Iconica Constructions

Brickwork Ratings downgrades the long term rating and reaffirms the short term ratings for the Bank Loan Facilities of Rs. 50.00 Crs. of Iconica Constructions

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (13 Oct 2020)	Present
Fund Based	45.00	45.00	Long Term	BWR BB/Stable to Negative Reaffirmation and change in Outlook	BWR BB - /Negative to Stable Downgrade
Non Fund Based	5.00	5.00	Short Term	BWR A4 Reaffirmation	BWR A4 Reaffirmation
Grand Total	50.00	50.00	(Rupees Fifty Crores 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

The ratings revision of the bank loan facilities of Iconica Constructions (‘IC’ or ‘the firm’) factors impact of Covid-19 on the credit profile and cash flows of the firm as reflected in the deterioration and lower than expected performance in FY20 and FY21 (P). The firm's sales achievement was 71% and 42% of its envisaged performance in FY20 and FY21 respectively. The firm's business and operations continue to be supported by the experience of the management in the real estate business, established operational track record and demonstrated project implementation capabilities. The ratings continue to be constrained by the moderate scale of operations, geographical concentration risk, project execution risks and vulnerability of profitability due to intensely competitive and cyclical real estate industry.

Brickwork Ratings (BWR) notes that the firm had availed relief under the Covid-19 moratorium package for March-August 2020 for interest payment on Overdraft facility . The lender has confirmed repayment of the Funded Interest Term Loan (FITL) as on 31 Mar 2021 in this regard. BWR also notes the firm has not applied for one time restructuring (OTR) of loans under RBI Resolution Framework for Covid-19 related Stress.

The revision of outlook to stable factors the company's 6MFY22 sales and stable operating/ net margins. The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. BWR believes IC’s business risk profile will be maintained over the medium term. However, the outlook may be revised to “Positive”, if the increased sales velocity as envisaged and there is a sustained increase in cash collections. The outlook may be revised to ‘Negative’ if the business profile further deteriorates or the envisaged sales and collections momentum is not achieved resulting in decline in financial risk profile of the firm.

KEY RATING DRIVERS

Credit Strengths:

Experienced management and established operational track record :
Iconica Constructions, established in 2014, is a partnership firm with M/s Gardencity Realty Pvt Ltd (Gardencity) and M/s Venkatlakshmy Holdings Pvt Ltd as partners which are part of the Iconica Group. Mr. Muralikrishna the chairman of the group has close to two decades of experience in the industry. The group through M/s Gardencity Realty Pvt Ltd and other entities have an established operational track record of more than 15 years spanning a across various apartment complexes in Bengaluru, Hyderabad and Chennai viz. Temple Bells, Shriram Signia, Rainbow Vistas etc. The group has a combined land bank of ~200 acres of land in Hyderabad and Bengaluru. The industry experience of the promoters and the brand presence of the group is expected to aid in completion of the ongoing / upcoming projects and augment the sale of the existing units.
Average financial risk profile :
The firm's TOI,EBITDA and PAT for FY 20 was Rs.65.02 Crs, Rs.3.13 Crs and Rs.1.51 Crs as against Rs.95.89 Crs,Rs.9.18 Crs and Rs.3.63 Crs for FY 19. The TOI has further declined to Rs.30.23 Crs in FY 21 on a provisional basis. The decline in FY 21 is due to the slow down in the ongoing projects and delay in commencement of the projects in the pipeline due to the pandemic. The EBITDA and PAT were at Rs.9.65 crs and Rs.1.31 crs in FY21 (Prov). The tangible net worth position improved to Rs.42.23 Crs as on 31 March 2021 (P) (PY:Rs.40.92 Crs). The gearing has deteriorated marginally from 1.24 times as on 31 March 2020 to 1.36 times as on 31 March 2021(P). The debt protection metrics remained subdued as reflected in less than adequate ISCR of 0.47 time (PY 1.44 times) and adequate DSCR of 1.39 times (PY 1.62 times) as on 31 Mar 2020. The company has achieved sales of ~Rs.29 crs in 6MFY22 on provisional basis.
Ongoing projects and favorable location of the projects :
Iconica Constructions along with its group companies is developing residential projects in Bangalore at OMR, Bommenahalli (Greenfield), Anekal/Manchanahalli (Guestline) near Hosur Road, Villas (Iconica Grande) in Vizag in association with Shriram Properties. Apart from this, the firm is taking over some of the incomplete projects in Electronic City, Hanging Gardens and Yeshwantpur. The firm is also developing residential and commercial complexes near Hebbal and Yelahanka. The projects of the firm are located in favourable locations in Bengaluru viz. Electronic city, Hebbal, Yelahanka, Bommenahalli etc which increases the saleability of the units. The ongoing and upcoming projects of the entity are located in Karnataka and Andhra Pradesh and are funded through a mix of debt and advances which are expected to provide steady cash flows for the firm.

Credit Risks:

Subdued Performance during the last two years and impact of covid-19 :
Sales progress continues to be subdued during the last two years on account of muted demand. Although some of the projects are near completion, there has been decline in sales velocity. BWR notes that greenfield is almost sold with 1481 units ~93% as on Aug 21 (PY 1476 units) and that the Uniworld project has been further delayed from earlier 2021(PY Mar 2020) to Mar 2023. Due to the Covid 19 induced lockdown, the firm had to stop all construction activities from March 2020. During the second lockdown in April 2021, the firm's operations were further impacted due to the non availability of labor. Delays in completion of ongoing projects and launches of upcoming projects have further reduced the operating revenue of the firm. Fresh sale of units continues to be slow and the same is expected to continue due to the subdued demand in the markets.
Inherent cyclicality and competition in residential real estate sector :
The Indian real estate industry is highly fragmented with most industry players having a city specific or region specific presence. With the market scenario further weakened due to COVID 19,unsold inventory, shortage of labor and materials continue to be challengers for players in the sector. Real estate sector demand is linked to the overall economic prospect of the country. Change in the economic outlook affects the expected cash inflows to a household thereby also influencing their buying decision. The company is exposed to the inherent cyclicality in the real estate sector, which could result in fluctuations in cash inflows because of volatility in saleability.
Project execution risks :
The construction cost for the ongoing projects and future projects are funded through a mix of debt and customer advances. Any delay in collections or sales velocity would pose a challenge in timely execution of projects. Project execution and completion, without time and cost overruns, would be a key monitorable. The firm is also exposed to concentration risks as the ongoing/upcoming projects of the firm are mainly located in Bengaluru and Hyderabad which makes operations vulnerable to any social or political changes in the region.

ANALYTICAL APPROACH - Standalone

BWR has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale). The rated entity is a partnership firm.

RATING SENSITIVITIES

Going forward, the ability of the firm to improve its scale of operations and profitability as envisaged, ensure timely execution of projects, increase in its ongoing projects folio, ensure timely sales and realisation of collections, efficiently manage its working capital requirements and strengthen its overall credit profile would be the key rating sensitivities.

Positives:

Improvement in scale of operations with improvement in net cash accruals on a sustained basis
Improvement in the business profile with increased sales velocity on a sustained basis for completed projects and timely progress of ongoing projects.

Negatives:

Decline in revenue or profitability thereby impacting cash accruals
Deterioration in financial risk profile on account of stretch in working capital cycle or any large, debt-funded capital expenditure.
Prolonged adverse impact of Covid-19 related disruptions on company operations.
Time and cost overruns in respect of the ongoing projects and delays in commencement of upcoming projects

LIQUIDITY INDICATORS - Stretched

Liquidity is stretched as indicated by the multiple instances of inward returns in the working capital accounts due to maximum utilization of limits. Average utilization of working capital facilities over the last year was ~99%. EBITDA of Rs.9.65 Crs during FY 21 (P) was sufficient to cover the interest and finance charges of Rs.6.60 Crs. Net cash accruals/Total Debt was low at 0.05 times as on 31 March 2021 (P). Current ratio was moderate at 1.41 times as on 31 March 2021 (P). The firm had availed moratorium for interest payments under the Covid 19 Regulatory package by RBI from Mar 2020 - Aug 2020. The deferred interest of ~Rs 3.14 Crs has been converted into a Funded Interest Term Loan which is closed as on date as confirmed by the banker and management. The firm has also been sanctioned a Working Capital Term Loan of Rs 9.30 Crs in Sep 2020 under the Emergency Credit Line Guarantee Scheme. Cash and cash equivalents were modest at Rs 0.42 Crs as on 31 Mar 2021 (P) as against Rs 0.38 Crs as on 31 Mar 2020. The firm has significant debt repayment obligations in the short term due to the availment of emergency credit lines. The entity's ability to service the same timely remains a key monitorable

ABOUT THE ENTITY

Iconica Constructions ('IC' or 'the firm'), established in 2014, is a partnership firm with M/s Gardencity Realty Pvt Ltd ('Gardencity') and M/s Venkatlakshmy Holdings Pvt Ltd as partners. The Firm’s registered office is in Bengaluru, Karnataka and it is engaged in the real estate construction business. 'Gardencity', founded in 2004, is an established property developer and has developed apartment complexes in Bengaluru viz Temple Bells, Renaissance Prospero & Shriram Signia. Venkatalakshmi Holdings Pvt Ltd is an investment company, investing in real estate projects/companies etc.The partner companies are promoted by Mr.Muralikrishna who has more than two decades of experience in the real estate industry. He is supported by his son Mr.Santhosh who has been in the industry for ~ 10 years.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	65.02	95.89
EBITDA	Rs.Crs.	3.13	9.18
PAT	Rs.Crs.	1.51	3.63
Tangible Net Worth	Rs.Crs.	40.92	38.77
Total Debt/Tangible Net Worth	Times	1.24	1.29
Current Ratio	Times	1.32	1.42

KEY COVENANTS OF THE FACILITY RATED

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

RATING HISTORY FOR THE PREVIOUS 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	45.00	BWR BB-/Negative to Stable (Downgrade)	13Oct2020	BWR BBStable to Negative (Reaffirmation and change in Outlook)	11Jul2019	BWR BBStable (Assignment)	NA	NA
Non Fund Based	ST	5.00	BWR A4 (Reaffirmation)	13Oct2020	BWR A4 (Reaffirmation)	11Jul2019	BWR A4 (Assignment)	NA	NA
Grand Total		50.00	(Rupees Fifty Crores Only)

Rating Advisory, as on 13Jul2020
Press Release, as on 13Jul2020
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

Analytical Contacts
Vineetha Ann Varughese Ratings Analyst vineetha.v@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Iconica Constructions

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Karur Vysya Bank	Letter of Credit - Sanctioned	_	5.00	5.00
2	Karur Vysya Bank	SOD-RE - Sanctioned	45.00	_	45.00
Total			45.00	5.00	50.00
TOTAL (Rupees Fifty Crores Only)

Print and Digital Media

The Rating Rationale is sent to you for the sole purpose of dissemination through your print, digital or electronic media. While it may be used by you acknowledging credit to BWR, please do not change the wordings in the rationale to avoid conveying a meaning different from what was intended by BWR. BWR alone has the sole right of sharing (both direct and indirect) its rationales for consideration or otherwise through any print or electronic or digital media.

About Brickwork Ratings

Brickwork Ratings (BWR), a Securities and Exchange Board of India [SEBI] registered Credit Rating Agency and accredited by Reserve Bank of India [RBI], offers credit ratings of Bank Loan, Non- convertible / convertible / partially convertible debentures and other capital market instruments and bonds, Commercial Paper, perpetual bonds, asset-backed and mortgage-backed securities, partial guarantees and other structured / credit enhanced debt instruments, Security Receipts, Securitization Products, Municipal Bonds, etc. BWR has rated over 11,400 medium and large corporates and financial institutions’ instruments. BWR has also rated NGOs, Educational Institutions, Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations. BWR has Canara Bank, a leading public sector bank, as one of the promoters and strategic partner. BWR has its corporate office in Bengaluru and a country-wide presence with its offices in Ahmedabad, Chandigarh, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi along with representatives in 150+ locations.

Disclaimer

Brickwork Ratings India Pvt. Ltd. (BWR), a Securities and Exchange Board of India [SEBI] registered Credit Rating Agency and accredited by the Reserve Bank of India [RBI], offers credit ratings of Bank Loan facilities, Non- convertible / convertible / partially convertible debentures and other capital market instruments and bonds, Commercial Paper, perpetual bonds, asset-backed and mortgage-backed securities, partial guarantees and other structured / credit enhanced debt instruments, Security Receipts, Securitization Products, Municipal Bonds, etc. [ hereafter referred to as "Instruments"]. BWR also rates NGOs, Educational Institutions, Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations.

BWR wishes to inform all persons who may come across Rating Rationales and Rating Reports provided by BWR that the ratings assigned by BWR are based on information obtained from the issuer of the instrument and other reliable sources, which in BWR's best judgment are considered reliable. The Rating Rationale / Rating Report & other rating communications are intended for the jurisdiction of India only. The reports should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in Europe and also the USA).

BWR also wishes to inform that access or use of the said documents does not create a client relationship between the user and BWR.

The ratings assigned by BWR are only an expression of BWR's opinion on the entity / instrument and should not in any manner be construed as being a recommendation to either, purchase, hold or sell the instrument.

BWR also wishes to abundantly clarify that these ratings are not to be considered as an investment advice in any jurisdiction nor are they to be used as a basis for or as an alternative to independent financial advice and judgment obtained from the user's financial advisors. BWR shall not be liable to any losses incurred by the users of these Rating Rationales, Rating Reports or its contents. BWR reserves the right to vary, modify, suspend or withdraw the ratings at any time without assigning reasons for the same.

BWR's ratings reflect BWR's opinion on the day the ratings are published and are not reflective of factual circumstances that may have arisen on a later date. BWR is not obliged to update its opinion based on any public notification, in any form or format although BWR may disseminate its opinion and analysis when deemed fit.

Neither BWR nor its affiliates, third party providers, as well as the directors, officers, shareholders, employees or agents (collectively, "BWR Party") guarantee the accuracy, completeness or adequacy of the Ratings, and no BWR Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Rating Rationales or Rating Reports. Each BWR Party disclaims all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. In no event shall any BWR Party be liable to any one for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Rating Rationales and/or Rating Reports even if advised of the possibility of such damages. However, BWR or its associates may have other commercial transactions with the company/entity. BWR and its affiliates do not act as a fiduciary.

BWR keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of BWR may have information that is not available to other BWR business units. BWR has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

BWR clarifies that it may have been paid a fee by the issuers or underwriters of the instruments, facilities, securities etc., or from obligors. BWR's public ratings and analysis are made available on its web site, www.brickworkratings.com. More detailed information may be provided for a fee. BWR's rating criteria are also generally made available without charge on BWR's website.

This disclaimer forms an integral part of the Ratings Rationales / Rating Reports or other press releases, advisories, communications issued by BWR and circulation of the ratings without this disclaimer is prohibited.

BWR is bound by the Code of Conduct for Credit Rating Agencies issued by the Securities and Exchange Board of India and is governed by the applicable regulations issued by the Securities and Exchange Board of India as amended from time to time.