Apeejay Industries Pvt. Ltd.

Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs. 13.21 Crs. of Apeejay Industries Pvt. Ltd. (AIPL or 'The Company')

Particulars

Facilities**	Amount(Rs.Crs.)	Tenure	Rating#
Fund Based	13.21	Long Term	BWR BBB /Stable Assignment
Grand Total	13.21	(Rupees Thirteen Crores and Twenty One lakhs Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure
Note: The limits rated include Term Loans of Rs.11.21crs outstanding as of 31 July 2021. AIPL has availed Loan Against Property (Rs.2.9crs outstanding as of 30 June 2021) from another Bank which is not included in the amount rated. RATING ACTION / OUTLOOK

Brickwork Ratings have assigned a long-term rating of BWR BBB, with a Stable Outlook, to the bank loans of Apeejay Industries Private Limited aggregating Rs.13.21crs. The rating assigned is based on AIPL's established position in the warehouse leasing business for the last 45 years, the strategic location of the warehouse that has helped sustain occupancy levels in FY21 despite the impact of Covid on operations, a healthy financial and credit risk profile reflected in consistent EBIDTA margins, low gearing, acceptable ISCR, and moderate but acceptable DSCR, as well as its diversified and reputed customer base. Rating also takes into account the financial flexibility AIPL gets from being a part of the Apeejay Surrendra Group, a diversified and established Group in Kolkata having over 100 years of history of operations. 
 
The ratings are, however, constrained by AIPL's vulnerable cash flows as inherent in the business of leasing of premises, a stretched debtor cycle in FY21 due to pending rentals from a Group Company lessee, (which however is not likely to increase further due to a substantial decline in Group Occupancy) and the existence of short-term lease agreements that exposes it to the risk of non renewal of agreements - thereby impacting cash inflows. 
 
The rating has been assigned a ‘Stable’ outlook indicating a low likelihood of rating change over the medium term. Brickwork Ratings believes that the business risk profile of the company is stable, and growth in business and profitability are expected to be maintained in the medium term. The outlook may be revised to Positive in case the Company is able to achieve higher than anticipated rentals through rent escalations/timely renewals, thus ensuring medium to long-term revenue visibility and healthy cash inflows and improving its debt protection metrics. The rating outlook may be revised to ‘Negative’ in case a fall in occupancy or rental levels weakens coverage and liquidity indicators, or if any large, debt-funded capital expenditure adversely impacts the capital structure, thereby weakening the financial risk profile.

KEY RATING DRIVERS

Credit Strengths:

• Experienced Management and close linkage with the Group :

  AIPL is part of the Apeejay Surrendra Group which has a history of operations of over 100 years in diversified industries. AIPLs management has over three decades of experience in Commercial Warehouse Leasing which has helped maintain relationships with renowned corporates who presently form the clientele base of AIPL. There has been cash fungibility between AIPL and other group companies on a need basis. Currently, AIPL has extended Rs.15crs of short loans and advances to one of its Group companies as of March 31, 2021. 

• Track record of renewal of the lease with KPT and Healthy Occupancy Level :

  AIPL has been in the warehouse leasing business for the last 45 years. The warehouse is taken on lease from KPT for a 15 years lease agreement. AIPL has the first right of refusal and has managed to renew the agreement with KPT for three consecutive times in the last 45 years. The present lease agreement with KPT, which is expiring in March 2024, is likely to be renewed given the company’s successful track record.  Besides, AIPL has managed to maintain occupancy levels at 82% in FY21 despite the current pandemic situation and one of the group entities vacating the warehouse.

• Acceptable Financial and Credit Profile :

  AIPL has reported a total operating income of Rs.18.9crs in FY21(FY20:Rs.18.6crs) and booked EBITDA margins of over 50% in FY21 despite the impact of Covid. Credit profile is acceptable with gearing of below 1x in FY21(Provisional) from 1.3x in FY20 on an improved net worth and reduced borrowings. Gearing is likely to remain below 1x with repayments of long-term borrowings and no major debt led capex plans in the near term. ISCR has remained comfortable at 3.5x to 3.7x in the last couple of years and is expected to be maintained at around 4.0x going forward with improved EBIDTA levels and reduced interest. Although DSCR is moderate but acceptable at 1.1x in FY21 (1.4x in FY20), it is expected to remain at around 1.2x going forward. Further, as per the bankers, AIPL is not required to maintain any Escrow Account and DSRA with its lender however all the receivables are routed through the Company's account with them.

• Reputed and Diversified Clientele :

  AIPL has renowned and reputed corporates in diversified industries as its clientele which reduces the counterparty risk and assures timely receipt of receivables. The largest client occupies 22% of the total leasable area. 

• Strategic location of the Warehouse :

  AIPL benefits from the strategic location on the warehouse. The warehouse is located on Hide Road in Kolkata. The location is a prime commercial area in Kolkata which helps to tap new tenants and replace exiting tenants and maintain occupancy levels. 

Credit Risks:

• Vulnerable Cash Flows :

  Lease rentals are the primary source of income for AIPL. As is inherent in any leased commercial property, the Company is exposed to the risk of lease vacancy and non-payment of rentals impacting cash flows, which will have a direct impact on the cash flows of the Company.  Although AIPL’s operations were not significantly impacted by the Covid-19 pandemic and the subsequent lockdown (evident from the steady collections of lease rentals during FY21), sustained weakness in the economic environment may impact the renewal of lease agreements and incremental leasing. BWR notes that 59 % of AIPL's existing lease agreements with tenants is due to expire in the next one year and all of its lease agreements with tenants is due for expiry before March 2024 as the lease with KPT is expiring in March 2024, which makes it susceptible to the risk of the agreements with its tenants not getting renewed, particularly during crisis situations like the ongoing pandemic situation, thereby impacting cash flows. However, AIPL is expected to renew the lease agreement with KPT and has historically been able to manage the renewal of its lease agreements with tenants or engage new tenants and maintain occupancy levels at over 80%. Besides, the risk is partially mitigated by the strong tenant profile and already incurred expenses on fit-outs which increase tenant stickiness. 

• Debt coverage ratios susceptible to lower Occupancy and Interest Rates :

  The debt coverage ratio is strongly correlated to a reduction in occupancy levels and changes in interest rates. Any increase in the interest rate or decline in occupancy levels might put pressure on the debt coverage metrics, particularly the DSCR which is already at moderate levels. However, the majority of the lease agreements are initially signed for a period of 3 to 4 years and have an inbuilt price escalation clause that provides comfort. Timely renewal/ leasing of the units at similar/better terms and the Company's ability to effectively manage the fluctuation of loan interest rates will remain a key rating sensitivity.

• Stretched Debtors :

  There are pending rentals from one of the Group entities (18% of total Operating Income in FY21) which are expected to be realised over the coming two fiscals. However, there is no stretch in any other debtors.

• Pending Rentals to KPT :

  AIPL has pending rentals with the lessee as the company had requested KPT for concession in lease payments which is to be cleared by FY22. Although AIPL has revenue visibility and is expected to generate sufficient cash accruals to service loan repayments, the residual cash will be short of the pending lease rentals to KPT. As per the management, AIPL will use the funds on receipt from Group Company which is extended as short-term loans and advances to pay the lessee. 

ANALYTICAL APPROACH - Standalone

The Companies under the Apeejay Surrendra Group are into diversified industries including Tea, Shipping, leasing of commercial properties and others.  While assigning the ratings, BWR had taken a standalone view on the Company. BWR has applied its rating methodology as detailed in the Rating Criteria (hyperlinks provided at the end of this rationale). 

RATING SENSITIVITIES

BWR has essentially relied upon the audited financial results up to FY20, FY21 provisional financials of AIPL and Projections from FY22 to FY24, publicly available information, and information/clarifications provided by the Company’s management and Banker, to arrive at the present rating. 
Going forward, the ability of the Company to ensure timely renewal of lease agreements, maintain occupancy levels, ensure realization of the lease rental receivables and strengthen its financial risk profile would be the key rating sensitivities. 
Positive: Increase in scale of operations and cash accruals leading to improved liquidity and DSCR of over 1.3x on a sustained basis will trigger a positive rating action.
Negative: Decline in the scale of operation due to substantial reduction in Occupancy levels, further stretch in receivable days leading to stress in liquidity, and DSCR of below 1.2x on a continuous basis will trigger a negative rating action.

LIQUIDITY INDICATORS - Adequate

AIPL's liquidity is Adequate. It has a working capital utilisation of ~50% in the 1QFY22. The liquidity was supported by the moratorium availed under the RBI's covid relief package on a part of their loan exposure in FY21. Cash flows will be supported by an expected increase in occupancy levels in FY22 with new tenants at the warehouse. As per BWR estimates, expected cash accruals in FY22 will be sufficient to repay scheduled debt repayments of Rs.4.63crs at the present occupancy levels. Further, by the end of the lease period with KPT, the Company will be left with a small repayment obligation of Rs.1.75crs against the term loan. However, AIPL is not required to maintain DSRA with the lender which reduces the cushion for liquidity. The Group's plan of deleveraging by raising funds from IPO of Apeejay Surrendra Park Hotel Ltd has been deferred due to the pandemic and will be initiated once the situation normalises. Also, the Group has entered into agreements to sell off its non-core assets which will help improve the overall liquidity of the Group. The Group has already received funds by hiving off the Typhoo Tea brand under Apeejay Tea Limited recently, leading to its significant deleveraging.  

ABOUT THE ENTITY

Incorporated on June 20, 1962, Apeejay Industries Pvt. Ltd. (AIPL) is into the leasing of a warehouse located on 30 acres of land in Hide Road, Kolkata. The property is taken on a lease basis from Kolkata Port Trust for a period of 15 years which expires in March 2024. The warehouse is given on a lease basis to various corporates in different industries.  

AIPL is a part of the Kolkata-based Apeejay Surrendra Group and a 100% subsidiary of Apeejay Private Limited(another Company in the Apeejay Surrendra Group). The Group was established in 1910 and has a presence in diversified industries including Tea, Hospitality, Real Estate, Shipping, Integrated Logistic Parks, Retail, Educational, and Financial Services. 

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	18.69	20.04
EBITDA	Rs.Crs.	10.18	11.04
PAT	Rs.Crs.	4.40	2.48
Tangible Net Worth	Rs.Crs.	19.00	14.59
Total Debt/Tangible Net Worth	Times	1.31	1.72
Current Ratio	Times	0.84	0.91

KEY COVENANTS OF THE FACILITY RATED

Standard. 

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

Not Applicable.

ANY OTHER INFORMATION

As per press release dated June 30, 2021, Apeejay Industries Pvt. Ltd. has ratings of ICRA BBB, Negative Outlook. 

RATING HISTORY FOR LAST THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating  (2021)			2020		2019		2018
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	13.21	BWR BBB/Stable (Assignment)	NA	NA	NA	NA	NA	NA
Grand Total		13.21	(Rupees Thirteen Crores and Twenty One lakhs Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.

Hyperlink/Reference to applicable Criteria

• General Criteria
• Approach to Financial Ratios
• Infrastructure Sector

Analytical Contacts
Madhu Sonthalia Senior Rating Analyst Board : +91 80 4040 9940 madhusonthalia@brickworkratings.com	Anuradha Gupta Director - Ratings anuradha.g@brickworkratings.com
1-860-425-2742 | media@brickworkratings.com

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	IndusInd Bank	Term Loan - Sanctioned	11.21	_	11.21
2	IndusInd Bank	Cash Credit - Sanctioned	2.00	_	2.00
Total			13.21	0.00	13.21
TOTAL (Rupees Thirteen Crores and Twenty One lakhs Only)