August 07, 2020 Muthoot M. George Institute of Technology: Rating reaffirmed Summary of rated instruments Previous Rated Amount Current Rated Amount Instrument* Rating Action (Rs. crore) (Rs. crore) [ICRA]BBB- (Stable); Long Term – Fund Based/TL 65.0 65.0 reaffirmed Total 65.0 65.0 *Instrument details are provided in Annexure-1 Rationale The rating reaffirmation favourably factors in the strengths derived by Muthoot M. George Institute of Technology (MITS) as a part of the Muthoot Group, which has a diversified presence in sectors like financial services, hospitality, healthcare, education. The rating also draws comfort from the regular funding support provided to the entity by the promoters in the form of unsecured loans. This apart, the rating positively factors in the personal involvement of the Muthoot family in the operations of the college and its growing revenues and occupancy levels. Further, the college has been able to stand apart from various players in the state in short span of time through its academic achievements. The rating, however, remains constrained by the limited track record of the college. The college continues to have weak coverage metrics due to cash losses, given the fact that the Group runs the college for philanthropic purposes. Thus, MITS remains dependent on timely funding support from promoters for debt obligations. ICRA also notes that the repayments are ballooning in nature and end in FY2029. This apart, the college remains exposed to regulatory risks, as is prevalent in the sector. The Stable outlook on the [ICRA]BBB- rating reflects ICRA’s opinion that MITS will continue to benefit from the extensive experience of its promoters and their personal involvement, aided by the reputation of the Muthoot Group. Key rating drivers Credit strengths Extensive experience of promoters and established presence of the Muthoot Group – ICRA draws comfort from the good franchise and market position of the Muthoot Group, which has diversified revenue streams and a long track record. The key promoters, including the Managing Director, are personally involved with the college, providing comfort in terms of operations as well as funding support. Year-on-year improvement in revenue receipts backed by healthy occupancy – The college has witnessed healthy occupancy since its inception, with an average occupancy in the last three years of around 90% (as of AY2020). Also, the year-on-year growth in operating income (OI) was 5% in FY2019. With the receipt of AICTE accreditation, ICRA expects the college to witness medium-term revenue growth with the introduction of more courses and incremental admissions. Also, the college stands apart from the various players in the state due to the continuously good performance of its students. 1 Regular support from the Muthoot family – The promoters, including the Managing Director, are actively involved in managing the operations and have periodically extended unsecured loans to the company over the years, which have supported its debt service obligations. As on March 31, 2020, unsecured loans from directors stood at Rs. 90.75 crore. Credit challenges Limited track record of operations; dependence on promoter support against repayment commitments – The company established an engineering college in 2013, with the first batch passing out in 2017. It is still in the nascent stage and hence, has low revenue receipts. MITS has been incurring cash losses since its inception, which has led to high dependence on the promoter’s support to manage its debt obligations. This is critical as the company has sizeable repayment commitments, given the ballooning structure and large repayment in the last instalment. Weak coverage indicators backed by cash losses since inception – The debt levels vis-à-vis the corpus remain high, leading to gearing of -4.2 times as on March 31, 2020. Given the cash losses, the debt coverage indicators also remained weak. However, a large part of the debt is in the form of unsecured loans from promoters. Any principal or interest payment on the same and the associated impact on the company’s credit metrics is a rating monitorable. Stiff competition while regulatory risks prevail – As is characteristic of the education segment, the company faces regulatory risks with respect to fee revisions and intake norms. This apart, the college faces intense competition from various colleges in the vicinity. However, this risk is mitigated by the brand position enjoyed by the Muthoot Group. Liquidity position: Stretched MITS’s liquidity is stretched with ballooning repayments of term loans, low cash and liquid investments. Hence, timely support by the promoters through unsecured loans or equity for meeting the short fall in meeting fixed cost requirement of the company is crucial for company’s liquidity position. Rating sensitivities Positive triggers – ICRA could upgrade MITS’s rating if the company demonstrates self-sustenance in servicing debt obligations backed by growth in revenues and profitability and improved liquidity profile. Specific credit metrics could include DSCR above 1.2 times on a sustained basis. Negative Triggers – ICRA could downgrade MITS’s rating if there is delay in timely financial support from the promoters or further deterioration in the financial performance leading to decline in revenues and profitability. Analytical approach Analytical Approach Comments Applicable Rating Methodologies Corporate Credit Rating Methodology Parent/Group Support Not applicable Consolidation / Standalone Standalone financial statements About the company MITS was started in 2013 and runs Muthoot M George Institute of Technology (MITS), an engineering college situated in the industrial suburb of Kochi, Kerala, which is 15 km away from the main city. The engineering college is affiliated to Dr. A. P. J. Abdul Kalam Technological University (KTU) and Mahatma Gandhi University. Mr. George Alexander Muthoot is the Managing Director of Muthoot M George Institute of Technology. The other directors of the company are M G George Muthoot, George Jacob Muthoot and George Thomas Muthoot from the Muthoot family. 2 Key financial indicators (audited/provisional) FY2019 FY2020* Operating Income (Rs. crore) 13.82 14.51 PAT (Rs. crore) -10.54 -10.72 OPBDIT/OI (%) 19.93% 16.58% PAT/OI (%) -76.25% -73.91% Total Outside Liabilities/Tangible Net Worth (times) -6.00 -4.35 Total Debt/OPBDIT (times) 54.77 64.79 Interest Coverage (times) 0.44 0.33 *Key Financial Indicators are basis Provisional results Status of non-cooperation with previous CRA: Not applicable Any other information: None Rating history for last three years Current Rating (FY2021) Rating History for the Past 3 Years Instrument Amount Amount Rating FY2020 FY2019 FY2018 Type Rated Outstanding 7-Aug-20 15-Jul-19 2-Apr-18 - Long [ICRA]BBB- [ICRA]BBB- [ICRA]BBB- - 1 Term Loan 65.00 62.68 Term (Stable) (Stable) (Stable) 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 3 Annexure-1: Instrument Details ISIN Instrument Date of Issuance / Coupon Maturity Amount Current Rating and No Name Sanction Rate Date Rated Outlook (Rs. crore) Term Loan March 2016 10.80% July 2028 65.0 [ICRA]BBB- (Stable) Source: MITS Annexure-2: List of entities considered for consolidated analysis: Not applicable 4 ANALYST CONTACTS K. Ravichandran Manish Ballabh +91-44-45964301 +91-124-4545812 ravichandran @icraindia.com [email protected] Gaurav Singla Geetika Mamtani +91-124-4545366 +91-124-4545832 [email protected] [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: +91-9354738909 (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. 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