Indo Global Ranjangaon Infrastructure and Utility Services Pvt Ltd

March 11, 2019

Summary of rating action Current Rated Amount Instrument* Rating Action (Rs. crore) Term Loans 114.00 [ICRA]A- (Stable); assigned Unallocated limits 6.00 [ICRA]A- (Stable); assigned Total 120.00 *Instrument details are provided in Annexure-1

Rationale The rating assigned to the Indo Global Ranjangaon Infrastructure and Utility Services Pvt Ltd (IGR) factors in the company’s comfortable financial risk profile, characterised by moderate leverage levels and long tenure of the lease rental discounting (LRD) loan, which results in adequate DSCR (>1.2 times) over the loan tenure. Maintenance of debt service reserve account (DSRA), amounting to three months equated monthly instalments (EMI) for the LRD loan, provides additional liquidity support. The rating takes comfort from the established operating track record of the asset and the company’s long-term association with its tenants. ICRA takes note of the strong operational profile of the ESR Group in the global warehousing segment and IGR’s strategic importance to the ESR Group as it is the first operational project in the Group’s India portfolio. The assigned rating, however, is constrained by high asset concentration and client concentration risks as revenues emanate from a single asset that is leased out to five tenants. Dependence on a single asset exposes the company to risk pertaining to any demand-supply mismatches in the micro market or changes to the tenants’ business plans. The tenant vacancy risk is mitigated by the outstanding lease tenure of at least two years with all the tenants.

Outlook: Stable ICRA believes that the company will continue to generate steady rental revenues, in line with the past track record. The outlook may be revised to Positive if the rental income growth is higher than expected and the cash surplus is utilised to accelerate debt repayment. However, the outlook may be revised to Negative if the company undertakes any major debt-funded capex or if significant reduction in occupancy weakens the credit profile.

Key rating drivers

Credit strengths Operational asset with long-term association with tenants – IGR has acquired an operational industrial park in Ranjangaon, Pune. The lease agreements with the tenants have been in place from FY2012 onwards and the company has witnessed timely rent payments. A fifth building in the park, which is currently being reconstructed, following a fire accident, will be bought by IGR on a completed basis from the previous owners with corresponding acquisition payment contingent on completion and leasing of this building.

Adequate debt coverage metrics and presence of DSRA in proposed arrangement – The rated LRD loan has moderate leveraging, with estimated stabilised Debt / EBITDA of below 6.0 times. The long tenure of the loan results in adequate DSCR of more than 1.2 times throughout the tenure. All the rentals would be escrowed into the account maintained by the lenders. Additionally, DSRA equivalent to one quarter’s debt obligation has been created.

Experienced promoters with long track record in real-estate sector globally – ESR Group has an established track record of developing and leasing over 100 mn sqft of logistic and industrial parks globally. The Group’s India management is experienced in developing and leasing logistics and industrial parks in India. ICRA notes that this is the first fully operational project of the ESR Group, which is developing various greenfield projects across different locations in India.

Project’s strategic location in Pune’s developed industrial hub – The asset is located in Ranjangaon, Pune, which is a well-developed industrial area 50 km from Pune.

Credit challenges High asset concentration risk – IGR’s single-asset portfolio exposes the company to risk pertaining to any geo-political issues or demand-supply mismatch in the micro-market.

Moderate client concentration risk – The presence of only five tenants results in high client concentration for the company. However, ICRA notes that the pending lease period for each of these tenants is atleast two years, which significantly mitigates the tenant vacancy risk.

Dependence on timely remittances from tenants – The cashflows are dependent on the remittances from the tenants. However, the risk of delayed rent payment is mitigated by the 15-day gap available between the rental payment due dates and debt servicing due date, which provides a cushion in case of minor delays in rent remittance due to any operational issues at lessee’s end.

Liquidity position IGR has funds adequate enough to make the remaining acquisition payments, which are linked to certain milestones. The cash flows from operations are expected to be sufficient to service the scheduled debt obligations comfortably over the loan tenure. Moreover, additional liquidity support in the form of a three-month DSRA (Rs. 3.9 crore) is available to cover any short-term cash flow mismatches.

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 The rating is based on standalone financial statements of the issuer.

About the company: Indo Global Ranjangaon Infrastructure and Utility Services Pvt Ltd (IGR) is a joint-venture between the ESR Group (70% shareholding) and the Global Group (30%). IGR was incorporated in February 2018 to operate an industrial park by taking over an existing completed asset. Till January 2019, the industrial park was under Indo Global Infrastructure and Utility Services Pvt Ltd (IGI), which was wholly owned by the Global Group. The industrial park has a total operational leasable area of 0.42 mn sqft and under-construction leasable area of 0.14 mn sqft. The under-construction area would be leased out to existing tenants and the LOI with these tenants is already signed.

Key financial indicators (audited)

FY2017 FY2018

Operating Income (Rs. crore) - - PAT (Rs. crore) - - OPBDIT/OI (%) - - RoCE (%) - -

Total Debt/TNW (times) - - Total Debt/OPBDIT (times) - - Interest Coverage (times) - - Source: IGR; the company was incorporated in February 2018 so above information is not material

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 (FY2019) 3 Years Date & Date & Date & Amount Amount Rating in Rating in Rating in Rated Outstanding Date &Rating FY2018 FY2017 FY2016 Instrument Type (Rs. crore) (Rs.crore) March 2019 - - - 1 Fund based– Long 114.00 65.00 [ICRA]A- - - - Term Loan Term (Stable) 2 Unallocated Long 6.00 - [ICRA]A- - - - limits Term (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

Annexure-1: Instrument Details Date of Amount Maturity Current Rating ISIN No Instrument Name Issuance / Coupon Rate Rated Date and Outlook Sanction (Rs. crore) NA Fund based– Term Loan Jan-2019 9.35% Feb-2031 114.0 [ICRA]A- (Stable) NA Unallocated limits 6.0 [ICRA]A- (Stable) Source: IGR

Annexure-2: List of entities considered for consolidated analysis Not Applicable

ANALYST CONTACTS Shubham Jain Mathew Kurian Eranat +91 1244545306 +91 80 4332 6415 [email protected] [email protected]

Sandhya Negi +91 2066069925 [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]

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