Basuti Sales and Trading Private Limited

RATING RATIONALE 29 July 2020

BASUTI SALES AND TRADING PRIVATE LIMITED

Brickwork Ratings downgrades the ratings for the Bank Loan Facilities of ₹.231.47 Crores of Basuti Sales and Trading Private Limited

Particulars

Amount (₹ Cr) Rating*

Facility** Tenure Previous Previous Present Present (May, 2020)

BWR BBB+ BWR BB+ (CE) (CE) Credit Watch With Long Fund based 231.47 231.47 Credit Watch Negative Term With Negative implications implications Downgrade

INR Two Hundred and Thirty One crores and Total 231.47 231.47 Forty Seven Lakh Only *Please refer to BWR website www.brickworkratings.com/ for definition of the ratings

RATING ACTION / OUTLOOK

Brickwork Ratings (BWR) has downgraded the rating to BWR BB+ (CE) Credit Watch With Negative Implications from BWR BBB+ (CE) Credit Watch with Negative Implications.

The downgrade in the rating is on account of the downgrade in the credit profile of the credit enhancer Future Retail Limited. The downgrade of the rating of the company factors the weakening of its business and financial profile owing to the deterioration in the credit profile of the group company Future Retail Limited (FRL) on which it has significant reliance for its income. FRL, its key customer and majority revenue contributor was impacted by lower sales during the current financial year hit by closure of its most of the outlets during the lockdown in pandemic leading to poor liquidity as reflected by missed coupon payment of a USD 500mn bond on 22.07.2020 and availing grace period of one month for payment.

The unsupported rating of Basuti Sales and Trading Private Limited has been downgraded to BWR B+ from BWR BB+. The downgrade is on account of deterioration in the financial flexibility of the group and poor liquidity as the company is dependent on Future Retail Limited for a major portion of their revenue.

The rating continues to be on Credit Watch with Negative Implications on account of a disruption due to COVID-19 in the operations of the company and its key customer FRL, which may increase its working capital needs and uncertainty, and adversely impact the

www.brickworkratings.com Page 1 of 7 operating cash flow and liquidity. The rating takes comfort from the experienced management.

Credit Enhancement The Company has entered into agreement with Future Retail Limited (FRL), the flagship company of Future Group (FG) - India’s leading retailer, for supply of fixed assets as per their specifications and requirements. As per the MLA, FRL has an irrevocable & unconditional obligation to make the lease payments.

Credit Enhancement is on account of Escrow cum Quintipartite Agreement wherein FRL has given an unconditional undertaking that it will continue to make lease payments for the assets leased to it irrespective of usage, until the bank loan of BSTPL is repaid in full.

KEY RATING DRIVERS

Credit Strengths:

● Experienced promoters and management: The promoters of the issuer company have been closely involved in the management of business and in defining and monitoring the business strategy for the company. Furthermore, the promoters are supported by a strong management team that has significant relevant experience. ● Master Lease Agreement (MLA) with Future Retail Limited (flagship company of Future Group) defining scope of services and consideration and the Escrow cum Quintipartite Agreement for direct payment of the monthly lease rentals and any other dues in connection with the MLA into escrow account. Only Rs.231.47 crs amount of bank loan is outstanding against the total rated amount of Rs.450 crs. ● Minimum guaranteed cash flows from group company (FRL) via Escrow arrangement. ● Promoter’s ability to infuse funds as per business requirement.

Credit Concerns:

● Relatively low profitability which is expected to improve going forward. ● Unavailability of Financials of FY 2019-20 presently. It was not provided on account of COVID 19 as informed by the issuer. ● Deteriorating credit profile of the credit enhancer Future Retail Limited ● Uncertainty about availability of adequate cash flows after moratorium period for debt repayment.

ANALYTICAL APPROACH AND APPLICABLE RATING CRITERIA

BWR has essentially relied upon the structured obligation of the Company supported by credit enhancement by way of Escrow cum Quintipartite Agreement and escrow mechanism as detailed above and group support to the Company. BWR has also factored in standalone audited financial statements upto FYMarch 2019 and projections upto FY22 as well as publicly available information and the information /clarification provided by the Company www.brickworkratings.com Page 2 of 7 and the audited financial performance of the Lessee (FRL) providing credit enhancement upto FY March 2019, 9M Dec2019.

RATING SENSITIVITIES The ability of the credit enhancer to timely pay the lease rentals and the ability of the promoters to infuse funds to support the debt repayments in case of any shortfall in cash flows and compliance with the Escrow cum Quintipartite Agreement remains a key rating sensitivity.

Positive: The rating and outlook may be reviewed if the performance of the Company and the credit enhancer (FRL) materially improves.

Negative: The rating and outlook will be reviewed if the terms and conditions of the term sheet and the Master Lease Agreement are not adhered to and the performance of the issuer company and credit enhancer materially deteriorates.

LIQUIDITY POSITION: Poor

Current liquidity position of the credit enhancer is poor and is expected to deteriorate further on account of the disruption in sales and cash collection, impacted by the ongoing lockdown on account of COVID - 19. The company is not receiving any cash flows from FRL towards the lease rental payments. However, currently the issuer company and the credit enhancer have availed the moratorium for the repayment of their bank loan facilities as per the RBI package on COVID 19.

COMPANY PROFILE

Basuti Sales and Trading Private Limited (BSTPL) was incorporated in March 2016 with an objective of general trading in goods and things of every description (including provision of assets on operating lease basis). The Company has tied up with Future Retail Limited (flagship company of Future Group) for supply of assets used in retail business on the basis of long-term operating lease. The assets are in the nature of plant & machinery, furniture & fixtures, electrical installations and equipment, leasehold improvements, etc. Terms mentioned in the sanction letter: The company has availed a loan from the bank to which a Escrow cum Quintipartite agreement was signed as detailed above and the personal guarantee provided by Mr. Kishore Biyani and Mr. Vijay Biyani (in their capacity as promoters of FRL) assuring the performance by FRL of its obligations under the MLA and the Escrow cum Quintipartite Agreement.

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KEY FINANCIAL INDICATORS (in INR Crs) FINANCIAL INDICATORS - Basuti Sales and Trading Private Limited (BSTPL) Key Parameters Units FY2018 FY2019 Result Type Audited Audited Operating Revenue Rs. in crs 140.08 198.61

EBITDA Rs. in crs 0.93 2.05

PAT Rs. in crs 0.45 0.73

Analysed (A) Tangible Net worth Rs. in crs 185.41 370.36

Total Debt/Tangible Net worth (A) Times 2.23 0.91

Current Ratio Times 0.49 0.79

FINANCIAL INDICATORS – CREDIT ENHANCER - Future Retail Limited (FRL) Key Units FY2018 FY2019 9MFY19 9M FY20 Parameters Result Type Audited Audited Unaudited Unaudited Operating Rs. in 18,477.97 20,164.9 14768.30 15672.97 Revenue crs EBITDA (#) Rs. in 830.17 1,049.77 746.25 2003.96 crs PAT Rs. in 11.31 (*) 732.81 529.65 504.45 crs Tangible Net Rs. in 3,096.27 3,851.95 - - worth (TNW) crs Total Times 0.42 0.69 - - Debt/TNW Current Ratio Times 1.43 1.33 - -

Notes: (#) EBITDA excludes other income, exchange fluctuations and loss on sale of fixed assets. (*) PAT for FY18 is after one-time non-cash exceptional item of Rs 603.87 Cr. Consequent to the demerger of Retail Business Undertaking of Hypercity Retail (India) Limited with FRL, FRL divested 100% Equity Shares of Hypercity Retail (India) Limited (Remaining Undertaking) in FY18, resulting in a one-time non-cash exceptional item of Rs. 603.87 Cr on the same.

KEY COVENANTS OF THE INSTRUMENT/FACILITY RATED The Company has entered into Master Lease Agreement (MLA) with Future Retail Limited www.brickworkratings.com Page 4 of 7

(FRL), the flagship company of Future Group (FG) - India’s leading retailer, for supply of fixed assets as per its specifications and requirements. Escrow cum Quintipartite Agreement has been executed between BSTPL (Lessor), Lessee (FRL), Yes Bank (Lender and Escrow Bank) and IDBI Trusteeship Services Limited (Security Trustee), and unconditional undertaking has been provided by FRL under the MLA that it will continue to make lease payments for the assets leased to it, until the bank loan of BSTPL is repaid in full irrespective of usage.

NON-COOPERATION WITH PREVIOUS RATING AGENCY IF ANY

RATING HISTORY FOR THE PREVIOUS THREE YEARS (Including withdrawal and suspension)

Instru Current Rating Rating History ment Tenure Amount (Long Term/ Rating 2020 2019 2018 ( Cr) 2017 Short Term) ₹ 05.03.2020 TL 231.4 BWR 7 A+ (CE) Stable

14.04.2020 TL 231.4 BWR 7 A- (CE) Credit Watch with Bank BWR BB+ 29.02.2019 16.03.2018 Negativ Term (CE) Credit TL 354 BWR TL 450 BWR e Loan Watch With A+ A+ Long Term 231.47 Implicat (TL) - Negative (SO) (SO) ions Fund Implications Stable Stable

Based Downgrade 27.05.2020 TL 231.4 BWR 7 BBB+ (CE) Credit Watch with Negativ e Implicat ions

Total 231.47 INR Two Hundred and Thirty One crore and forty Seven Lakh Only

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COMPLEXITY LEVELS OF THE INSTRUMENTS

For more information, visit www.brickworkratings.com/download/ComplexityLevels.pdf Hyperlink/Reference to applicable Criteria

● General Criteria

● Approach to Financial Ratios

● Credit Enhancement

● Group Support

● Manufacturing segment

Analytical Contacts Investor and Media Relations

Bal Krishna Piparaiya Senior Director - Ratings B :+91 22 2831 1426, +91 22 2831 1439 Liena Thakur [email protected] Assistant Vice President - Corporate

Communications Heta Mehta +91 84339 94686 Ratings Analyst [email protected] D : +91 22 6745 6612 B :+91 22 2831 1426, +91 22 2831 1439 [email protected]

Basuti Sales and Trading Private Limited

ANNEXURE I Details of Bank Facilities rated by BWR Sl. No. Name of the Type of Long Term Short Term Total Bank Facilities (₹ Cr) (₹ Cr) (₹ Cr) 1 Yes Bank Term Loan 231.47 - 231.47 TOTAL 231.47 Total Rupees Two Hundred and Thirty One Crores and Forty Seven Lakh only.

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DISCLAIMER Brickwork Ratings (BWR) has assigned the rating based on the information obtained from the issuer and other reliable sources, which are deemed to be accurate. BWR has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented “as is” without any express or implied warranty of any kind. BWR does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by BWR should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses incurred by users from any use of this report or its contents. BWR has the right to change, suspend or withdraw the ratings at any time for any reasons.