Apeejay Pvt. Ltd.

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities for a reduced amount of Rs. 58.22 Crs. of Apeejay Pvt. Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (18 Aug 2021)	Present
Fund Based	67.39	58.22	Long Term	BWR BBB+/Stable Assignment	BWR BBB + /Stable Reaffirmation
Grand Total	67.39	58.22	(Rupees Fifty Eight Crores and Twenty Two 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 facilities for Rs. 58.22 Crs (reduced from Rs.67.39 Crs) of Apeejay Pvt Ltd. (APL) with a Stable Outlook. The rating factors in the rebound in occupancy levels to pre covid levels as expected with demand improving at the different business centers of APL, completion of the expansions in the Business center division at the Hyderabad location, timely infusion of funds by the Group for liquidity requirements of APL in the form of interest payments on loans and advances extended by APL to group companies and improvement in financial and credit profile as per provisional FY22 financials. The ratings also take into account the Company's diversified source of revenues that mitigates the risk of decline in revenues in one segment, seven business centers at six different locations which provide geographical diversification, 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 the moderate credit metrics, the vulnerability of cash flows to any decline in rentals, and stretched debtor collection period due to the slow realisation of rentals from Group companies. 

The rating has been assigned a ‘Stable’ outlook indicating a low likelihood of rating change over the medium term. Brickwork Ratings believes that the company's business risk profile is stable, and growth in business and profitability are expected to be maintained in the medium term. The outlook may be revised to Positive if the Company can 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:

• Improved financial profile in FY22(Provisional) :

  APLs registered a 10% y-o-y increase in topline to Rs.28.21Crs driven by an increase in overall occupancies and rentals post expansions at the business centres which contributes to about 50% of total revenues generated. Occupancy increased to 79% from 63% in FY21 despite an increase in total seating capacities while total rentals improved by ~7% y-o-y at the business centres. Income from CAM services also improved 13.65% y-o-y in FY22(Provisional). Total installed seats increased by 12% with expansions at the Hyderabad centre and additional seats added in other centres including Kolkata and Chennai in FY22. EBIDTA margins improved to 37% in FY22(Provisional) from 29% in FY21. The Company expects a ~5%  y-o-y growth in total operating income in FY23 with increased occupancy levels at ABC Centres triggering a rise in EBIDTA margins during the year. Considering the high fixed costs intensive business, any movement in occupancy levels leads to significant volatility in EBIDTA margins. 

• Expected improvement in Occupancy levels at the Business Centres :

  Average occupancy levels have improved to 79% in FY22(Provisional) from 65% in FY21 at the business centres. Occupancy increased despite the increase in the number of seats after the expansions at Hyderabad. APL expects overall occupancy of 80% to 85% going forward. The existing capacity at Hyderabad has already reached occupancy levels of 73% in FY22 giving a further scope of improvement in occupancy levels. The Company is also looking at opening new business centres and has already initiated discussions. 

• 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. 

• 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 over Rs.100crs of short term loans and advances to its Group companies as at March 31, 2022. 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.

Credit Risks:

• Stretched Receivables :

  APLs receivables have stretched to Rs.9.85crs in FY22(Provisional) from Rs.3.12crs in FY21 with delay in receipt of rentals from debtors -majorly from the Group resulting in stretched collection period to 118days in FY22 from 112 days in FY21. 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 reductions 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 FY22(Provisional) due to low net profitability. Scheduled debt obligations are met by support from the group companies. Going forward, APL expects to achieve sufficient cash accruals to meet scheduled debt obligations. 

• 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.

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 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 FY21, CA certified FY22 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's liquidity is stretched as its working capital limits are near full to utilisation levels and DSCR is historically below 1.0x. Delays in receipt of lease rentals from group companies have led to trade receivables of 35% of total revenues in FY22(Provisional) leading to a stretched collection period during the year. However, the Company gets support from group companies for meeting its scheduled debt obligations. APL expects receivables to be realised in the near term which will ease out liquidity going forward. The Group has been taking initiatives to improve liquidity. The Group's plans to pursue deleveraging by raising fund form IPO of Apeejay Surrendra Park Hotel ltd  which was deferred due to pandemics. 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 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	25.56	36.01
EBITDA	Rs.Crs.	7.59	13.05
PAT	Rs.Crs.	0.90	7.77
Tangible Net Worth	Rs.Crs.	51.91	50.66
Total Debt/TNW	Times	1.10	1.14
Current Ratio	Times	1.37	1.27

KEY COVENANTS OF THE FACILITY RATED

Standard.

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	58.22	BWR BBB+/Stable (Reaffirmation)	18Aug2021	BWR BBB+Stable (Assignment)	NA	NA	NA	NA
Grand Total		58.22	(Rupees Fifty Eight Crores and Twenty Two lakhs Only)

Rating Advisory, as on 23Aug2022
Press Release, as on 23Aug2022
As more than 12 months have elapsed since the last rating, BWR hereby informs that 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, the 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	43.00	_	43.00
2	Yes Bank	Cash Credit - Sanctioned	5.00	_	5.00
3	Yes Bank	Covid -19 Emergency Line Credit - Sanctioned	10.22	_	10.22
Total			58.22	0.00	58.22
TOTAL (Rupees Fifty Eight Crores and Twenty Two lakhs Only)