| Darshita Southern India Happy Homes Private Limited | ||||
| Long-term rating upgraded to 'CRISIL A+/Stable' | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its rating on the long-term bank facilities of Darshita Southern India Happy Homes Private Limited (DIPL; part of the Salarpuria-Sattva group) to ‘CRISIL A+/Stable’ from ‘CRISIL A/Positive’.
The upgrade reflects the improved market position of the company reflected in steady increase in lease rental income over the years, which is expected to continue over the medium term along with healthy sales in the residential segment. Moreover, lower-than-expected incremental debt should lead to improvement in the financial risk profile.
The committed annualised lease rentals increased 23% on-year to Rs 1,142 crore as of March 31, 2022, from Rs 950 crore as on March 31, 2021, and contributes to over 60% of the group’s total income. With 16 lakh square feet (lsf) of commercial real estate added in fiscal 2022, the group has 144.4 lsf in its commercial portfolio at a healthy committed occupancy of 90%. Both leasable area and annualised rentals have grown over 2 times since fiscal 2018, with occupancy sustaining at healthy levels of 90% or higher despite steady addition of substantial new area each year. The leasable assets and annualised lease rentals are expected to increase to 184 lsf and ~Rs 1,400 crore, respectively, in fiscal 2023 and reach around 220 lsf and Rs 1,850 crore, respectively, by fiscal 2025, which will drive growth over the medium term.
Residential sales growth is estimated at 5-10% on-year in fiscal 2022 to 10.5-11 lsf, supported by healthy pace of liquidation of finished inventory. Healthy launch pipeline will lead to sustained growth of 8-10% every year over the medium term.
Although debt is estimated to increase to Rs 6,600 crore by March 2022, the increase is lower than envisaged earlier on account of lower drawdown of construction debt due to deferment of the construction completion timeline of commercial projects on account of Covid-19. The financial risk profile is strong with ~80% of the debt now backed by highly stable rent-generating assets. The ratios of total debt to annualised lease rentals and LRD debt to annualised lease rentals are estimated at 5.7 times and 4.5 times, respectively, as of March 2022 against expectation of 6.4 times and 5 times, respectively, earlier. CRISIL Ratings expects the LRD debt to annualised lease rentals ratio to remain below 5 times (against management expectation of below 6.5 times) with contribution of the LRD debt to total debt remaining over 60%. The group also has strong financial ability to raise funds, if required considering the existing loan-to-value (LTV) ratio of ~40%.
The group is looking to diversify into new segments. It has won a large turnkey contract for development of office space for one of the Fortune 500 companies which will add to its cash flow, and plans to expand into datacentres and warehousing. Investment in new areas will remain a key monitorable, however, the improved financial risk profile is expected to support the group’s plans.
The ratings continue to reflect the group’s established development track record and sound saleability of its residential projects, strong commercial portfolio supported by healthy occupancy and marquee clientele, and strong financial risk profile. These strengths are partially offset by exposure to risks related to the execution of the large commercial real estate development plans and subsequent leasing, and exposure to inherent risks in the real estate sector. |
Analytical Approach CRISIL Ratings has combined the financial and business risk profiles of all the entities of the Salarpuria-Sattva group that have contracted external debt and have ongoing or planned projects. That’s because all these entities are managed by the same promoters and have fungible cash flows. The financial and business risk profiles of the group’s joint ventures (JVs) have also been combined because of the group’s significant control over their operations and as it is likely to provide need-based financial support to them for timely servicing of term debt. All the entities are collectively referred to as the Salarpuria-Sattva group. CRISIL Ratings has not combined the other businesses such as co-working spaces, co-living spaces, ecommerce, aerospace, technology, finance and investment as these are not related to the group’s core real estate business. Also, the scale of operations in these businesses is very small vis-à-vis the group’s networth.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
With a track record of over three decades, the group is a prominent brand and has an established position in the real estate market in Bengaluru. It has developed over 657 lsf of residential and commercial area (built up) till date, mainly in Bengaluru and Hyderabad, of which ~56% is in the commercial segment. The group benefits from its healthy reputation and strong relationship with customers.
It has ongoing projects with around 37 lsf of saleable area (developer share) in the residential segment. These projects had saleability of 24% (which is on the lower side as the projects were launched recently) and construction progress of 48% as on December 31, 2021. It also has a launch pipeline of 60.4 lsf likely to be launched over the medium term. Collections are expected to remain at Rs 650-850 crore over the medium term, supported by steady new launches, healthy sales of ongoing projects and liquidation of completed projects.
The group had healthy occupancy of 90% in its 144 lsf commercial portfolio as of March 2022, which has remained steady despite addition of substantial space each year. Although there was some build-up of vacancy during fiscal 2022 on account of consolidation by tenants, the group was able to re-lease the area in the last quarter. Healthy occupancy demonstrates the group’s established position in the commercial business segment in Bengaluru and Hyderabad. Customer concentration is moderate with the top 10 tenants occupying close to 50% of the total leasable area. The tenants are established players and multinational companies such as JP Morgan, Novartis, Microsoft and Google, which ensure timely receipt of rentals. Though 9% of the total leasable area will be up for renewal every till fiscal 2025, this is not expected to pose a major challenge because of the group’s experience, which will ensure smooth renewals. Also, many tenants have incurred large fit-out cost, which offsets the vacancy and renewal risks. The commercial asset portfolio is expected to continue to ramp-up over the medium term with new developments in Hyderabad and Bengaluru.
The capital structure is comfortable, supported by healthy networth of Rs 5,762 crore as on March 31, 2021, and bank debt of Rs 6,421 crore as on January 31, 2022. Bank debt has increased from Rs 5,736 crore as on March 31, 2021, with the incremental debt primarily comprising LRD loans.
While debt is expected to increase to over Rs 8,000 crore over the medium term on account of under-construction commercial office space, the construction loans are likely to be converted into long-tenure LRD loans once the properties become operational and are leased. CRISIL Ratings expects leverage to remain steady with LRD debt to annualised lease rentals ratio less than 5 times (against management expectation of below 6.5 times) and contribution of the LRD debt to total debt remaining over 60%.
Weakness:
The group has a large under-construction commercial portfolio of 109 lsf and 20 lsf under planning in Hyderabad and Bengaluru. These are in various stages of development and around 39% of cost has been incurred. Three assets with total of 40 lsf of commercial leasable area are expected to be completed by March 2023, of which one asset of 5 lsf has 100% leasing commitment. Any time or cost overrun and decline in demand and subsequent leasing could hit the cash flow adversely and the group may have to raise more debt to meet obligation on construction finance loans.
Cyclicality in the domestic real estate sector leads to fluctuations in cash inflow because of volatility in saleability and realisations, while outflow such as construction cost and debt obligation remain fixed. Lower-than-expected demand could result in lower collection and adversely impact cash flow. However, the strong track record of the group in the Bengaluru real estate space mitigates the implementation and demand risks. |
Liquidity: Strong The group had cash and equivalent of Rs 319 crore as of March 31, 2021, and unutilised bank lines of around Rs 2,000 crore as on January 31, 2022. Long-term debt obligation is expected to be over Rs 1,500 in fiscal 2023, of which, around 60% is construction finance loans which are expected to be converted to LRD on leasing of area. Cash accrual is expected to be adequate to meet the debt obligation. Liquidity is also supported by strong financial flexibility with a healthy LTV ratio of ~40% and is supplemented by steady cash flow from the lease business and the ability to raise additional LRD loans, if required. The group has sold receivables and ready unsold inventory available from its completed residential projects which lends stability to cash flow. |
Outlook Stable CRISIL Ratings believes the Salarpuria-Sattva group will maintain its strong financial risk profile supported by established market position and stable lease rental income |
Upward factors:
Downward factors:
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About the Group The Salarpuria-Sattva group was founded by the late Mr G D Salarpuria in 1986 in Kolkata. Mr Bijay Agarwal, managing director, manages the operations of the group. The group has been involved in construction and development of real estate for 36 years. Salarpuria Properties Pvt Ltd and Sattva Developers Pvt Ltd are the two flagship companies of the group. The other group entities are mainly involved in individual projects. It has ISO 9001:2008, 14001:2004, and 18001:2007 certifications. Till date, 657 lsf of built up area has been developed, of which, around 56% comprises commercial development (in Bengaluru and Hyderabad). The group also has presence in Pune (Maharashtra), Coimbatore (Tamil Nadu), and Goa. |
Key Financial Indicators (consolidated)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Term Loan | 250 | Canara Bank | CRISIL A+/Stable |
| Term Loan | 320 | ICICI Bank Limited | CRISIL A+/Stable |
| This Annexure has been updated on 02-Mar-2023 in line with the lender-wise facility details as on 23-Feb-2023 received from the rated entity. |
Criteria Details
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