Meghnad Saha Institute of Technology February 06, 2019 Summary of rating action Previous Rated Amount Current Rated Amount Instrument* Rating Action (Rs. crore) (Rs. crore) Overdraft limit 10.00 10.00 [ICRA]BB (Stable); Reaffirmed Total 10.00 10.00 *Instrument details are provided in Annexure-1 Rationale The reaffirmation of the rating takes into account the established track record of Meghnad Saha Institute of Technology (MSIT) in imparting education and its presence in undergraduate and postgraduate level courses across streams, including engineering and management, which increases its reach among students. ICRA notes that the financial profile of the institute continues to remain healthy, characterised by high profitability, a conservative capital structure and comfortable level of coverage indicators. The rating also derives comfort from MSIT’s association with Techno India Group, which has an established track record in imparting education. The rating is, however, constrained by MSIT’s small scale of operations with low surplus in absolute terms and a track record of moderate student placements over the past few years. The rating also factors in the exposure to inherent cash flow mismatches as well, given the nature of business of educational institutes, which makes appropriate treasury operations critical for the servicing of debt obligations in a timely manner. Further, MSIT has extended significant advances to group entities, some of which are to financially weaker entities, adversely impacting the overall business returns. The rating also takes into consideration the limited financial flexibility of MSIT as the fee structure for engineering courses is regulated by the state Government. Outlook: Stable ICRA believes that MSIT will continue to benefit from its established track record of imparting higher education. The outlook may be revised to Positive if substantial growth in fee revenues and profitability strengthens the financial risk profile. The outlook may be revised to Negative if fee revenues and profitability are lower than expected, or if substantial loans/advances are further given to its Group entities, which in turn impacts its liquidity position. Key rating drivers Credit strengths Part of the Techno India Group, which has an established track record in imparting education - Meghnad Saha Institute of Technology is a college located in Kolkata, and managed by The Academy of Higher Education, a public charitable trust. MSIT has been operational since 2001 and is a part of the Techno India Group, which has an established track record in imparting education. MSIT has achieved stability in terms of operations, revenue generating ability and operating surplus. Diversified portfolio of courses, including engineering and management, which increases MSIT’s reach among students - MSIT offers undergraduate and postgraduate courses across streams including engineering, information technology, management and computer application. However, B. Tech courses have been the major revenue contributors (76% of 1 the revenue in FY2018) over the past years. Engineering and information technology courses are approved by the All India Council for Technical Education (AICTE) and are affiliated to the Maulana Abul Kalam Azad University of Technology, West Bengal (MAKAUT, WB), formerly West Bengal University of Technology (WBUT). As a result of the wide number of courses offered, MSIT reaches out to a large student base. Financial profile characterised by healthy profitability, a conservative capital structure and comfortable coverage indicators- The operating profitability of the entity has remained healthy in the past and improved further to 30.10% in FY2018 from 23.24% in FY2017 owing to increase in operating income and decline in administrative expenses. MSIT’s total debt as on March 31, 2018 comprised mainly of overdraft facilities. The capital structure of the entity continues to remain conservative on the back of low reliance on external debt. The coverage indicators also continued to remain at a comfortable level on account of healthy profitability and low gearing. Credit challenges Substantial advances extended to financially weaker Group entities, which adversely impacts overall business returns - MSIT has extended significant advances to Group entities, some of which are to financially weaker entities. These advances comprise a significant portion of the tangible net worth of the Trust (around 70% in FY2018, increased from 55% in FY2017), but generate no financial returns at present, adversely impacting the overall business returns. Vulnerability to intense competition and regulatory risks inherent for educational institutions – The institute remains exposed to intense competition from colleges/ other institutes in and outside West Bengal. Further, given that educational institutions are subject to regulatory intervention from the Government on the fee structure, student- teacher ratio, the maximum student intake, facilities and faculty salary etc., the financial flexibility of the entity is restricted. Small scale of operations at present, with low surplus in absolute terms – MSIT has only one campus in Kolkata, West Bengal. The scale of operations of MSIT has remained small, as reflected by an operating income of Rs. 23.17 crore (Rs. 21.89 crore in FY2017) and a net profit of Rs. 5.69 crore (Rs. 4.22 crore in FY2017) in FY2018. Inherent cash flow mismatches make appropriate treasury operations critical – MSIT collects fees on a half-yearly basis, whereas the servicing of debt obligations happens on a monthly basis. Thus MSIT, like other educational institutions, remains exposed to the inherent cash flow mismatches, thereby making appropriate treasury operations critical for the servicing of debt obligations in a timely manner. Liquidity position The company has scheduled long-term debt repayment obligations in the coming years, however, healthy cash accruals from the business are likely to keep the cash flows comfortable. ICRA notes that any incremental cash outflow towards advances to Group entities and capex plans, going forward, may impact the entity’s liquidity position. Analytical approach Analytical Approach Comments Corporate Credit Rating Methodology Applicable Rating Methodologies Rating Methodology for Entities in Higher Education Sector Parent/Group Support Not Applicable Consolidation / Standalone The rating is based on the standalone financial statements of the entity. 2 About the company: Established in 2001, MSIT is a college based out of Kolkata, West Bengal, and is managed by The Academy of Higher Education, a charitable trust. MSIT offers undergraduate and postgraduate courses across streams including engineering and management. Key financial indicators (audited) FY2017 FY2018 Operating Income (Rs. crore) 21.89 23.17 PAT (Rs. crore) 4.22 5.69 OPBDIT/ OI (%) 23.24% 30.10% RoCE (%) 14.01% 16.60% Total Debt/ TNW (times) 0.23 0.24 Total Debt/ OPBDIT (times) 1.43 1.29 Interest coverage (times) 6.28 6.07 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 Current Rating (FY2019) past 3 years Date & Rating in FY2018 Date & Date & Amount Date & Rating in Rating in Rated Amount Rating FY2017 FY2016 (Rs. Outstanding February December 2017 October Instrument Type crore) (Rs Crore) 2019 December 2017 2016 July 2015 1 Overdraft Long 10.00 - [ICRA]BB [ICRA]BB [ICRA]BB [ICRA]BB [ICRA]BB limit Term (Stable) (Stable); (Stable) ISSUER (Stable) (Stable) removed from NOT ‘ISSUER NOT COOOPERATING COOPERATING’ due to NDS non- category submission 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 3 Annexure-1: Instrument Details Date of Amount Issuance / Coupon Maturity Rated Current Rating and ISIN No Instrument Name Sanction Rate Date (Rs. crore) Outlook NA Overdraft limit NA NA NA 10.00 [ICRA]BB (Stable) Source: Meghnad Saha Institute of Technology 4 ANALYST CONTACTS Mr. K Ravichandran Mr. Sujoy Saha +91 44 4596 4301 +91 33 7150 1184 [email protected] [email protected] Mr. Sandipan Kumar Das Mr. Akash Gupta +91 33 7150 1190 +91 33 7150 1127 [email protected] [email protected] RELATIONSHIP CONTACT Mr. 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: +91-124-2866928 (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 5 ICRA Limited Corporate Office Building No. 8, 2nd Floor, Tower A; DLF Cyber City, Phase II; Gurgaon 122 002 Tel: +91 124 4545300 Email: [email protected] Website: www.icra.in Registered Office 1105, Kailash Building, 11th Floor;