Public Finance
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Public Finance Education Kalinga Institute of Industrial Technology Society Full Rating Report Ratings Key Rating Drivers Bank Loans IND BBB+ Superior Demand Flexibility: India Ratings & Research (Ind-Ra) upgraded Kalinga Institute of Fund-Based Working Capital IND BBB+ Non-Fund-Based Working Capital IND BBB+ Industrial Technology Society‟s (KIIT) bank loan rating in April 2014. The rating reflects KIIT‟s increase in headcount to 19,834 (12.27% yoy) and in applications volume to 182,603 (1.47% Financial Data yoy) in the academic year 2014, reinforcing its strong operational effectiveness. This was despite an enrolment slowdown during the academic year 2013-2014 in the sector due to lack Kalinga Institute of Industrial Technology Society of industry appeal and employability issues. 31 Mar 31 Mar 13 12 KIIT screens and accepts a meager 3.53% of the total applications received. The appeal of pre- Current balance (INRm) 173.00 150.13 eminent courses enables KIIT to maintain acceptance rate at the lowest level. The rating is Debt (INRm) 4,067.95 3,042.43 Debt/current balance 3.52 3.23 supported by the society‟s strong market position and state-of-the-art infrastructure facilities. before interest and depreciation (x) Enhanced Liquidity Position: The upgrade also reflects a 104.34% yoy increase in available CFO debt service 1.18 1.00 coverage ratio (x) funds - cash and unrestricted investments - to INR616.13m in FY13, to cover operating expenditure and financial leverage to 25.82% (FY12: 16.35%) and 15.15% (9.91%), respectively. Ind-Ra expects cash flows to continue to provide adequate cover to the operating expenditure and financial leverage in the near to medium term. Solid Improvements in Revenue Base: Moreover, the society‟s revenue grew at a CAGR of 27.07% over FY09 to INR3,544.01m in FY13. It increased 27.18% yoy in FY13. Ind-Ra expects the revenue to grow strongly in the ensuing years backed by an increase in tuition fees. Strong Financial Performance: KIIT‟s current balance before interest and depreciation (CBBID) margins are better than those of its peers, although they declined slightly to 32.65% in FY13 from 33.85% in FY12. Also, they provide a comfortable cushion to absorb increases in staff and other operating costs. Notwithstanding the staff costs escalation (FY13: 36.74% yoy), KIIT aims to retain a strong student:teacher ratio at 19 (FY11 national average student teacher ratio: 26). Over FY09-FY13, the society‟s revenue was dominated by tuition fee income (average 90.19% of total revenue). However, the stability in revenue mitigates concentration risk. Other operating expenditure (average: 43.18%) and staff costs (average: 27.07%) were the prime contributors to the expenditure over the same period. KIIT booked a current balance of INR173m in FY13 as against INR150.13m in FY12. Improved Cash Flow Operations (CFO): The society's CFO debt service coverage ratio (DSCR) increased to 1.18x in FY13 from 1x in FY12 on the back of increased net cash flow from operations (60.87% yoy). Although CBBID DSCR declined marginally to 1.07x in FY13 from 1.19x in FY12, Ind-Ra believes it will remain comfortable in the short to medium term. High Debt Burden: Debt/CBBID marginally increased to 3.52x in FY13 (FY12: 3.23x) due to increased debt (33.71% yoy). Although debt increased, KIIT was able to maintain interest coverage ratio at 2.47x in FY13. Analysts Divya Shrivastava Capex Plan: The society plans to enhance its hostel capacity to 8,000 rooms by December +91 44 4340 1705 2014 (March 2014: 6,392 rooms, FY13: 5,955 rooms) and construct new academic blocks. The [email protected] estimated project cost is INR1,500m and will be funded through debt/internal accruals ratio of Siva Subramanian 42:58. This capex is unlikely to hamper operating margins and liquidity position. Nevertheless, +91 44 4340 1704 [email protected] these metrics could deteriorate if the increasing tuition fee trend reverses. www.indiaratings.co.in 6 June 2014 Public Finance Rating Sensitivities Positive: A positive rating action could result from stability in the operating margins, a decline in the debt burden in conjunction with further improvements in the liquidity profile. Negative: Any unexpected fall in student demand coupled with a quantum jump in debt resulting in weak coverage ratios will lead to a negative rating action. Profile KIIT was founded by Dr. Achyuta Samanta in 1992 in Bhubaneswar, Odisha, as an industrial training institute. It has become a deemed university under Section 3 of the University Grants Commission Act, 1956. The KIIT group runs Kalinga Institute of Social Sciences – a free residential tribal school which has over 20,000 students. Principal Rating Factors Administration and Management The society‟s key objective is to setup educational institutes across sectors, promote and impart knowledge for undergraduate and post graduate students. The board of the society consists of the following members: 1. Sasawati Bal is the president and a social worker. 2. Gopal Champati is the vice-president who is also a founding member. 3. Dr. Achyuta Samanta (currently member of executive committee) is the founder of KIIT Society. He was also the secretary till FY11. 4. Rabindra Nath Dash (retired IAS) is appointed as secretary and member of executive committee in the 27th annual meeting of KIIT in FY12 after accepting the resignation of Dr A Samanta. 5. Umapada Bose (member of the society) is a journalist. The society offers diverse programmes across various streams like engineering, management, economics, law, fashion technology, hotel management and pharmacy. The medical college also has a hospital facility with 995 beds (as on 31 March 2014), equipped providing services to both inpatients and outpatients. It started a new institute KIIT school of Architecture in FY14 and offers Bachelor of Architect, a five-year programme. The society has the approval from the Council of Architect and FY15 will be the first academic year with intake of 40 students. In Ind-Ra‟s opinion, the availability of a number of courses provides adequate comfort and protects the society from any demand shock for any particular course. At the same time, catering to many segments creates a unique brand identity for the society. Demand Approved intake increased at a CAGR of 12.63% during FY09-FY13. A 7.92% yoy increase in approved intake to 6,172 students in FY13 was mainly due to engineering and polytechnic courses. Although KIIT‟s acceptance rate marginally increased to 3.57% in FY13 from 3.41% in FY12, it is the lowest among the Ind-Ra rated education institutions. The acceptance rate indicates that KIIT on an average rejects nearly 96.5% of the applicants based on its entrance exam. The appeal of pre-eminent courses enables the society to maintain its acceptance rate at the lowest level. KIIT maintained the acceptance rate (FY14: 3.53%) and enrollment rate (FY14: 93.69%) even during the enrolment slowdown (academic year 2013-2014). Consequently, KIIT‟s Applicable Criteria Rating Criteria for colleges and Universities engineering courses‟ occupancy levels stayed above 90% during FY11-FY13. (September 2012) Non Profit Institutions Rating Criteria (September 2012) Kalinga Institute of Industrial Technology Society 2 June 2014 Public Finance Figure 1 Student Demand Indicator FY09 FY10 FY11 FY12 FY13 Aug 13 Approved intake 3,836 4,042 4,936 5,719 6,172 6,245 Applications received 153,278 168,865 177,084 173,925 179,984 182,603 Admission Graduate and other course 2,580 2,908 3,945 4,427 4,788 4,750 students Postgraduate 1,086 1,087 979 1,140 1,231 1,291 Total 3,666 3,995 4,924 5,567 6,019 6,041 Number of students accepted 3,890 4,247 5,238 5,935 6,420 6,448 Acceptance rate (%) 2.54 2.52 2.96 3.41 3.57 3.53 (acceptance/applications received) Admission/approved intake (%) 95.57 98.84 99.76 97.34 97.52 96.73 Total number of students 7,735 9,675 11,793 16,327 17,667 19,834 Source: KIIT In FY13, nearly 5% of total students were foreign students. The key catchment areas for KIIT Figure 2 include West Bengal, Uttrakhand, Uttar Pradesh, Jharkhand, Chhattisgarh along with the home Increasing Headcount state of Odisha. Students strength (LHS) Market Position YoY increase in headcount (RHS) KIIT University was rated at „A‟ grade by the Ministry of Human Resource Development in (Numbers) (%) 25,000 50 March 2014. According to various surveys, the society‟s brand equity is strong in eastern India. 20,000 40 Historical increasing admissions trend signals growing market demand for KIIT. At the same 15,000 30 time, successfully managing and maintaining a robust pipeline of prospective students is critical 10,000 20 for demand flexibility. Also, the steady upstreaming of students to employment by providing 5,000 10 campus placements would enhance the market position. According to management, KIIT has 0 0 been achieving 100% placements for engineering streams since the last 12 years. FY13 FY09 FY10 FY11 FY12 FY14 Source: KIIT, Ind-Ra Figure 3 Campus Placement (%) Institutes FY13 School of Engineering and School of Computer Application 89.90 School of Rural Management 100.00 School of Biotechnology 92.86 School of Management 90.00 School of Law 72.55 Overall 89.06 Source: KIIT Regulatory Environment and Tuition Fee Pricing KIIT can continuously increase the approved intake numbers contingent on infrastructure, pedagogy and other necessary facilities. The society offers a variety of courses under its brand and each of them is controlled by the regulators listed