Apeejay House Pvt. Ltd.

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities for a reduced amount of Rs. 88.07 Crs. of Apeejay House Pvt. Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (18 Aug 2021)	Present
Fund Based	96.45	88.07	Long Term	BWR BBB+/Stable Assignment	BWR BBB + /Stable Reaffirmation
Grand Total	96.45	88.07	(Rupees Eighty Eight Crores and Seven 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

RATING ACTION / OUTLOOK

BWR has reaffirmed the ratings of BWR BBB+ on the long-term bank loan facilities of Rs.88.07Crs (reduced from Rs.96.45Crs) of Apeejay House Pvt Ltd. with a Stable Outlook. The rating factors in the sustained growth in revenues and profitability in FY22(Provisional) on the back of an increase in the overall occupancy levels to 89% in FY22 from 77% in FY21 on account of the addition of new tenants in line with BWR's expectations, as well as improvement in the average rent per month per square feet in FY22 owing to the escalation in the lease agreements and recovery of old rentals which were under litigations. The rating also takes into account the long-term lease agreements with reputed clientele imparting revenue visibility for the medium term, low counterparty risk, low customer concentration. AHPL has strong linkages with the Apeejay Surrendra Group having a presence in diversified industries, experienced management reflected in high cash flow support between group companies providing need-based liquidity support in the form of interest payments on loans and advances to other group companies, as well as a partial refund of such loans and advances. The ratings are however constrained by the vulnerability of cash flows to any decline in rentals, stretched debtor collection period, 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 improvement in 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:

• Improved Occupancy levels with addition of new tenants :

  AHPL’s occupancy levels at the Kolkata property continued to improve and reached 92% in FY22  (FY21:87%). The lease agreements with the tenants are generally for a period of 9 years with an escalation clause of every three years with around 70% of the lease expiring post FY25 providing medium-term revenue visibility. AHPL is also in talks with other prospective tenants and is 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’s occupancy levels at the Kolkata property continued to improve and reached 92% in FY22  (FY21:87%). The lease agreements with the tenants are generally for a period of 9 years with an escalation clause of every three years with around 70% of the lease expiring post FY25 providing medium-term revenue visibility. AHPL is also in talks with other prospective tenants and is in discussions with existing tenants for an increase in area requirements. This is likely to drive revenues in the medium term. 

• 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 to easily find tenants for leasing the property area.

• 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.150crs of short loans and advances to its Group companies as of March 31, 2022. 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 non operating income consisting of interest on loans and advances extended to Group companies and need based funds infused by the promoter group companies. As of March 31, 2022, unsecured loans from promoters are ~Rs.9crs, which have been provided 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 34% of the total leasable area is occupied by Group Companies from whom the recovery of rentals is slow. However, it has started realising rentals from the group companies and has also recovered old rentals under litigations in FY22. This resulted in an improvement in the debtor cycle to around 250days in FY22(Provisional) from 332 days in FY21. The Company expects further reduction in debtors during FY23 which will support liquidity.

• Moderate Debt Coverage ratios :

  AHPL’s ISCR has historically remained below 1.0x but has however improved to  1.28x as per provisional FY22 financials, inline with BWR expectations. DSCR has remained around 1x after factoring in the liquidity support from the group. However, any adverse movement in interest rate or delay in receipt of cash flow may result in  deterioration in the debt coverage ratios. 

• 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, the reputed clientele,  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

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 FY21, FY22 provisional financials of AHPL, projections for FY23 through FY25, 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 non operating income consisting of interest on loans and advances to group companies of Rs.7.45crs in FY22(Provisional) (FY21:Rs.11.6Crs) which has helped AHPL with timely and regular servicing of its debt obligations. The Company has also fully utilised its cash credit limits. The receivable days have stretched in FY21 to over 300days due to partial receipt of rentals from its Group Companies.However, the operating cycle has improved to around 250days in FY22(Provisional) with realisation of rentals from Group Companies.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.0.78Crs in FY22(Provisional) (FY21:Rs.1.45Crs). As per the management, rentals are expected to increase in the future driven by increase in monthly rentals on the back of escalation clause, increase in occupancy and expected realisation of rentals under litigations. The Group's plans to deleverage by raising funds by selling off its non core assets which will help improve the 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 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	19.53	21.66
EBITDA	Rs.Crs.	7.77	8.95
PAT	Rs.Crs.	4.92	3.91
Tangible Net Worth	Rs.Crs.	54.33	49.41
Total Debt/TNW	Times	2.17	2.62
Current Ratio	Times	3.52	2.46

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.

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2022)			2021		2020		2019
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	88.07	BWR BBB+/Stable (Reaffirmation)	18Aug2021	BWR BBB+Stable (Assignment)	NA	NA	NA	NA
Grand Total		88.07	(Rupees Eighty Eight Crores and Seven lakhs Only)

Rating Advisory, as on 23Aug2022
Press Release, as on 23Aug2022
As more than 12 months have elapsed since the last rating, it has not been possible to review the rating within the stipulated time, mainly due to the delay in receipt of full information/ documents required for the review of ratings. However, majority of the information has now been received from Company and the review is under process.

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
• Commercial Real Estate Rating Methodology

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	67.07	_	67.07
2	Yes Bank	Cash Credit - Sanctioned	21.00	_	21.00
Total			88.07	0.00	88.07
TOTAL (Rupees Eighty Eight Crores and Seven lakhs Only)