Press Release Desh Bhagat Memorial Educational Trust April 6, 2021 Ratings Facilities Amount

Press Release

Desh Bhagat Memorial Educational Trust April 6, 2021 Ratings Amount Facilities Rating1 Rating Action (Rs. crore) Short Term Bank CARE A3 7.50 Reaffirmed Facilities (A Three) 7.50 Total Facilities (Rs. Seven Crore and Fifty Lakhs Only) Details of instruments/facilities in Annexure-1

Detailed Rationale & Key Rating drivers The rating assigned to the bank facilities of Desh Bhagat Memorial Educational Trust (DBM) continues to derive strength from experienced and qualified promoters coupled with competent teaching staff, long track record of trust with well- established infrastructure, moderate surplus margin and comfortable overall solvency position. The rating is further constrained by small scale of operations, lower enrolment ratio, high regulation in educational sector in India and increasing competition and limited reach.

Key Rating Sensitivity Positive Factor: - Factors that could lead to positive rating action/upgrade:  Increase in scale of operations with total operating income of more than Rs.50 crore on a sustainable basis. Negative Factor: - Factors that could lead to negative rating action/downgrade:  Decline in scale of operations by more than 10% along with decline in PBILDT and PAT margins below 10% and 7.00%, respectively, on sustained basis  Deterioration in capital structure marked by overall gearing ratio above 1.00x  Deterioration in debt coverage indicators as marked by interest coverage and TDGCA below 3x and beyond 20x respectively.

Detailed description of the key rating drivers Key Rating Strengths Experienced and qualified promoters coupled with competent teaching staff The trust is managed by Er. Sukhwinder Singh Sidhu, Dr. J.S. Dhaliwal, and Mr. Gurlabh Singh as Chairman, Vice Chairman, General Secretary. Mr. Sukhwinder Singh Sidhu have work experience of more than two decades and Dr. J.S Dhaliwal and Mr. Gurlabh Singh have work experience of four decades and three decades, respectively, in the education sector. All the members have gained this experience through their association with DBM and other institutes. Furthermore, DBM has employed experienced and qualified teaching staff to support the academic requirements of the colleges. Apart from key faculty members, DBM has employed competent and well qualified academic staff to run day to day operations of the university. Long track record of trust with well-established infrastructure The trust established its first college in 1995 and since then had established five additional colleges. The facilities provided by the society at its colleges include laboratories, computer centers including smart classes, conference halls, video conferencing, multi-media projectors, well stocked libraries etc. Society is also providing hostel facility to its students. Furthermore, PhD holders and research scholars have helped the college to build a better image. DBM also has a well-established placement cell.

1Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications. Press Release

Students enrolled in different courses are assisted through a well-established placement team through which they are placed in large and reputed corporate groups. Moderate profitability margins The society has moderate surplus margins as reflected by SBID margin and Surplus margin of 19.88% and 9.03% respectively in FY20. The SBID margin deteriorated on a year-on-year basis in FY20 mainly due to higher expenses which includes advertisement & publicity expenses and online seminar expenses. Consequently, the surplus margin also deteriorated from 15.87% in FY19 to 9.03% in FY20. The SBID and Surplus margins stood comfortable at 35.59% and 24.00%, respectively, in 11MFY19 (Prov.). Comfortable capital structure and comfortable debt coverage indicators The capital structure of the trust remained comfortable marked by overall gearing ratio of 0.06x as on March 31, 2020. The same has been slightly deteriorated from 0.03x as on March 31, 2019 owing to higher utilization of working capital limit. The debt coverage indicators of the trust also stood comfortable marked by interest coverage ratio of 4.84x in FY20 and total debt to GCA ratio of 1.94x, as on March 31, 2020. The total debt to GCA ratio deteriorates from 0.57x for FY19 owing to decrease in gross cash accruals of the trust coupled with higher total debt outstanding. Furthermore, the interest coverage ratio also deteriorated marginally from 5.77x in FY19 due to decline in SBID in absolute terms during the year. The interest coverage ratio stood comfortable at 10.00x in 11MFY20 (Prov.).

Key Rating Weaknesses Small Scale of operations The trust’s scale of operations has remained small marked by Total Operating Income (TOI) of Rs.16.83 crore in FY20. The total operating income of the trust declined by 15.81% to Rs. 16.83 crore in FY20 on account of lower number of students enrolled. In 11MFY21 (Provisional), the trust has achieved the operating income of Rs.12.50 crore. High Regulation in educational sector in India In addition to AICTE, the educational institutes are regulated by respective state governments with respect to the number of management seats, amount of the tuition fees charged for the government quota and management quota. The factors have a significant impact on the revenue and profitability of the institutions. However, the state and central government have provided thrust to demand for engineering colleges by introducing policy changes like abolition of entrance exams for admission in professional course. However, the education industry remains highly regulated industry with constant intervention from the central and state government and other regulatory bodies. Increasing competition and limited reach All the institutes of the DBM are in Tangori, Mohali i.e., single location of Punjab which limits the penetration level for the trust to tap opportunities. Furthermore, due to increasing focus on technical education in India, several colleges have been opened in close proximity. This exposes the revenue of DBM to competition from other institutions like Chandigarh University, Chandigarh Group of Colleges, Landran, Chitkara College of Engineering & Technology, Baddi etc.

Adequate liquidity profile: The liquidity position of the trust has remained adequate. The average over draft (OD) limit utilization has remained at a comfortable level of ~37% in the last 12 months period ended February,2021. The trust has a total debt repayment obligation of Rs.0.13 cr. in FY21, which is proposed to be met through the internal accruals. As on March 31, 2020, DBM had free cash & bank balance of Rs.4.73 Cr. The liquidity position of the trust stood comfortable marked by both, current ratio and quick ratio of 3.20x, as on March 31, 2020. The trust had availed moratorium period of 6 months (from March-20 to August-20) for interest payment on over draft limit offered by RBI in the light of COVID-19. Further, the trust has also availed emergency COVID credit line of Rs.1.80 crore.

Analytical Approach–Standalone Press Release

Applicable criteria Criteria on assigning Outlook and credit watch to Credit Ratings Financial ratios – Non-Financial Sector CARE’s policy on default recognition Liquidity analysis of non-financial sector entities Rating Methodology – Education Sector Criteria for Short Term Instruments

About the Trust Desh Bhagat Memorial Educational Trust (DBM) was formed in December 1995 and is currently being managed by Er Sukhwinder Singh Sidhu, Mrs. Lakhvir Kaur, Dr. J.S. Dhaliwal, Mr. Gurlabh Singh, Mr.Balwant Singh, Mr. Sukhraj Singh, Mrs. Manjeet Kaur and Dr. Navjot Singh Dhaliwal as the trustees. The trust was formed with an objective to provide higher education in the field of engineering, computers, science and management. The trust has established six separate colleges, namely, Shaheed Udham Singh (SUS) College of Engineering & Technology (SUSCET), SUS Engineering College (SUSEC), SUS College of Research & Technology (SUSCRT), SUS Institute of Computer (SUSIC), SUS Polytechnic College (SUSPC) and SUS College of Pharmacy (SUSCOP). All the institutes of DBM are in Mohali, Punjab. The different courses offered are duly approved by AICTE (All India Council of Technical Education), PTU (Punjab Technical University), Punjabi University and Punjab State Board of Technical Educational & Industrial Training (PSBTE & IT), Chandigarh. Brief Financials (Rs. crore) FY19 (Aud.) FY20 (Aud.) Total operating income 19.99 16.83 SBID 4.77 3.34 Surplus 3.17 1.52 Overall gearing (times) 0.03 0.06 Interest coverage (times) 5.77 4.84 A: Audited Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable

Rating History (Last three years): Please refer Annexure-2

Covenants of rated instrument / facility: Detailed explanation of covenants of the rated instruments/facilities is given in Annexure-3

Complexity level of various instruments rated for this company: Annexure 4

Annexure-1: Details of Instruments/Facilities Rating Size of the Name of the Date of Coupon Maturity assigned along Issue Instrument Issuance Rate Date with Rating (Rs. crore) Outlook Fund-based - ST- CARE A3 - - - 7.50 Bank Overdraft

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Annexure-2: Rating History of last three years Current Ratings Rating history Date(s) Date(s) Date(s) Name of the Type Rating & & Date(s) & & Sr. Amount Instrument/Bank Rating(s) Rating(s) Rating(s) Rating(s) No. Outstanding Facilities assigned assigned assigned in assigned (Rs. crore) in 2020- in 2019- 2018-2019 in 2017- 2021 2020 2018 1)CARE BBB-; 1)Withdrawn Fund-based - LT- Stable 1. LT - - - - (07-Feb-19) Term Loan (02-Feb-

18)

1)CARE 1)CARE CARE A3 1)CARE A3 A3 Fund-based - ST- 2. ST 7.50 A3 - (20-Mar- (07-Feb-19) (02-Feb- Bank Overdraft 20) 18)

Annexure-3: Detailed explanation of covenants of the rated facilities: Not Applicable

Annexure 4: Complexity level of various instruments rated for this firm Sr. Name of the Instrument Complexity Level No. 1. Fund-based - ST-Bank Overdraft Simple Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications.

Analyst Contact Name: Mr. Gaurav Gupta Tel: 0172-4904002 Email: [email protected]

Relationship Contact Name: Mr. Anand Jha Tel: 0172-4904001 Email ID: [email protected]

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