April 05, 2017 Educational Institutes

Instrument* Rated Amount (in Rs crore) Rating Action Cash Credit Limits 0.20 [ICRA]B+(Stable) / Reaffirmed (earlier nil) Term Loans 9.74 [ICRA]B+(Stable) / Reaffirmed (revised from 7.91) Unallocated Limits 0.06 [ICRA]B+(Stable) / Reaffirmed (revised from 0.59) *Instrument Details are provided in Annexure-1

Rating Action ICRA has reaffirmed the long term rating of [ICRA]B+(pronounced ICRA B plus) assigned to the Rs 0.20 crore1 cash credit limits, Rs 9.74 crore (revised from Rs 7.91 crore) term loan limits and Rs 0.06 crore (revised from Rs 0.59 crore) unallocated limits of Tirumala Educational Institutes (TEI)2. The outlook on long term rating is ‘Stable’.

Rationale The reaffirmation of rating is constrained by TEI’s moderate financial profile characterized by high gearing of 7.43 times and moderate coverage indicators with interest coverage of 1.90 times as on March 31, 2016 and modest scale of operations in the field of education. The rating also factors in competition from other established institutions in the region that could impact the student strength and subsequently the profitability levels. ICRA also notes the proposed debt funded capital expansion plans of the institute to accommodate the expected increase in student strength which is likely to adversely impact the capital structure and debt coverage indicators going forward. The rating however positively factors in the long experience of the promoter in the field of education; consistent growth in revenues from Rs 1.18 crore in FY2012 to Rs 11.55 crore in FY2016 owing to increase in strength coupled with increase in fees of school & colleges; and reputation enjoyed by the institute in and the surrounding regions. Further, ICRA notes the increase in strength in annual year (AY) 2016-17 by 40% would augment the revenues substantially in FY2017 for the institute.

Going forward, the ability of the institute to complete the capex without time and cost overruns, and improvement in occupancy levels will be key rating sensitivities from credit perspective.

Key rating drivers

Credit Strengths  Consistent growth in revenues from Rs 1.18 crore in FY2012 to Rs 11.55 crore in FY2016 owing to increase in strength coupled with increase in fees of school & colleges  Long experience of promoter in the field of education  Reputation enjoyed by school and college at Rajahmundry, , and surrounding regions

1 100 lakh = 1 crore = 10 million 2 For complete rating scale and definitions, please refer to ICRA's website www.icra.in or other ICRA Rating Publications

Credit Weakness  Competition from other established institutions in the region could impact student strength and subsequently profitability levels  Leveraged capital structure characterized by gearing of 7.43 times and moderate interest coverage ratio of 1.90 times as on March 31, 2016  Significant debt-funded capital expenditure incurred as well as planned expansion of infrastructure facilities might exert pressure on debt protection metrics in the near term

Description of key rating drivers highlighted above: TEI operates one school and three junior colleges spread across an 8.8 acres campus. The student strength of the institute has increased to 5,968 students in AY2016-17 from 4,256 students in AY2015-16.The strength of day-scholars has always been higher than TEI’s hostel strength; and for AY2016-17, 57% of students are day-scholars. The institute is promoted by Mr.N. Tirumala Rao who has more than two decades of experience in the field of education. The school and colleges operated by the institute enjoys reputation in Rajahmundry, Andhra Pradesh, and surrounding regions.

The capital structure for the institute is highly leveraged with gearing of 7.43 times as on March 31st,2016 owing to term loans availed from lenders coupled with unsecured loans availed from related parties for capital expansion over the years. The institute faces competition from other established institutions in the region that have presence across the state. The institute has been continuously investing in the development of the infrastructure. The institute has significant debt funded expansion plans in near term to support the increase in strength which would be the debt protection metrics.

Analytical approach:

Links to applicable Criteria Corporate Credit Rating –A Note on Methodology

About the Company: Tirumala Educational Institutes (TEI) was established in the year 2011-12 by Mr. N Tirumala Rao. The institute campus is spread over 8.8 acres, about 9 km from Rajahmundry, Andhra Pradesh. The institute runs a school and three junior colleges. It has both hostel and day scholars studying at its institutions. The total strength of the institute for the academic year (AY) 2016-17 increased to 5,968 students from 4,256 students in AY2015-16.

In FY2016, TEI reported a net profit of Rs. 0.49 crore on operating income of Rs. 11.55 crore as against net profit of Rs. 0.18 crore on operating income of Rs. 7.53 crore during FY2015.

Status of non-cooperation with previous CRA: Not Applicable

Any other information: Not Applicable

Rating History for last three years: Table: Rating History S.No Name of Current Rating Chronology of Rating History for the Instrument past 3 years Type Rated Month- year & Month- year & Month- Month- amount Rating in Rating in year & year & (Rs. FY2017 FY2016 Rating in Rating in Crore) FY2015 FY2014 April 2017 May 2016 1 Cash Credit Long 0.20 [ICRA]B+(Stable) NA NA NA Term 2 Term Long 9.74 [ICRA]B+(Stable) [ICRA]B+ NA NA Loans Term 3 Unallocated Short 0.06 [ICRA]B+(Stable) [ICRA]B+ NA NA Limits Term

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 Details of Instrument

Name of the Date of Coupon Maturity Size of the Current Rating and instrument issuance rate Date issue Outlook (Rs. Cr) Cash Credit - - - 0.20 [ICRA]B+ (Stable) Term Loans - - July 2022 9.74 [ICRA]B+ (Stable) Unallocated Limits - - - 0.06 [ICRA]B+ (Stable)

Source: Tirumala Education Institutes.

Name and Contact Details of the Rating Analyst(s):

K. Ravichandran R. Srinivasan +91 44 4596 4301 +91 44 4596 4315 [email protected] r. [email protected]

Vinay Kumar G Kushal Kumar B +91 40 4067 6533 +91 40 4067 6521 [email protected] [email protected]

Name and Contact Details of Relationship Contacts:

Jayanta Chatterjee +91 80 4332 6401 [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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