| Devbhumi Realtors Private Limited | ||||
| 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 Devbhumi Realtors Pvt Ltd (DRPL) to ‘CRISIL A+/Stable’ from ‘CRISIL A/Stable’.
The rating upgrade is driven by the upgrade in the rating of the parent entities, Salarpuria Properties Pvt Ltd (rated CRISIL A+/Stable/CRISIL A1) and Salarpuria Developers Pvt Ltd (rated CRISIL A+/Stable), flagship entities of the Salarpuria Sattva group which provide strong business, managerial and financial support. The performance of the asset remains healthy with occupancy of 93% as of March 2022 and lease rental income for fiscal 2022 is estimated to grow by ~13% over fiscal 2021 to Rs 480-490 crore.
The rating continues to reflect the strong operational, financial and managerial support from the Salarpuria Sattva group, stable cash flow on account of healthy occupancy and sound clientele and robust debt protection metrics. These strengths are partially offset by customer concentration in revenue and susceptibility to demand and project risks with respect to development of additional leasable space. |
Analytical Approach The rating is based on the standalone business and financial risk profiles of DRPL and factors in the benefits of parentage by the Salarpuria-Sattva group. |
Key Rating Drivers & Detailed Description Strengths Strong business, managerial and financial support from the Salarpuria-Sattva group DRPL benefits from the strong parentage of the Salarpuria-Sattva group. The group has an established track record of over three decades and strong brand presence. It has developed around 657 lakh square feet (sq ft) of real estate space mostly in Bengaluru and Hyderabad, with about 144.4 lakh sq ft of operational commercial assets. The extensive experience and asset maintenance of the group have led to healthy occupancy for DRPL and ensured tenant stickiness and quality. The company will likely contribute 45-50% to the group lease rentals and revenue over the medium term, indicating its strategic importance. DRPL has also extended unsecured loans to other Blackstone & Salarpuria Sattva JV entities, indicating financial fungibility. The strong financial risk profile and financial flexibility of the group will help DRPL in timely debt repayment.
Stable cash flow on account of healthy occupancy and sound clientele Of the total operational leasable area of around 64 lakh sq ft, around 60 lakh sq ft has been leased; occupancy remained healthy at 94% as of March 2022. Clientele includes marquee names such as JP Morgan, Novartis, Service Now, Intel and Xilinx. Top five tenants occupy close to 52% of area and account for 50% of the revenue. The rating also factors in the well-secured lease structure, with lock-ins and lease period of 2-10 years and revenue escalation clause of 15% every 3 years for majority of the tenants. The tenants have incurred huge fit-out costs which, along with the proactive approach of the management towards property maintenance and asset quality, ensures tenant stickiness.
Strong debt protection metrics and healthy financial risk profile Average debt service coverage ratio (DSCR) is expected to be over 1.3 times throughout the tenure of the debt. No additional debt is expected to be drawn over the medium term. Debt to annualised lease rental ratio is expected to be healthy at 5 times as on March 31, 2022. Debt protection metrics are supported by adequate liquidity in the form of a debt service reserve account covering debt obligation for 3-4 months. However, any increase in debt, in the absence of an additional revenue stream, will impact financial risk profile and remain a key rating sensitivity factor.
Weaknesses Customer concentration in revenue with top two tenants occupying 28% of leasable area Cash inflow is susceptible to volatility in occupancy or realisations (a function of rent per sq ft) while cash outflow is relatively fixed. The top two tenants, JP Morgan and Novartis, occupy 28% area. Surrender of lease by any of these will significantly weaken financial risk profile. However, this risk is mitigated by lease agreements of 5-10 years with these clients as well as huge fit-out costs incurred by them along with management's proactive approach towards property maintenance and asset quality, which ensures tenant stickiness. Nearly 43% of the area will be up for renewal by fiscal 2025, but this is also not likely to pose a risk since majority of these have built-in renewal options with only 1.6% having ultimate expiry of lease agreements. Time taken for renewal/leasing at similar or better terms than the existing agreements will be critical. Although cash flow will be able to partially absorb the impact of fluctuations in interest rates and occupancy, these remain rating sensitivity factors.
Susceptibility to project risks with respect to development of additional leasable space The company is developing the last phase of the project covering 5 lakh sq ft. About 53% of the cost has been incurred and it faces implementation risks. Any delay in completion may put pressure on cash flow and result in additional borrowing. However, expertise of the company in real estate development in the micro market mitigate implementation risks. It also has lease commitment for 100% of the area, which mitigates demand risk. |
Liquidity: Strong Steady cash flow from lease rentals will be sufficient to meet debt obligation over the medium term. Cash accrual should sufficiently cover yearly debt obligation of Rs 330-380 crore in the three fiscals through 2025. Cash and liquid surplus of around Rs 19 crore as on March 31, 2021, and undrawn bank line of Rs 73 crore as on January 31, 2022, enhance liquidity. Debt or interest service reserve account equivalent to 3-4 months of debt servicing also support liquidity. |
Outlook Stable The outlook will remain stable over the medium term, backed by healthy cash flows from lease rentals. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Incorporated in 2007, DRPL is equally held by the Salarpuria-Sattva and Blackstone groups. It was formed to undertake real estate development on 30 acres of land in Serilingampally (Hyderabad). Of the available land parcel, the company has developed 6.4 million sq ft as on date. Development of additional commercial office space of around 0.5 million sq ft is underway. |
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
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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 - 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 |
| Drop Line Overdraft Facility | 260 | State Bank of India | CRISIL A+/Stable |
| Overdraft Facility | 165 | The Jammu and Kashmir Bank Limited | CRISIL A+/Stable |
| Proposed Long Term Bank Loan Facility | 51 | Not Applicable | CRISIL A+/Stable |
| Term Loan | 450 | HDFC Bank Limited | CRISIL A+/Stable |
| Term Loan | 1780 | State Bank of India | CRISIL A+/Stable |
| Term Loan | 400 | The Jammu and Kashmir 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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