Maharishi Markandeshwar Trust April 23, 2019 Summary of rating action Previous Rated Amount Current Rated Amount Instrument* Rating Action (Rs. crore) (Rs. crore) Fund-based -Term Loan 60.00 60.00 [ICRA]A+(Stable); reaffirmed Non-fund Based - Bank 41.50 41.50 [ICRA]A+(Stable); reaffirmed Guarantee Unallocated 188.50 188.50 [ICRA]A+(Stable); reaffirmed Total 290.00 290.00 *Instrument details are provided in Annexure-1 Rationale The rating reaffirmation factors in the steady operational and financial risk profile of Maharishi Markandeshwar Trust (MMT) 1. Continued healthy admissions in the large-ticket, long-duration medical courses and consistently expanding student base in the schools have more than offset the declining enrolments in the engineering courses, amidst an unfavourable demand-supply scenario. As a result, the consolidated student strength under the trust remained healthy and improved to ~13,700 students in Academic Year (AY) 2019 from 13,044 in AY2018 and a decade-low level of 11,250 in AY2016. A higher student strength, together with periodic tuition fee revisions and healthy growth in income from allied activities (hospitals, hostels and others), has supported growth in the trust's revenue-receipts as well as improvement in its surplus margins. The improvement in the trust's operating surplus was also driven by the continued improvement in operations of the Solan (Himachal Pradesh) campus, after it achieved an operating surplus break-even in FY2016. The resultant robust cash accruals continue to aid strong liquidity, facilitating build-up of sizeable cash and liquid balances, despite regular capital expenditure undertaken by the trust towards infrastructure development. Further, surplus liquid balances were used to partly prepay debt obligations, which further strengthened the capital structure. Going forward, the repayment obligations remain marginal compared to the expected cash accruals. The trust, however, continues to face course concentration risk, as its dependence on medical courses has increased considerably, while share of the previously leading engineering courses has declined. Further, revenue receipts remain vulnerable to any adverse regulatory change, given the highly regulated nature of the higher education sector in India. Moreover, despite improvement in performance of the Solan campus as well as schools, the trust remains highly dependent on its flagship Mullana (Haryana) campus, which accounts for more than ~70% of the revenue receipts as well as surpluses, and ~60% of the student strength. Outlook: Stable The Stable outlook reflects ICRA's expectation that MMT will maintain a steady operational as well as financial risk profile (supported by continued healthy admissions in the medical courses as well as improving student strength in schools and other courses), while gradually reducing its concentration on limited courses as well as the single campus. The outlook maybe revised to Positive if the trust achieves a substantial increase in occupancy across courses, campuses and segments (schools/ higher education), contributing to healthy expansion and diversification in the student base. The outlook may be revised to Negative if the trust is unable to maintain healthy occupancy in the courses, affecting the 1Erstwhile Maharishi Markandeshwar University Trust (MMUT) 1 overall student strength. Besides, any unfavourable regulatory development or sizeable capex by the trust, which could adversely affect its capitalisation, coverage metrics and liquidity profile, could result in downward pressure on the rating. Key rating drivers Credit strengths Established brand presence in Haryana and adjoining states; operational track record of over two decades - MMT, through its institutes, has been present in the higher education sector in Haryana for over two decades (~26 years), and has established its brand presence in the adjoining states as well. This is reflected in the continued high occupancy in its medical courses and the large student strength of ~9,100 students in Haryana alone (for Mullana and Sadopur (Ambala) campuses put together, with the Mullana campus accounting for ~90%), besides ~3,500 students in the two schools operating in the state. In addition, the trust has a base of ~1,000 students in its university and school located in Himachal Pradesh. Strong occupancy in long-duration, large-ticket medical courses provides revenue visibility - MMT offers medical courses from its Mullana and Solan campuses. Medical courses accounted for ~14% and ~67% of the trust's student strength and revenue receipts, respectively, in FY2018. While the Mullana campus has been offering MBBS2 course since 2003, it was introduced at the Solan campus in AY2015. Enrolments in MBBS course at the Mullana campus have remained healthy with consistently healthy occupancy in all recent batches, except in AY20173. Further, in the Solan campus, the course witnessed a healthy improvement in admissions since its launch, registering a ~50% increase in student intake in AY2019. Considering that the MBBS course involves substantially high fee per student vis-à-vis other courses and longer duration of five years, high occupancy in the course provides greater revenue visibility. Consistent increase in student strength in schools supports growth and diversification - MMT started two schools in Ambala and Karnal (Haryana) in 2014 and 2016, respectively, in addition to the school in Mullana operational since 2007. The student enrolments in the Ambala school increased rapidly to 1,600 students in AY2018 and further to ~1,742 students in AY2019. While the total student strength of all schools in the trust's portfolio grew to ~1.7 times during the last four AYs, the intake in MM International School in Karnal remains much lower. Healthy financial risk profile characterised by strong capital structure, coverage indicators and liquidity position - Comfortable capital structure, coupled with healthy surpluses, continue to result in strong debt coverage indicators for the trust as reflected in its Total Debt/ Operating Surplus of 1.31 times, interest coverage of 11.7 times and Net Cash Accruals/ Total Debt of 87% in FY2018. Despite regular capex towards infrastructure development, the trust generated surplus cash accruals, which facilitated prepayment of loan instalments over the years. This resulted in a significant decline in the trust's long-term borrowings in the recent years, to Rs. 37 crore in FY2019(E) from Rs. 77 crore in FY2015. Although the trust sometimes uses temporary overdraft against fixed deposits at a marginal effective cost, it continues to have a negative net debt position (estimated net cash balances of more than Rs. 300 crore as on March 31, 2019). Further, while ICRA notes that the seasonality inherent in fee receipts requires the society to maintain adequate liquidity 2Bachelor of Medicine and Bachelor of Surgery 3Haryana's education department prohibited MM Medical College, Mullana from conducting its own counselling as well as from deciding the fee structure for the MBBS/BDS batch in AY2017. The university moved the Punjab and Haryana High Court over the matter. However the verdict delivered on 7-Sep-2016 was not in favour of the Trust. During the process, admission counselling sessions got delayed, which resulted in lower enrolments for the AY2017 batch. 2 in the system to cater to operational expenses during the rest of the year, healthy surplus generation enabled it to build up excess cash balances over the years, thereby strengthening its liquidity profile. Credit challenges Dependence on medical courses increases, given pressure on admissions in engineering stream - While engineering used to be the trust's largest stream (accounting for ~47% of its total student strength in AY2014), it witnessed a consistent decline in admissions over the last five AYs owing to an adverse demand-supply scenario. This resulted in the share of engineering courses in the student strength declining to ~14% in AY2019. On the other hand, admissions in other courses and segments (such as Medical, Medicinal and schools) and correspondingly, their share in the student strength increased over the last five years. While the growth in admissions in these courses helped offset the decline in student strength in engineering courses, the overall student base primarily remained range-bound over the last five years (AY2014-AY2019). Further, the dependence on medical courses has increased considerably, keeping the trust exposed to course concentration risk. High dependence on single campus - Despite healthy growth in admissions in the Solan campus supporting revenue receipts as well as surpluses, MMT's dependence on the Mullana campus remains high. The flagship campus accounts for more than ~70% of the revenue receipts as well as surpluses, and ~60% of the student strength. Intense competition from higher education institutes in northern region - MMT faces competition from an increased number of educational institutes that have been set up in Haryana, Punjab, Himachal Pradesh and other northern states over the last few years. The competition, in turn, affects its ability to maintain large student strength and attract qualified faculty. However, MMT's demonstrated ability to maintain a relatively stable student strength over the last few years, supported by its large and diversified course offerings and infrastructure, provides some comfort. Exposure to regulatory risk - MMT, like other entities in the higher education segment, is exposed