Apeejay Pvt. Ltd.

Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs. 67.39 Crs. of Apeejay Pvt. Ltd.

Particulars

Facilities**	Amount(Rs.Crs.)	Tenure	Rating#
Fund Based	67.39	Long Term	BWR BBB + /Stable Assignment
Grand Total	67.39	(Rupees Sixty Seven Crores and Thirty Nine 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.51.02crs outstanding as of 31 July 2021. RATING ACTION / OUTLOOK

BWR has assigned ratings of BWR BBB+ on the long-term bank facilities of Apeejay Pvt Ltd. with a Stable Outlook. The rating factors in APL's diversified sources of revenues that mitigates the risk of decline in revenues in one segment, seven business centres at six different locationswhich provides geographical diversification, likely rebound in occupancy levels in FY22 with expected improvement in demand at some locations, reputed clientele, close linkages with the Apeejay Surrendra Group which has an over 100 years of presence in diversified industries, and experienced management.The ratings are however constrained by moderate credit metrics, the vulnerability of cash flows to any decline in rentals, and stretched debtor collection period due to slow realisation of funds from tenants. 

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 profitabilityis 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 any large, debt-funded capital expenditure adversely impacts the capital structure thereby weakening the financial risk profile.

KEY RATING DRIVERS

Credit Strengths:

• Part of Apeejay Surrendra Group :

  APL is part of the Apeejay Surrendra Group which has a history of operations of over 100 years in diversified industries. There has been cash fungibility between APL and other group companies on a need basis. Currently, APL has extended Rs.110crs of short term loans and advances to its Group companies as at March 31, 2021.  Scheduled debt obligations are met with the help of interest received on such loans extended to Group companies. Further, APLs management has over three decades of experience in Commercial office Leasing which has helped maintain relationships with renowned corporates who presently form the clientele base of APL. The Company has a number of reputed corporate houses as its clientele which reduces counterparty credit risk.

• Expected improvement in Occupancy levels in at the Business Centres :

  Average occupancy levels dipped to 67% in FY21 at the business centres from 80% in FY20 as few tenants vacated the office due to lockdown in 1QFY21 owing to Covid. The Company subsequently closed the Gurugram Business centre which had a high occupancy level. APL expects overall occupancy of 80% in FY22. The existing capacity at Hyderabad has already reached occupancy levels of 87% in 1QFY22, however overall occupancy remained at 63% during the period. The Company is in an expansion mode at the Hyderabad unit and expects occupancy of 40% to 50% at the newly built area which will be accretive to total revenues in FY22 and compensate for the revenue decline due to the closure of Gurugram office. The CAPEX on the new unit will be minimal as the Company will be moving the assets from Gurugram to Hyderabad.  At other centres, occupancy has remained at moderate levels.

• Geographic Diversification :

  APL has seven business centres at six different locations in Mumbai, Vasi, Delhi, Chennai, Hyderabad and Kolkata which provide the benefits of geographical diversification. APLs business centres are located in the prime areas which are business hubs where demand for leased commercial areas is high. This helps it to attract reputed clientele and easily find tenants for leasing the property area.

• Diversified Sources of Revenues :

  APL is generating revenues from two segments- Income from lease rentals and Income from Services which mitigates the risk of decline in revenues in one segment. APL generates about 40% to 50% of total operating income is from these business centres. The remaining is from Services to tenants at the properties owned by Group Companies which gives revenue visibility as the agreements are long-term and are likely to continue going forward. Revenues from the ABC Business Centre is susceptible to fluctuations in the Occupancy levels at the centres as the bulk of the contracts are short-term in nature. Income from Services on the other hand has been stable as the lease agreements are of longer tenure. 

• EBIDTA margins likely to improve in FY22 :

  APLs EBIDTA margins dropped 3% y-o-y to 33% in FY21(Provisional) with a ~30% dip in topline in FY21(Provisional). Lower revenues in FY21 are attributable to the closure of the Gurugram Centre and lower overall average occupancy levels owing to the pandemic. Despite the dip, EBIDTA margins remained over 30% in FY21(Provisional) as 65% to 70% of the EBIDTA is generated from the Services segment. The Company expects a 20% y-o-y growth in total operating income in FY22 with increased occupancy levels at ABC Centres triggering a 10% rise in EBIDTA margins in FY22. Also, the savings of lease rentals of ~Rs.3crs paid to the lessee at the Gurugram Centre will help profitability in FY22. Considering the high fixed costs intensive business, any movement in occupancy levels leads to significant volatility in EBIDTA margins. 

Credit Risks:

• Vulnerable cash flows :

  APL’s cash flows are exposed to the inherent risk of an increase in vacant areas in commercial property and delays in receipt of rentals impacting cash flows. However, longer terms of the lease period and the inbuilt price escalation clause provide comfort. Timely renewal/ leasing of the units at similar/better terms will remain a key rating sensitivity.

• Stretched Receivables :

  APLs receivables have stretched to Rs.9.37crs in FY21(Provisional) from Rs.7.25crs in FY20 with delay in receipt of rentals from debtors outside the Group due to the pandemic. This coupled with lower revenues has stretched receivable days to 119days in FY21 from 67 days in FY20. Receivables are likely to be recovered with the expected improvement in the Group’s liquidity profile.  

• Susceptibility of debt coverage ratios to changes in interest rates and reduction in occupancy levels :

  The debt coverage ratios are highly linked to changes in interest rates and reduction in occupancy levels. Any increase in the interest rate or decline in occupancy levels might put pressure on the debt coverage metrics. Although APL has been able to sustain ISCR at over 1.0x in the last couple of years, DSCR is below 1.0x in FY21(Provisional) due to substantial reduction in net profitability owing to the shut down of Gurugram business center which was contributing to 50% of APLs total net profitability. Scheduled debt obligations were met by stretching trade creditors in FY21 which were paid of in the 1QFY22 with covid loans availed during the period. For FY22, APL expects to achieve sufficient cash accruals to meet scheduled debt obligations. 

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 and factored in the transactions between the Group companies. 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 APL, 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, effectively manage fluctuation of loan interest rates, ensure realization of the lease rental receivables, improve its rent to EMI cover 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 1.2x on a sustained basis may trigger a positive rating action.
Negative: Decline in scale of operations due to substantial reduction in Occupancy levels, further stretch in receivable days leading to stress in liquidity and DSCR of below 1.1x on a continuous basis will trigger a negative rating action.
 

LIQUIDITY INDICATORS - Stretched

APL has stretched its payables to meet liquidity requirements in FY21. DSCR is below 1.0x in FY21 and its working capital limits are near full utilisation. Delay in receipt of lease rentals from lessees due to pandemic led to an increase in trade receivables to 37% of total revenues in FY21 from 21% in FY20 leading to a stretched collection period during the year. However, the Company availed moratorium under RBI's Covid relief package in FY21 and also availed Covid loans of Rs.11.73crs to meet its cash flow mismatches. APL expects receivables to be realised in the near term which will ease out liquidity going forward. Although the Group's plan of deleveraging by raising fund form IPO of Apeejay Surrendra Park Hotel ltd has been deferred due to pandemics it will be initiated once the situation normalises. Also, the Group has entered into agreements to sell its non-core assets which will help improve the overall liquidity of the Group. 

ABOUT THE ENTITY

Incorporated on May 4, 1959, Apeejay Pvt. Ltd. (APL) is a part of the Kolkata-based Apeejay Surrendra Group. The Group was established in 1910 and has a presence in diversified industries including Tea, Hospitality, RealEstate, Shipping, Integrated Logistic Parks, Retail, Educational, and Financial Services. 

APL has two types of revenue stream-lease rents from ABC Business Centres and Income from services rendered to tenants at Apeejay House Private Limited and Artistrey House Pvt Ltd., Group Companies.  The Company is currently operating from seven centers, Kolkata (Park Street and Salt lake area), Hyderabad, Mumbai (Churchgate), Vashi, Chennai, and Delhi (Barakhamba). The business models work on seat basis and tenants occupy seats based on their requirements. Income from services rendered to Apeejay House (property owned by Apeejay House Pvt Ltd.) and Park Mansion (property owned by Artistery House Pvt. Ltd.) form the other part of the revenue stream. Services include Common area maintenance and housekeeping services.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	36.01	26.66
EBITDA	Rs.Crs.	13.05	7.52
PAT	Rs.Crs.	7.77	-0.44
Tangible Net Worth	Rs.Crs.	50.88	43.88
Total Debt/Tangible Net Worth	Times	1.14	1.35
Current Ratio	Times	1.27	1.36

KEY COVENANTS OF THE FACILITY RATED

Standard.

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

Not Applicable.

ANY OTHER INFORMATION

As per press release dated July 20, 2020, Apeejay Industries Pvt. Ltd. has ratings of ICRA BBB+, Stable 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	67.39	BWR BBB+/Stable (Assignment)	NA	NA	NA	NA	NA	NA
Grand Total		67.39	(Rupees Sixty Seven Crores and Thirty Nine 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	Yes Bank	Term Loan - Sanctioned	51.02	_	51.02
2	Yes Bank	Cash Credit - Sanctioned	5.00	_	5.00
3	Yes Bank	Covid -19 Emergency Line Credit - Sanctioned	11.37	_	11.37
Total			67.39	0.00	67.39
TOTAL (Rupees Sixty Seven Crores and Thirty Nine lakhs Only)