Anil Neerukonda Educational Society

Brickwork Ratings upgrades the ratings for the Bank Loan Facilities of Rs. 93.54 Crs. of Anil Neerukonda Educational Society

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#@
	Previous	Present		Previous (23 Aug 2021)	Present
Fund Based	98.24	77.54	Long Term	BWR BBB /Stable Reaffirmation	BWR BBB + /Stable Upgrade
Non Fund Based	16.00	16.00	Short Term	BWR A3+ Reaffirmation	BWR A2 Upgrade
Grand Total	114.24	93.54	(Rupees Ninety Three Crores and Fifty Four 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: 1) Apart from the facilities being rated, the society has availed an OD facility of Rs.20.00 Crs from ICICI bank which are not being rated at the request of the client. 2) An advisory was issued on 29 August 2022 due to the delay in review of ratings
@This rating pertains to an existing assignment received prior to 6 October 2022

RATING ACTION / OUTLOOK

The upgrade of the ratings of Anil Neerukonda Educational Society (ANES or the society) by Brickwork Ratings (BWR) takes into account the improved financial performance in FY22 as reflected by a Total Operating Income  (TOI) growth of 25% on YOY basis with steady operating margins in the range of ~25-30%. The maintenance of net surplus margins ~9% in FY22 has resultantly supported the improvement in the debt protection metrics and gearing. The society's gearing position has improved to Rs.1.91 times as on 31 March 2022 as against 2.72 times recorded as on 31 March 2021. The society's performance has been backed by steady enrollment across its courses and improved operational performance of the 980-bed hospital. BWR expects a similar trend in the current financial year as reflected by the TOI of Rs.102.37 Crs, an Operating surplus of Rs.21.33 Crs and net surplus of Rs.5.89 Crs achieved during 7M FY 23 (Prov).

The rating also takes comfort from the induction of a few of the key promoters of Megha Engineering and Infrastructure Limited (MEIL) into the society's governing body and now have four nominees on the governing body of the society. MEIL is reputed and one of the largest EPC players in the country with a comfortable financial risk profile. The key promoters of MEIL Ms. Puritapati Sudharani, Mr.Puritipati Venkata Krishna Reddy and Mr. Pedda Subbiah Chakka have assumed the roles of Chairperson, Joint Secretary and member in the governing body of the society respectively. BWR expects the society shall be benefited from the resourceful group of promoters who would be able to provide it the financial flexibility required along with the continued leadership of the decade-old management team. 

The ratings continue to draw strength from the established brand equity of the society for around two decades in the educational sector, established track record of the society, diverse academic courses offerings, consistent placement record and various accreditations, viz., the NAAC A grade for its engineering college with NBA accreditation for (IT,CS,EEE,ECE and Mechanical Engineering) which has resulted in a steady student base, well-qualified and experienced faculty, good infrastructure facilities and experienced management. The ratings also positively factor in the moderate financial risk profile marked by an improved operating income, healthy corpus funds and decreasing long-term debt, resulting in an improved gearing position. However, the ratings continue to be constrained by vulnerability to regulatory risks associated with the education sector, challenges in attracting and retaining high-quality faculty members in Indian academia and the continuous need for capital expenditure for investment in infrastructure facilities. Additionally, the ratings factor in competition from other established institutes in the region, the dependence on the engineering streams, which account for ~73% of the student base. 

The Stable outlook indicates a low likelihood of a rating change over the medium term. BWR expects that the society's business risk profile will be maintained over the medium term. The outlook may be revised to Positive if the institute records a significant improvement in the operating income by increasing student strength/courses on a sustained basis along with an increased share of revenues from the hospital thereby resulting in a healthy diversification of revenue streams while maintaining its capital structure and debt-protection indicators. The outlook may be revised to Negative if higher-than-expected debt-funded capital expenditure results in a significant deterioration in the capital structure and coverage metrics. Furthermore, a downward revision may be considered if the students intake declines, impacting the envisaged surplus generation and weakening the financial risk profile.

KEY RATING DRIVERS

Credit Strengths:

• Established track record and resourceful management :

  The society was established in 2000 and has an operational track record of more than two decades. MEIL has recently acquired ANES through key promoter directors of MEIL being inducted in the governing body of the Society. The society continues to benefit from the experienced and qualified line of management which has been with the society for over a decade. The resourcefulness of the new inductees is expected to aid further improvement in the business and financial risk profile of the society.

• Diversified presence across various streams and student enrollment :

  ANES has 6 educational institutions [Engineering College: Anil Neerukonda Institute of Technology & Science; Medical College: NRI Institute of Medical Science; Dental College: Anil Neerukonda Institute of Dental Science and Nursing College: American NRI College of Nursing]; Physiotherapy College: Anil Neerukonda Institute of Physiotherapy (Permission received in 20-21; Medical Lab Technology College: Anil Neerukonda Institute of Medical Lab Technology and two hospitals [Medical Hospital: Anil Neerukonda Hospital and Dental hospital (attached to the Dental College)]. ANES has a total of 6243 students with 5987 students in the UG programme and 256 students in the PG programme. BWR notes the society's decision to discontinue its telemedicine services during FY22. However, the improvement in the operational performance of its hospital has resulted in additional revenue streams which contributed ~20% of the revenue during FY22 (PY: 10.35%). 

• Moderate financial risk profile: :

  The Society's financial profile is considered moderate as reflected in the modest total receipts, above-average surplus & margins, moderate corpus, gearing and adequate debt protection metrics. The total receipts increased from Rs 185.37 Crs duringFY22 to Rs 148.48 Crs during FY 21. The society recorded an operating surplus of Rs.46.06 Crs in FY 22 (PY:Rs.48.36 Crs). The net surplus of the society during FY 22 was Rs.16.81 Crs (PY:Rs.20.02 Crs). The Corpus funds improved from Rs 53.19 Crs as on 31 Mar 2021 to Rs.70.00 Crs as on 31 Mar 2022. The society also has unsecured loans of Rs 45.26 Crs as on 31 Mar 2022 from promoters (PY: Rs.46.01 Crs). Gearing has improved to 1.91 times as on 31 March 2022 (PY:2.72 times). While ISCR remains moderate at 4.11 times as on 31 March 2022 as against 4.06 times as on 31 March 2021, DSCR remains adequate at 1.52 times as on 31 March 2022 as against 1.47 times as on 31 March 2021. 

  On a provisional basis, the society has reported total receipts of ~ Rs. 102 Crs  and Net surplus of Rs.5.89 Crs during 7M FY23.

Credit Risks:

• Intense competition from other reputed institutes :

  The educational institutions face intense competition from other reputed institutions. They have to compete with other established institutions in order to recruit and retain quality teaching and non teaching staff at competitive remuneration and also attract good students at reasonable course fees by highlighting the features and prospects of the courses offered by them. The society is also exposed to geographical concentration risk as all the institutions are located in Visakhapatnam which makes operations vulnerable to any social or political changes in the region. Additionally, with the society's improved focus on the Hospital segment, the management's ability to retain the key medical talent to attract patients will be crucial in the long term.

• Regulatory risk :

  The Indian education sector comes under the purview of both central and state governments. It is regulated by the MHRD at the national level, by the education ministries in each state, central bodies such as the University Grants Commission (UGC) and other professional councils such as the All India Council for Technical Education, Medical Council of India etc. Flexibility to decide the number of management seats, tuition fees charged for government quota and management quota etc is restricted to some extent. The hospital also works in an environment of intense regulatory scrutiny and government intervention. The hospitals are required to comply with specific operational and infrastructure norms from time to time, as laid down by the regulatory bodies.

• Course Concentration Risk :

  The Engineering streams continue to account for the majority of the revenue as ~ 73% of the total student strength is attributed to these streams. However, over the past several years, the institute has introduced diversified courses within the engineering streams and has also launched new courses such as physiotherapy and medical lab technology within the medical college. However, the course concentration risk is expected to continue in the near future considering the vintage of the engineering college and the brand created by the group for its engineering courses.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, Brickwork Ratings has adopted a standalone approach and applied its rating methodology as detailed in the Rating criteria below (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Rating Sensitivities:

Going forward, the ability of the society to recruit and retain experienced faculty, maintain a healthy student enrollment ratio, ensure timely collection of fees from students and recover receivables from the government, maintain healthy surplus levels, improve capital structure, strengthen its liquidity and overall credit risk profile would be the key rating sensitivities.

Upward:

• Healthy growth in revenue, total corpus and an improvement in overall gearing on a sustained basis.

Downward:

• Inordinate delay in fee collections from students and the government deteriorating the current liquidity position of the society.
• A substantial decline in enrollment ratio on a sustained basis.
• Specific credit metrics that may result in a downward rating action include operating surplus margin falling below 22.5%, gearing exceeding 3.5 times, ISCR below 2 times and DSCR below unity on a sustained basis

LIQUIDITY INDICATORS - Adequate

The Society's liquidity remained adequate as reflected in the average working capital utilization of ~75-85% for the last 6 months ended October 2022. The cash equivalents were at ~Rs. 10.28 Crs as on 31 Mar 2022. The operating surplus of Rs.46.06 Crs was sufficient to cover the finance charges of Rs.11.20 Crs during FY 22.  The society has adequate net cash accrual to service its debt obligations of ~Rs.16.45 Crs and ~ Rs.12.11 Crs during FY23 and FY24 respectively. Current ratio remains stable at 1.59 times as on 31 March 2022 (PY:1.81 times). The DSRA equivalent to one-quarter of interest and principal repayments is being maintained for both term loans as confirmed by the lender. Timely collection of fees from students and recovery of receivables from the government continue to be key monitorable.

ABOUT THE ENTITY

Anil Neerukonda Education Society (ANES or the society) was established on 7th August 2000 at Visakhapatnam Andhra Pradesh. The objective was the set-up of both technical and non technical institutes. The society was founded by Dr. Neerukonda Prasad (MBBS,M.D Surgery and Anesthesia). The first institute under the society was Anil Neerukonda Institute of Technology and Sciences which was established in 2000 and provided engineering courses. Over the years, the management introduced additional streams such as medical,dental and nursing. All the institutions are located in Visakhapatnam, Andhra Pradesh. The society also runs a 980 bedded hospital with an occupancy rate of ~75% and equipped with ambulatory services, Advance Intensive Care Units, Cath lab, CT scan and other State-of-the-Art equipment required to provide super speciality facilities, etc. The hospital contains 12 Major and 4 minor operation theaters.

As of 06 January 2022 the promoters at Megha Engineering and Infrastructure Ltd (MEIL) have been inducted into the governing body of the society and the founding members have resigned. The current members of the society are Ms. Puritapati Sudharani as the chairperson/President (Director-MEIL), Mr. Puritipati Venkata Krishna Reddy (Director-MEIL) as the joint secretary, Mr. Pedda Subbiah Chakka (Director-MEIL) as a member. Mr. Prem Kumar Pandey and Mr. V.S Rajashekhar hold the designations of Treasurer and Joint-Treasurer of the society at present. Furthermore, Mr. Manikandan Narasimhan holds the designation of the Vice Chairperson of the society (Previously Vice Chairperson of the Society) and Mr. Damireddy Jaya Bharat Reddy holds the designation of Secretary at the society (Previously CEO of the group).

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 21-22 (Audited)	FY 20-21 (Audited)
Operating Revenue	Rs.Crs.	185.37	148.48
EBITDA	Rs.Crs.	46.06	48.36
PAT	Rs.Crs.	16.81	20.02
Corpus	Rs.Crs.	70.00	53.19
Total Debt/Corpus	Times	1.91	2.72
Current Ratio	Times	1.59	1.81

KEY COVENANTS OF THE FACILITY RATED

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

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

NA

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	77.54	BWR BBB+/Stable (Upgrade)	23Aug2021	BWR BBB Stable (Reaffirmation)	13Aug2020	BWR BBB Stable (Upgrade)	23Apr2019	BWR BBB- Stable (Reaffirmation)
Non Fund Based	ST	16.00	BWR A2 (Upgrade)	23Aug2021	BWR A3+ (Reaffirmation)	13Aug2020	BWR A3+ (Upgrade)	23Apr2019	BWR A3 (Reaffirmation)
Grand Total		93.54	(Rupees Ninety Three Crores and Fifty Four lakhs Only)

Rating Advisory, as on 29Aug2022
Press Release, as on 29Aug2022
An advisory was issued due to the delay in the review of ratings

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
• Short Term Debt
• Education Sector

Analytical Contacts
Vineetha Ann Varughese Senior Ratings Analyst vineetha.v@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@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	IndusInd Bank	Term Loan - Sanctioned	62.54	_	62.54
2	IndusInd Bank	Bank Guarantee - Sanctioned	_	16.00	16.00
3	IndusInd Bank	Overdraft - Sanctioned	15.00	_	15.00
Total			77.54	16.00	93.54
TOTAL (Rupees Ninety Three Crores and Fifty Four lakhs Only)