By Karun Tiwari

India Ratings and Research (Ind-Ra) has rated Arvind SmartSpaces Limited’s (ASSL) short-term loan as follows: 

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating

Rating Action

Short-term loan

-

-

 

INR1,000

IND A1

Assigned

KEY RATING DRIVERS

Comfortable Credit Metrics: ASSL’s net leverage (net debt/adjusted inventory) was 0.35x in FY18 (FY17: 0.25x) and sales efficiency (pre-sales/net debt) was 0.7x (1.5x). The decline in the ratios was due to a fall in collections to INR1,328.1 million in FY18 (FY17: INR1,517.5 million) and higher debt of INR1,607 million (INR935 million) as a part of the construction costs was funded through incremental debt. Although sales and collections improved to INR2,286.1 million in 9MFY19 (FY18: INR1,134 million) and INR1,513.7 million (INR1,28.1 million), respectively, net debt also increased by INR179.5 million. This was majorly for purchasing a land parcel for a recently launched project in Pune. Ind-Ra expects ASSL to have maintained credit metrics at similar levels in FY19, which is likely to be followed over the near-to-medium term as well because of the financial discipline the company has exhibited so far through limited reliance on debt to fund its projects.

Moderate Liquidity:
As of December 2018, ASSL had sold units worth INR5.95 billion of the ongoing projects, where it received INR2.54 billion. This provides collection visibility of INR3.41 billion over FY19-FY22. In addition, ASSL has INR130.4 million worth of completed inventory. Committed cash flow from already sold units, along with completed unsold inventory, available cash and cash equivalent amounted to INR61 million at end-FY18 and INR1.04 billion was available under fund-based limits as of December 2018. This was sufficient for meeting the company’s 4QFY19 debt maturities and would also fund its near to medium-term funding requirements of the ongoing and launched projects (INR6.04 billion as of December 2018) and debt maturities. 

The company has communicated the short-term loan would be used towards payment of existing line of credit facility from HDFC Limited. 

Linkages with Strong Promoter:
ASSL is part of Lalbhai Group (flagship company – Arvind Ltd) and uses the same brand name as being used by the group for its flagship company. The parent entity also infused INR998.7 million in ASSL during FY17-FY18 by subscribing to preference share warrants, which were subsequently converted into common equity. Also, the companies have common director(s) on their boards. 

Small Scale of Operations with Moderate Delivery Track Record:
ASSL has completed seven projects since its inception in 2009 with a total saleable area of 2.76 million sq ft. and is executing seven projects with a total developable area of 13.03 million sq ft. Of this, it sold 25.6% as of December 2018. Of the sold value, the company has so far collected 42.7% while incurring costs of 34.1% of the estimated project cost. 

ASSL recorded pre-sales of INR2,286.1 million in 9MFY19 (FY18: INR1,134 million, FY17: INR1,200 million), aided by the launch of two new projects in FY19, with collections of INR1,513.7 million (INR1,328.1 million; INR1,513.7 million). The volatility in the sales and collection numbers is due to ASSL’s small scale of operations, and varied timing of new projects launches. It has limited completed inventory with only 3% of the total saleable area valued at INR130.4 million yet to be sold. 

Geographical and Project Concentration Risk
: Ahmedabad contributes around 56% to the company’s ongoing and launched projects. Of late, the company is trying to diversify geographically with launch of a new project with total saleable area of 91,106 sq ft in Pune in FY19. It also plans to launch a project in Hyderabad in the near term. 

Cyclical Industry; Exposed to Regulations
: Players in the real estate industry have volatile cash flows due to high cyclicality, which during a downturn, impacts demand severely. The sector is exposed to a number of regulatory requirements including local bodies’ clearances/master plans which are subject to frequent changes, and thus lead to confusion, non-compliance and delays in the execution of projects.


RATING SENSITIVITIES

Negative: Higher-than-expected project costs or lower-than-expected sales resulting in higher reliance on debt leading to deterioration of the credit metrics, on a sustained basis, could result in a negative rating action. 

Positive:
Successful project and geographical diversification leading to an increase in the scale of operations and higher-than-expected sales while maintaining the credit metrics, on a sustained basis, could result in a positive rating action. 


COMPANY PROFILE

Headquartered in Ahmedabad, ASSL is the real estate arm of Lalbhai group (flagship company - Arvind Limited) and was set up in December 2008. ASSL is primarily focused on the development of residential projects.

Its residential projects comprising villas, apartments and plots are targeted towards middle income and high-income customers. Its existing integrated townships comprise executive golf course with villas, apartments, retail, commercial and recreational areas. It also undertakes commercial and industrial projects on a selective basis.

FINANCIAL SUMMARY
 

Particulars

FY18

FY17

Pre-sales (INR million)

1,134

1,200

Revenue (INR million)

1,983

1,586

EBITDA (INR million)

609

441

EBITDA margin (%)

30.7

27.8

Interest coverage (x)

4.0

3.8

Gross debt (INR million)

1,607

935

Cash & equivalents (INR million)

61

131

Net debt (INR million)

1,546

803

Adjusted inventory (INR million)

4,438

3,154

Pre-sales/gross debt (x)

0.7

1.3

Pre-sales/net debt (x)

0.7

1.5

Pre-sales/adjusted inventory (x)

0.3

0.4

Gross debt/ adjusted inventory (%)

36

30

Net debt/adjusted inventory (%)

35

25

Source: ASSL, Ind-Ra

*Adjusted inventory is the sum of inventory, trade receivables, unbilled revenue, advances paid to vendor and investment properties less customer advances



COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity level of the instrument, please visit https://www.indiaratings.co.in/complexity-indicators.
 

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies and project finance companies. 

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Applicable Criteria

Analyst Names

  • Primary Analyst

    Karun Tiwari

    Management Trainee
    India Ratings and Research Pvt Ltd DLF Epitome, Level 16, Building No. 5, Tower B DLF Cyber City, Gurgaon Haryana 122002
    0124 6687272

    Media Relation

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121