not paid rent during the lockdown period in Q1 FY2021 and timeliness of the recovery remains critical. Nevertheless, availability of moratorium till August 31, 2020 as well as adequate liquidity mitigates the risk in the near term to some extent. IGR is vulnerable to high asset concentration and client concentration risks as revenues emanate from a single asset that is leased out to five tenants. Dependence on a single asset exposes the company to risk pertaining to any demand-supply mismatches in the micro market or changes to the tenants’ business plans.

The Stable outlook on the [ICRA]A- rating reflects ICRA’s opinion that IGR will continue to generate steady rental revenues, in line with the past track record. Also, ICRA believes that the company will benefit from financial flexibility from being part of ESR group.

Key rating drivers and their description

Credit strengths Operational asset with healthy occupancy level – IGR has acquired an operational industrial park in Ranjangaon, Pune with leasable area of 0.55 million square feet (msf). The asset is completely leased out and has an operational track record of around eight years. The lease agreements with the tenants have been in place from FY2012. Adequate debt coverage metrics and presence of DSRA – The cumulative DSCR for the external debt is more than 1.30 times even after factoring in the renegotiation in rental rate for a major tenant. Healthy cash inflows and minimal operating expenses coupled with the long tenure of the loan results in adequate DSCR throughout the tenure. Though ESR group has subscribed to the compulsorily convertible debentures issued by IGR, the interest on the CCDs is subordinated and it will be payable only if surplus is available after servicing all the liabilities. All the rentals are escrowed into the account maintained by the lender and DSRA equivalent to one quarter’s debt obligations has been created. Experienced promoters with long track record in real-estate sector globally – ESR Group has an established track record of developing and leasing over 165 msf of logistic and industrial parks globally. The Group’s India management is experienced in developing and leasing logistics and industrial parks in India. ICRA notes that this is the first fully operational project of the ESR Group, which is developing various greenfield projects across different locations in India. Additionally, the Group is adequately funded to support its India growth plans, as it is backed by strong investors including Allianz, Warburg Pincus, APG, and Goldman Sachs.

Credit challenges Vulnerability to rental renegotiations as well as vacancy risk: The rentals across IGR’s portfolio are higher than the market rental rates which exposes it to risks of renegotiations of rentals at a lower rate as well as vacancy. The same is reflected in sizeable reduction in the rental rate for a large tenant in the recent past. Dependence on timely remittances from tenants – The cashflows are dependent on the remittances from the tenants and instances of non-payment of rental following the lockdown by Government, to contain the spread of Covid-19, have been witnessed during Q1 FY2021. Though the risk has been mitigated to some extent due to liquidity of Rs. 10 crore as unencumbered cash and DSRA equivalent to three months’ debt obligations as on June 30, 2020. IGR has availed moratorium on debt servicing till August 31, 2020 and with expected rent collections till the end of moratorium would provide some liquidity buffer to the company. Nonetheless, given the current weakness in the economic environment, timeliness of recovery of pending receivables as well as timely recovery of future rentals will be critical. High asset as well as client concentration risk – IGR’s single-asset portfolio exposes the company to risk pertaining to any geo-political issues or demand-supply mismatch in the micro-market. The presence of only five tenants results in high client concentration for the company; top two tenants comprise 60% of the leasable area. However, ICRA notes that the pending lease period for each of these tenants is atleast two years. Liquidity position: Adequate IGR’s liquidity is adequate, supported by unencumbered cash balance of ~Rs. 10 crore (as on June 30, 2020) and DSRA of Rs. 4.1 crore (equivalent to three months’ EMI). Currently, the monthly rent receivables are Rs. 1.55 crore as against expenses of less than Rs. 0.1 crore and EMI of Rs. 1.3 crore. Despite the delay in rental payment from some of the tenants, the company has sufficient liquidity buffer.

Rating sensitivities Positive triggers – ICRA could upgrade IGR’s rating if the rental income growth is higher than expected and the cash surplus is utilised to accelerate debt repayment. Specific metric which may trigger rating upgrade is cumulative DSCR over 1.40 times.

Negative triggers – Negative pressure on IGR’s rating could arise if the company undertakes any major debt- funded capex, significant reduction in occupancy or major renegotiation in rental rates which may weaken the credit profile. Specific metric which may trigger rating downgrade is cumulative DSCR below 1.25 times.

Analytical approach

Analytical Approach Comments Corporate Credit Rating Methodology Applicable Rating Methodologies Rating Methodology for Debt Backed by Lease Rentals Parent/Group Support Not applicable Consolidation/Standalone The rating is based on standalone financial statements of the issuer.

About the company Indo Global Ranjangaon Infrastructure And Utility Services Pvt Ltd (IGR) is a 70:30 joint-venture between ESR Group and Global group. IGR was incorporated in February 2018 to operate an industrial park by taking over an existing completed asset. Till January 2019, the industrial park was under Indo Global Infrastructure And Utility Services Pvt Ltd (IGI) which was wholly owned by Global Group. The industrial park has total operational leasable area of 0.55 msf.

Key financial indicators (audited) FY2019 FY2020* Operating Income (Rs. crore) 2.2 20.7 PAT (Rs. crore) -15.9 -13.6 OPBDIT/OI (%) 82% 96% PAT/OI (%) -737% -66%

Total Outside Liabilities/Tangible Net Worth 8.8 39.2 (times) Total Debt/OPBDIT (times) 62.3 8.2 Interest Coverage (times) 0.1 1.1 *Key Financial Indicators are basis Provisional results

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for past three years

Current Rating (FY2021) Chronology of Rating History for the Past 3 Years Amount Rating FY2020 FY2019 FY2018 Amount Rated Outstanding (Rs. Instrument Type (Rs. crore) crore) 10-Jul-2020 - 11-Mar-2019 - 1 Fund based– Term Long 114.00 107.50 [ICRA]A- (Stable) - [ICRA]A- (Stable) - Loan Term 2 Unallocated limits Long 6.00 - [ICRA]A- (Stable) - [ICRA]A- (Stable) - Term Amount in Rs. Crore

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

Annexure-1: Instrument details ISIN Instrument Name Date of Coupon Rate Maturity Amount Current Rating and Issuance / Date Rated Outlook Sanction (Rs. crore) NA Fund based– Term Jan-2019 9.35% Feb-2031 114.0 [ICRA]A- (Stable) Loan NA Unallocated limits 6.0 [ICRA]A- (Stable) Source: IGR

Annexure-2: List of entities considered for consolidated analysis Not Applicable

Analyst Contacts Shubham Jain Anand Kulkarni +91 124 4545 306 +91 22 6169 3326 [email protected] [email protected]

Sandhya Negi +91 20 6606 9925 [email protected]

Relationship Contact L. Shivakumar +91 22 6169 3300 [email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani Tel: +91 124 4545 860 [email protected]

Helpline for business queries:

+91-9354738909 (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

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