June 17, 2019 Sheth Developers & Realtors (India) Limited: Rating reaffirmed Summary of rating action Previous Rated Amount Current Rated Amount Instrument* Rating Action (Rs. crore) (Rs. crore) Fund based-Term Loan 600.00 600.00 [ICRA]A(SO) (Stable); reaffirmed Total 600.00 600.00 *Instrument details are provided in Annexure-1 Rationale The letter SO in parenthesis suffixed to the rating symbol stands for Structured Obligation. The SO rating signifies the presence of a Debt Service Reserve Account (DSRA) and an escrow structure for the term loan. An SO rating is specific to the rated issue, its terms, and its structure and do not represent ICRA’s opinion on the general credit quality of the issuer concerned. The rating reaffirmation favourably factors in the healthy track record of the company’s only retail mall, Viviana, located at Thane in Maharashtra, which has been operational for the past six years and enjoys a high occupancy rate of above 99% over the last three years. The favourable location of the mall, adjoining the Eastern Express Highway and its diversified lessee profile with reputed tenants such as H&M, Shoppers Stop, Cinepolis, and Lifestyle are credit positive. ICRA also notes the presence of a DSRA, maintained by the company, equivalent to two months of debt servicing. ICRA’s rating continues to draw comfort from the company’s strong investor profile—GIC, who holds 49% equity stake. The rating, however, is constrained by the moderate lessee concentration risk as the top five tenants account for ~43% of the total leased area. The rating is also constrained by high geographical and asset concentration risks inherent in single property portfolio of the company. In addition, ICRA has also taken cognizance of the company’s future growth plans and its intention to invest in new property in the near to medium term by utilising additional debt drawn. The strength of company’s liquidity profile remains contingent to the quality, quantum and timeline of the capital expenditure/acquisition and consequent impact on the credit risk profile of the company will remain a key sensitivity. As per discussion with the management, ICRA believes that the company’s indebtedness will not increase beyond the current gross debt level of ~Rs. 525 crore. Outlook: Stable ICRA expects Sheth Developers & Realtors (India) Limited (SDRIL) to continue to benefit from its healthy lessee profile and its strong operating metrics. The outlook may be revised to Positive if substantial growth in revenue and profitability improves the coverage indicators of the company. The outlook may be revised to Negative if cash accruals are lower than expected, or if any major debt-funded capital expenditure/acquisition weakens the liquidity and coverage indicators of the company. Key rating drivers Credit strengths Healthy operational profile marked by high occupancy rates, diversified lessee profile and favourable location– Operational since June 2013, Viviana mall has an established operating track record of five years and enjoys occupancy level of more than 99% since FY2016. The mall has a diverse lessee profile, consisting of high-end retail stores, multiplex, 1 food court and restaurants with reputed tenants such as H&M, Shoppers Stop, Cinepolis and Lifestyle. The project site is located in the Laxmi Nagar area of Thane (Maharashtra), adjoining the Eastern Express Highway, and it attracts footfall from the catchment areas as well as remote areas of Thane city. While there are three to four malls in the surrounding area, the competition for Viviana’s mall is limited, given its significantly larger size and presence of established brands as its tenants. The strong performance of the mall is also reflected in steady increase in footfalls for the last three years as well as healthy growth in trading density. Presence of DSRA equivalent to two months of debt servicing; receivables routed through escrow mechanism - The company maintains ~Rs. 9.35 crore as DSRA, equivalent to two months of interest plus principal payment. The receivables are routed through escrow mechanism. Presence of DSRA coupled with healthy liquidity profile of the company underpins the comfortable credit profile of the rating. Equity partnership (49%) with GIC Singapore; strong investor with established track record— In FY2016, Reco Fern Pte Ltd (a wholly owned subsidiary of GIC, Singapore) purchased 49% equity stake in the company, thus improving the latter’s net worth position. SDRIL benefits from GIC’s extensive experience in commercial real estate space. Credit challenges Moderate lessee concentration risk — Lessee concentration risk is moderate for Viviana mall; the top five anchor outlets who contribute ~28% of the total rental revenue occupy ~43% of leased area and top ten anchor outlets who contribute ~37% of the total rental revenue occupy ~59% of the total leased area. Exposed to risks inherent in single property nature of development- The company draws its revenues from a single mall and hence exposed to high asset concentration risk as well as geography concentration risk. Strength of credit profile contingent to proposed capex plan – The company intends to invest in new property in the near to medium term by utilising additional debt drawn. The liquidity profile remains contingent to the quality, quantum and timeline of the capex plan. Impact of the capex on the credit risk profile of the company will remain a key sensitivity. Nevertheless, the coverage indicators of the company remain adequate at ~1.5x times. Liquidity Position Healthy liquidity profile with unencumbered cash and bank balance of ~Rs. 99 crore as on March 2019. The liquidity profile is further strengthened by DSRA of ~Rs. 9.35 crore, equivalent to two months of interest plus principal payment. However, the liquidity profile remains contingent to the quality, quantum and timeline of the capex plan, as the unencumbered cash balance might be utilised for the capex. 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 Standalone About the company: Sheth Developers & Realtors (India) Limited (SDRIL) is a step-down subsidiary of Sheth Developers Private Limited (SDPL), the flagship company of Ashwin Sheth Group. Incorporated in FY1993, SDRIL developed a retail mall called Viviana in Thane, Maharashtra, which has been operational since June 2013. Spread across 11.66 acres of land, the mall has three floors (G+2) and two levels of basement area for parking for a total leasable area is 0.94 mn sq. ft. The mall has a parking 2 facility for 2400 cars and 750 two wheelers. The mall has a food court (seating capacity of 1,200), multiplex (14 screen facilities operated by Cinepolis), departmental stores (Shoppers Stop, Lifestyle, Pantaloon etc.), retails stores (over 120 outlets) and family entertainment centre (adventure rides, concept gaming, etc.). Key financial indicators FY2018 FY2019P Operating Income (Rs. crore) 158.2 176.1 PAT (Rs. crore) 34.1 55.6 OPBDIT/OI (%) 64.8% 68.3% RoCE (%) 11.1% 13.2% Total Debt/TNW (times) 1.0 0.9 Total Debt/OPBDIT (times) 4.0 3.2 Interest coverage (times) 1.0 1.9 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 Past Current Rating (FY2020) 3 Years Amount Date & Date & Outstanding Date & Rating in Date & Rating Rating in Amount (Rs. crore) Rating FY2019 in FY2018 FY2017 Rated as on May Instrument Type (Rs. crore) 2019 June 2019 June 2018 July 2017 - 1 Term Loan Long 600.00 521.28 [ICRA]A(SO) [ICRA]A(SO) [ICRA]BBB+(SO) - Term (Stable) (Stable) (Stable) 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 Date of Amount Issuance / Maturity Rated Current Rating ISIN No Instrument Name Sanction Coupon Rate Date (Rs. crore) and Outlook [ICRA]A(SO) NA Term Loan Sep-2017 - Sep-2030 600.00 (Stable) Source: Sheth Developers & Realtors (India) Limited 4 ANALYST CONTACTS Shubham Jain Anand Kulkarni +91 124 4545 306 +91 22 6169 3326 [email protected] [email protected] Ashirbad Rath +91 22 6169 3327 [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. 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