October 15, 2020

St. George’s Education Society: Rating reaffirmed

Summary of rated instruments Previous Rated Amount Current Rated Amount Instrument* Rating Action (Rs. crore) (Rs. crore) [ICRA]BBB- (Stable); Long Term – Fund Based/TL 75.0 75.0 reaffirmed Total 75.0 75.0 *Instrument details are provided in Annexure-1

Rationale The rating reaffirmation favourably factors in the strengths derived by St. George’s Education Society (SGES) as a part of the Muthoot Group, which has diversified presence in sectors, such as financial services, hospitality, healthcare, education, etc.. The rating also draws comfort from the regular funding support that the promoters provide to the entity in the form of unsecured loans. This apart, the rating positively factors in the personal involvement of the Muthoot family in the operations of the society.

The rating, however, remains constrained by the society’s weak financial performance as it has remained dependent on timely funding support from promoters, largely for debt obligations. The society’s ability to increase its student base and ramp up revenue receipts in the Paul George Global School (PGGS) is crucial, given that the repayments for existing debt obligations are ballooning in nature. The school faces stiff competition from various players in the vicinity and remains exposed to regulatory risks, as is prevalent in the sector.

The Stable outlook on the [ICRA]BBB- rating reflects ICRA’s opinion that SGES will continue to benefit from the extensive experience of its promoters and their personal involvement, aided by the reputation of the Muthoot Group.

Key rating drivers Credit strengths Extensive experience of promoters and established presence of Muthoot Group – ICRA draws comfort from the strong franchise and market position of the Muthoot Group, which has diversified revenue streams and a long track record. The key promoters, including the Managing Director, are personally involved with the society, providing comfort in terms of operations as well as funding support.

Healthy year-on-year enrolments – PGGS has received an encouraging response since its inception, with an increase in student strength to 614 in AY2021 from 580 in AY2020. The society set up infrastructure for capacity of 2,000 students (operational at 840 students) for PGGS. St. George’s School, Alaknanda has been operating at 96% occupancy levels with student strength of 2,680 in AY2021.

Regular support from Muthoot family – The promoters have periodically extended unsecured loans to the society over the years, which have supported its debt service obligations. In FY2020, unsecured loans from directors stood at Rs. 56.28 crore compared with Rs. 49.88 crore in FY2019.

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Credit challenges Vulnerability of margins to higher operating costs – The society runs its schools for philanthropic purposes and hence, its fees remain low vis-à-vis the facilities offered. Further, there have not been any fee hikes for the schools over the last four years. In the current academic year (AY2021), the society is only charging tuition fee from the students due to the ongoing pandemic. Thus, the society’s margins are vulnerable to stagnant fees and growing operating expenses. Further, the schools remain exposed to regulatory risks and challenges, as is prevalent in the sector.

Weak coverage indicators since inception – Continued cash losses till FY2019 have resulted in negative net worth for the society. Its repayments for the capex-related loan have a ballooning structure. In FY2020, the society had total outstanding obligation towards external debt of Rs. 46.58 crore.

Liquidity position: Stretched SGES’s liquidity is stretched with ballooning repayments of term loans. However, promoters are committed to provide their support as and when needed. Hence, timely support by the promoters through unsecured loans or equity for meeting the shortfall in meeting fixed cost requirement of the society is crucial for its liquidity position.

Rating sensitivities Positive triggers – ICRA could upgrade SGES’s rating if the company demonstrates self-sustenance in servicing debt obligations backed by growth in revenues and profitability and improved liquidity profile.

Negative Triggers – ICRA could downgrade SGES’s rating if there is delay in timely financial support from the promoters or further deterioration in the financial performance leading to decline in revenues and profitability.

Analytical approach Analytical Approach Comments Applicable Rating Methodologies Corporate Credit Rating Methodology Parent/Group Support Not applicable Consolidation / Standalone Standalone financial statements

About the company The St. George’s Education Society was founded in 1962 and started the St. George’s School in the same year. The school is affiliated to the Central Board of Secondary Education (CBSE) and is recognised by the Directorate of Education. The school was later adopted by the Muthoot Group in 1982. Mr. M.G. George Muthoot, the Chairman of the Muthoot Group, is the Chairman of the society, its trustees include Mr. Alexander Muthoot. The school is a K-12 institution located on a 4-acre land and focuses primarily on the financially weaker sections of the society. The society has also opened another school, Paul George Global School (PGGS) on a 2.1-acre land, which has been operational since AY2016.

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Key financial indicators (audited/provisional) FY2019 FY2020* OI (Rs. crore) 25.99 36.10 PAT (Rs. crore) -9.83 2.86 OPBDIT/OI (%) 17.74% 34.70% RoCE (%) -2.24% 12.08%

Total Outside Liabilities/Tangible Net Worth (times) -2.37 -2.62 Total Debt/OPBDITA (times) 21.69 8.21 Interest Coverage (times) 0.54 2.80 DSCR 0.45 1.60 *Key financial indicators are based on provisional results

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for last three years

Current Rating (FY2021) Rating History for the Past 3 Years Instrument Amount Amount Rating FY2020 FY2019 FY2018 Type Rated Outstanding 15-Oct-20 30-Jul-19 - 9-Jan-18 Long [ICRA]BBB- [ICRA]BBB- - [ICRA]BBB- 1 Term Loan 75.00 46.58 Term (Stable) (Stable) (Stable) Amount in Rs. Crore

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

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Annexure-1: Instrument details ISIN Instrument Date of Issuance / Coupon Maturity Amount Current Rating and No Name Sanction Rate Date Rated Outlook (Rs. crore) Term Loan April 2016 - April 2026 75.0 [ICRA]BBB- (Stable) Source: SGES

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

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ANALYST CONTACTS K. Ravichandran Manish Ballabh +91-44-45964301 +91-124-4545812 ravichandran @icraindia.com [email protected]

Gaurav Singla Geetika Mamtani +91-124-4545366 +91-124-4545832 [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:

+91-9354738909 (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.

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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