Tirumala Educational Institutes

October 29, 2018 Summary of rated instruments

Previous Rated Amount Current Rated Amount Instrument* Rating Action (Rs. crore) (Rs. crore) [ICRA]B+(Stable) reaffirmed; removed Cash Credit limits 0.20 0.20 from Issuer not cooperating [ICRA]B+(Stable) reaffirmed; removed Term Loans 9.74 13.10 from Issuer not cooperating [ICRA]B+(Stable) reaffirmed; removed Unallocated Limits 0.06 6.70 from Issuer not cooperating Total 10.00 20.00

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 13.10 crore term loans and Rs 6.70 crore unallocated limits of Tirumala Educational Institutes (TEI or the company)2. The outlook on the long-term rating is ‘Stable’. The rating has also been removed from the ‘Issuer Not Co- operating’ category.

Rationale The reaffirmation of rating is constrained by leveraged capital structure with gearing of 4.07 times as on March 31, 2018 owing to high debt levels and low net worth; and moderate debt coverage indicators with interest coverage of 1.74 times and Debt/OPBDIT of 3.18 times for FY2018. Moreover, the proposed debt funded capital expansion plans to accommodate the expected increase in student strength is likely to adversely impact the capital structure and debt coverage indicators. The rating is also constrained by risks associated with partnership nature of the firm and significant competition from other established institutions in the region that could impact the occupancy and profitability levels. However, the rating positively considers significant experience of promoter for 30 years in the field of education; strong reputation of Tirumala institutes in Rajahmundry and surrounding regions which supported increase in student strength over the years; and steady growth in revenues with increase in operating income by 59% from Rs 11.55 crore in FY2016 to Rs 18.42 crore in FY2017 and further by 11% to Rs 20.46 crore in FY2018 owing to increase in student strength. Outlook: Stable

The stable outlook reflects ICRA belief that Tirumala Educational Institutes will continue to benefit from the extensive experience of its promoters in the field of education. The outlook may be revised to 'Positive' if there is substantial growth in revenues and improvement in capital structure and coverage metrics. The outlook may be revised to ‘Negative’ if there is decline in performance, deterioration of capital structure and weakening of coverage metrics.

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

Key rating drivers Credit strengths Steady growth in revenues: The operating income has increased by 59% from Rs 11.55 crore in FY2016 to Rs 18.42 crore in FY2017 and further by 11% to Rs 20.46 crore in FY2018 owing to increase in student strength. The total student strength has increased by 40% from 4256 in AY20163 to 5968 in AY2017 and further by 24% to 7386 in AY2018. The operating margins have improved to 24.29% in FY2018 from 17.87% in FY2017 owing to benefits arising from increased revenues.

Experienced promoters: The institute is promoted by Mr. Nunna Tirumala Rao, who is a post graduate in chemistry and has experience of 30 years in the teaching field. The school was started in 2011-12 and college was started in 2012-13. The school and college get lot of admissions due to the reputation of the promoter, who along with senior faculty resides in the campus and monitors the school and colleges. Credit weaknesses

Stretched capital structure and modest coverage indicators: The capital structure is leveraged with gearing of 4.07 times owing to high debt levels and low net worth. The debt coverage indicators are modest with interest coverage of 1.74 times as on March 31, 2018, Total Debt/OPBDITA of 3.18 times for FY2018.

➢ Debt-funded capex: TEI has incurred significant debt-funded capital expenditure over the past five years to support the increased student strength. Further debt funded capital expansion of infrastructure facilities to support the expected increase in student strength would adversely impact the debt protection metrics. ➢ Significant competition in the School and College Segment: The institute faces competition from other established institutions in the region that could impact the occupancy and subsequently the profitability levels. However, Tirumala’s school and college has reputation in Rajahmundry and the surrounding regions due to which the strength has consistently increased over the years.

➢ Risks associated with partnership firm: The institute is exposed to risks associated with capital withdrawal for a partnership firm as witnessed in the past.

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below.

Links to applicable criteria:

Corporate Credit Rating Methodology About the company:

Tirumala Educational Institutes was established in the year 2011-12 by Mr. N Tirumala Rao. The institute campus is spread over an area of 8.8 acres, about 9 KMs away from Rajahmundry, Andhra Pradesh. In the year 2011–12, LKG to 9th standard was started and subsequently 10th standard was started in the year 2012-13. It also started Junior Intermediate in the year 2012-13 and expanded to Senior Intermediate in the year 2013-14. The total strength of Tirumala Group for the year AY2018-19 has increased to 8244 students from 7386 students in AY2017-18. The institute provides buildings, hostel and other related services to the school and three junior colleges run by Tirumala Group.

3 AY2016 – Academic Year 2015-2016 – FY2016

Key Financial Indicators

FY2017 FY2018* Operating Income (Rs. crore) 18.42 20.46 PAT (Rs. crore) 1.03 1.37 OPBDIT/ OI (%) 17.87% 24.29% RoCE (%) 17.37% 17.21%

Total Debt/ TNW (times) 4.67 4.07 Total Debt/ OPBDIT (times) 4.40 3.18 Interest coverage (times) 1.71 1.74 NWC/ OI (%) -8% -10% *Unaudited; Source: Annual Reports and ICRA Research

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 3 years Current Rating (FY2019) Date & Date & Date & Date & Rating in Rating in Rating in Amount Rating FY2018 FY2018 FY2017 Amount Rated Outstandin Instrument Type (Rs. crore) g (Rs crore) Oct 2018 Dec 2017 April 2017 Feb 2016

1 Fund Based Long 13.30 13.30 [ICRA]B+( [ICRA]B+(Stable) [ICRA]B+(S [ICRA]B+( Limits Term Stable) ISSUER NOT table) Stable) COOPERATING

2 Unallocated Long 6.70 - [ICRA]B+( [ICRA]B+(Stable) [ICRA]B+(S [ICRA]B+( Limits Term Stable) ISSUER NOT table) Stable) COOPERATING

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

Amount Date of Rated Issuance / Coupon Maturity Current Rating and ISIN No Instrument Name Sanction Rate Date (Rs. crore) Outlook

NA Cash credit limits 0.20 [ICRA]B+(Stable)

NA Term Loans Nov-13 Oct-25 13.10 [ICRA]B+(Stable)

NA Unallocated limits 6.70 [ICRA]B+(Stable) Source: Tirumala Educational Institutes

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

Vinay Kumar G Kushal Kumar B +91 40 4067 6533 +91 40 4067 6521 [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:

+91-124-2866928 (open Monday to Friday, from 9:30 am to 6 pm)

[email protected]

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