RATING RATIONALE
28 Feb 2020
Chamundeshwari Lakshmi Estates
Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs.5.00 Crs. of Chamundeshwari Lakshmi Estates
Particulars| Facility** | Amount (Rs.Crs) | Tenure | Rating* |
|---|---|---|---|
| Fund Based | |||
| Over Draft Sanctioned | 05.00 | Long Term | BWR B (Stable) |
| Sub Total | 05.00 | ||
| Grand Total | 05.00 | (Rupees Five Crores Only) | |
**Details of Bank facilities are provided in Annexure-I RATING ACTION / OUTLOOK : Stable
BWR believes that Chamundeshwari Lakshmi Estates business risk profile will be maintained over the medium term. The 'Stable' outlook indicates a low likelihood of rating change over the medium term. The rating outlook may be revised to 'Positive' in case the revenues and profit show sustained improvement. The rating outlook may be revised to 'Negative' if the revenues go down and profit margins show lower than expected figures.
KEY RATING DRIVERS
BWR has essentially relied upon the projected financial statements of Chamundeshwari Lakshmi Estates of FY20 till FY24, publicly available information and information/clarifications provided by the firm’s management.
The rating draws strength from the vast business experience and knowledge of the partners, and locational advantage of the proposed project. However, the rating is constrained by the infant stage of the project, execution & completion of the project, ability to meet its debt obligations against projected sales & profitability level, constitution of the firm and high competition from other established players in the market.
Going forward, the ability of the entity to achieve projected revenue & profitability margins and strengthen the overall financial and liquidity profile would be key rating sensitivities.
Credit Strengths:
- Management having knowledge and experience in the relevant industry :
Mr. Upendra A Reddy holds bachelors degree of Architecture and has experience in the relevant industry for more than 5 years. He has completed few other residential projects at Hunsur Taluk, Mysore under the project name of HMR Garden City and proprietorship of M/s. Chamundeshwari Developers.
- Locational advantage of the proposed project :
The firm proposes to develop a residential layout on Hunsur Taluk, Mysore which is located on the NH 275 Highway and is adjacent to the firm's previous project - HMR Garden City completed under the proprietorship firm M/s. Chamundeshwari Developers. Further, it is located within the 15 - 20 Kms radius of historical and site seeing places like Mysore Palace, KRS dam and reputed industries like Kirloskar Electric Co., ITC Ltd and Infosys etc.
Credit Risks:
- Inception stage of the proposed development project :
The proposed project is in its infant stage and any delays relating to planning or execution could lead to time and cost overruns. Further, the ability of the firm to meet its debt obligations depends on the achievement of projected sales & profitability levels.
- Intense competition in the sector :
The Indian construction industry is highly fragmented with a large number of organized and unorganized players leading to intense competition and limiting the pricing power resulting in low profitability.
- Limitations relating to the constitution of the entity :
Limitations of partnership concern in terms of capital and management. Any withdrawal of capital by the partners for any personal contingency would adversely affect the capital structure of the firm.
For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale).
RATING SENSITIVITIES
Going forward, the ability of the firm to increase its scale of operations, improve profitability, efficiently manage its working capital and strengthen its overall credit profile would be the key rating sensitivities.
Positive: The outlook may be revised to Positive if the company records significantly better-than-expected growth in revenues along with improvement in profitability levels and efficient working capital management, resulting in better debt coverage metrics and liquidity profile.
Negative: The outlook may be revised to Negative if the company reports significantly lower than expected performance, resulting in lower than estimated coverage indicators and a weaker liquidity position.
LIQUIDITY POSITION
Liquidity: Stretched
The cash flows generation depends on the completion of the ongoing project. The average utilization of the fund based facility has been more than 50% in the last six months. It is expected that the shortfall in servicing the interest obligations will be met through funding from the partners.
PROFILEM/s. Chamundeshwari Lakshmi Estates was initially established as a partnership firm during May 2016 under the name & style of HMR Builders by Mr. Upendra Reddy and Mrs. Lakshmi Reddy. It was reconstituted under the name of Chamundeshwari Lakshmi Estates on 15th April 2019 at Bangalore, Karnataka. The firm is engaged in the business of carrying on real estate activities involving buying & selling land, apartment, both commercial as well as residential as a realtor. Mr. Upendra Reddy holds a bachelor's degree in Architecture and has experience in the business of developing and marketing of residential layouts for more than 5 years. Mrs. Lakshmi Reddy is mother to Mr. Upendra Reddy.
Details of the project under execution:
Presently, the firm proposes to develop a residential layout project on approx 8 acres of land located at Manuganahalli, Hunsur taluk, Mysore. The management has obtained approvals for developing 2 acres of land out of the proposed 8 acres. The total cost of the project is estimated at Rs. 11.52 Crs which includes land cost Rs. 8.00 Crs, development & administration charges Rs. 2.92 Crs and balance interest charge Rs. 0.60 Crs. The management has availed during March 2019 working capital limit of Rs. 5.00 Crs. from Bank of Baroda, Bangalore, and balance of Rs. 5.00 Crs. to be brought in as partners' contributions and advances from customers Rs. 1.52 Crs. As informed by the management the partners' have brought Rs. 1.70 Crs. as capital in the firm and the same has been verified by BWR and the balance amount is yet to be brought in by the partners.
The proposed project was commenced during December 2019 and the tentative completion is estimated for March 2021. The total land area has been demarcated into 144 plots of 30/40, 30/50 and including odd plots of 33 nos. Plots are currently valued at Rs. 0.11 Crs. each. The firm has presently appointed 20 permanent staff to carry out its operations, including Mr. Shivananda as Project Head and Mr. Sharath Kumar as Marketing Head who are having more than 5 years of experience in the real estate business.
KEY FINANCIAL INDICATORS| Key Parameters | Units |
FY 20-21 (Projected) |
FY 19-20 (Projected) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | 3.39 | 0.00 |
| EBITDA | Rs.Crs. | 0.79 | 0.60 |
| PAT | Rs.Crs. | 0.13 | 0.00 |
| Tangible Net Worth | Rs.Crs. | 5.13 | 5.00 |
| Total Debt/Tangible Net Worth | Times | 0.98 | 1.00 |
| Current Ratio | Times | 0.00 | 7.58 |
RATING HISTORY (INCLUDING WITHDRAWAL AND SUSPENSION)
| S.No | Current Rating (2020) | Rating History | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Facilities | Tenure | Amount (Rs.Crs) | Rating | 2019 | 2018 | 2017 | ||||
| Fund Based | ||||||||||
| 1 | Over Draft - Sanctioned | Long Term | 05.00 | BWR B(Stable) | NA | NA | NA | |||
| Total | 05.00 | (Rupees Five Crores Only) | ||||||||
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 : For More Information Contact:| Analytical Contacts | Investor Contacts |
|---|---|
|
Umang Pardasani Ratings Analyst B : +91 80 4040 9940 Ext : 370 umang.p@brickworkratings.com |
Liena Thakur Assistant Vice President - Corporate Communications M : +91 84339 94686 liena.t@brickworkratings.com |
|
K Nagaraj Associate Director - Ratings B : +91 80 4040 9940 nagaraj.ks@brickworkratings.com |
|
| 1-860-425-2742 | |
| SL.No. | Type Of Facilities | Long Term(Rs.Crs.) | Short Term(Rs.Crs.) | Total(Rs.Crs.) |
|---|---|---|---|---|
| 1 | Over DraftSanctioned | 5.00 | _ | 5.00 |
| Total | 5.00 | |||
| TOTAL (Rupees Five Crores Only) | ||||
| Instrument | Issue Date | Amount (Rs.Crs) | Coupon Rate | Maturity Date | ISIN Particulars |
|---|---|---|---|---|---|
| NA | NA | NA | NA | NA | NA |
| Name of Entity | % Ownership | Extent of consolidation | Rationale for consolidation |
|---|---|---|---|
| NA | NA | NA | NA |
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