Apeejay House Pvt. Ltd.

Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs. 96.45 Crs. of Apeejay House Pvt. Ltd.

Particulars

Facilities**	Amount(Rs.Crs.)	Tenure	Rating#
Fund Based	96.45	Long Term	BWR BBB + /Stable Assignment
Grand Total	96.45	(Rupees Ninety Six Crores and Forty Five 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.75.45crs outstanding as of 31 July 2021. RATING ACTION / OUTLOOK

BWR has assigned ratings of BWR BBB+ on the long-term bank facilities of Apeejay House Pvt Ltd. with a Stable Outlook. The rating factors in AHPL's ability to sustain occupancy levels at 87% at its Kolkata Property in FY21 despite the impact of the pandemic due to its strategic location, long term lease agreements with reputed clientele imparting revenue visibility for the medium term, low counterparty risk, low customer concentration, close linkages with the Apeejay Surrendra Group which has an over 100 years of presence in diversified industries, experienced management and need-based infusion of funds by promoter group to support liquidity requirements at AHPL.  The ratings are however constrained by the Company's reliance on the non-operating cash flows for servicing debt obligations, the vulnerability of cash flows to any decline in rentals, stretched debtor collection period due to slow realisation of funds from tenants who are Group Companies, and historically low ISCR and DSCR.
 
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 is 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:

• Locational advantage :

  AHPL’s property in Kolkata is located in the Park Street area which is a prime location and is a business hub. This helps to attract reputed clientele and easily find tenants for leasing the property area.

• Sustained Occupancy levels with addition of new tenants :

  AHPL has managed to maintain its occupancy level at its Kolkata property at 87% in FY21 (FY20:84%) despite the pandemic. The Company has a number of reputed banks and insurance companies as its clientele who were operating normally during the pandemic induced lockdown period as were categorised as essential services which have led to uninterrupted cash flows from rentals reflecting low counterparty risk. Except for a couple of tenants, there were no other vacancies created in FY21. The Company has already leased a part of the total vacant area to four new tenants at the end of FY21 resulting in improved occupancy levels during the year. It is also in talks with other prospective tenants and in discussions with existing tenants for an increase in area requirements. This is likely to drive revenues in the medium term.

• Low customer concentration and Revenue visibility :

  AHPL has a large customer base which reduces the risk from customer concentration risk. The top five customers occupied 30.25% of the total leasable area with the top tenant acquiring only 13% of the total area sq ft. The lease agreements with the tenants are for a period of 9 years with an escalation clause of every three years which is favorable in terms of revenue visibility.

• Part of the Apeejay Group and Need based infusions by promoters :

  AHPL is part of the Apeejay Surrendra Group which has an history of operations of over 110 years in diversified industries. There has been cash fungibility between AHPL and other group companies on a need basis. Currently, AHPL has extended Rs.128 crs of short loans and advances to its Group companies as at March 31, 2021. AHPL is meeting its scheduled debt obligations with the help of interest received on such loans extended to Group companies. Further, AHPLs management is professionally skilled and 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 AHPL. Although the debt coverage ratios are moderate, AHPL has maintained regularity in meeting debt obligations with the help of funds infused by the promoter group companies. As of March 31, 2021, promoters have infused Rs.33.86crs of unsecured loans to meet liquidity requirements. Further, AHPL and APL (another Group Company) have extended Corporate Guarantees to each other’s debt which reflects close linkage.

Credit Risks:

• Stretched Receivable :

  About 30% of the total leasable area is occupied by Group Companies from whom the recovery of rentals is slow. This has resulted in a stretched debtor collection period to 332 days in FY21 from 271 days in FY20. The Company has however received a portion of the debtors beyond six months and expects to recover the balance with the expected improvement in the Group’s liquidity profile.

• Moderate Debt Coverage ratios :

  AHPL’s ISCR has remained below 1.0x over the last 4 years due to low EBITDA as rentals have been insufficient to meet debt obligations.DSCR has been close to 1x due to high non-operating income largely in the form of interest income. Any adverse movement in interest rate will result in further deterioration in the debt coverage ratios. The Company has however received financial support from its promoters as and when required. The Promoters have infused funds in the form of unsecured loans to help meet liquidity requirements.

• Vulnerable Cash Flows :

  AHPL’s cashflows are exposed to inherent risk of increase in vacant area in commercial property and delays in receipt of rentals impacting cash flows. However, longer terms of 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.

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 has factored in transactions with 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 AHPL, 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 the fluctuation of loan interest rates, ensure realization of the lease rental receivables especially from Group Companies, 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 1.5x on a sustained basis may 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 1.1x on a continuous basis will trigger a negative rating action.

LIQUIDITY INDICATORS - Stretched

AHPL's liquidity is Stretched. The Company's lease rentals are not sufficient to meet the scheduled repayment obligations. However, the Company has substantial income from the interest of Rs.12crs in FY21(Provisional) on loans and advances to Group Companies which has helped AHPL timely and regular servicing of its debt obligations. The Company has also fully utilised its cash credit limits. The receivable days have stretched to 323days in FY21 from 271days in FY20 due to partial receipt of rentals from its Group Companies. Rentals from Group Companies are expected to be realised over the period of next two years. The Company is not stipulated to maintain DSRA with the lender, however it has maintained an Escrow account that prioritises repayment of bank loans. Also, AHPL has maintained a very low free cash balance of Rs.1.45Crs in FY21(Provisional). As per the management, AHPL has recently received a sum of Rs.7crs against disputed rentals from an old lessee out of the expected sum of ~Rs.18crs from disputed rentals. The remaining amount is likely to be received by 1QFY23 which will ease out liquidity. Although the Group's plan of deleveraging by raising funds from IPO of Apeejay Surrendra Park Hotel Ltd. has been deferred due to pandemic, the management plans to initiate it once the present situation normalises. Also, the Group has entered into agreements to sell off its non core assets which will help improve overall liquidity of the Group. 

ABOUT THE ENTITY

Incorporated on August 08, 1966, Apeejay House Private Limited (AHPL) is involved in leasing commercial property owned by the Company in Kolkata and Delhi.  AHPL is a part of the Kolkata-based Apeejay Surrendra Group 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.

AHPL owns a G+8 building divided into three blocks built on an area of ~3lac sqft named Apeejay House located in the Park Street, Kolkata, a prime location in Kolkata and results in higher occupancy levels of over 90% at the property. There are various offices in the building which have been leased out to corporates, banks, and financial institutions. The property owned in Delhi is a building built on an area of 2,7,179 sqft located in Mohan Cooperative Industrial Estates, Faridabad, Haryana. A portion of the total leasable area at the property is occupied by a group company 

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	21.66	20.63
EBITDA	Rs.Crs.	8.95	7.42
PAT	Rs.Crs.	3.91	-0.24
Tangible Net Worth	Rs.Crs.	49.41	45.49
Total Debt/Tangible Net Worth	Times	2.62	2.25
Current Ratio	Times	2.46	2.65

KEY COVENANTS OF THE FACILITY RATED

The terms of sanction include standard covenants normally stipulated for such facilities.

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

Not Applicable.

ANY OTHER INFORMATION

As per press release date July 20, 2021, ICRA has rated AHPL's bank loan facilities at ICRA BBB+, Stable.   

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	96.45	BWR BBB+/Stable (Assignment)	NA	NA	NA	NA	NA	NA
Grand Total		96.45	(Rupees Ninety Six Crores and Forty Five 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	75.45	_	75.45
2	Yes Bank	Cash Credit - Sanctioned	21.00	_	21.00
Total			96.45	0.00	96.45
TOTAL (Rupees Ninety Six Crores and Forty Five lakhs Only)