| Electronics Technology Parks- Kerala | ||||
| Rating Reaffirmed | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its rating on the long-term bank facilities of Electronics Technology Parks- Kerala (ETP Kerala) at ‘CRISIL A+/Stable’.
The rating reaffirmation reflects stability in credit profile of ETP Kerala backed by steady cash flows from Phase I & III and expected full leasing of Phase IV which was completed in February 2022 and Phase V. With waitlist of tenants available for leasing the space, Phase IV is expected to be leased within the next 3-4 months. Rental income has increased in fiscal 2022 backed by stoppage of concessions to IT sector tenants. The ratings also factor in additional Lease Rental Discounting (LRD) loan availed by the Society against Phase IV-Technocity building as well as upcoming capex of the company towards construction of office space with leasable area of around 8.5 lakh sq ft (lsf) which is expected to start from current or upcoming fiscal depending on receipt of approval from Govt of Kerala.
Cash flow of the firm remained robust despite offering temporary relief on payment of rent to its non-IT tenants for the fiscal 2022, due to Covid-19 pandemic. No further impact on the cash flow for fiscal 2023 is envisaged as concessions have been stopped.
The rating continues to reflect the firm's steady cash flow with healthy occupancy and diversified clientele, and strong debt protection metrics, backed by sufficient liquidity. These strengths are partially offset by exposure to risks related to vacancy, volatile interest rates, and project implementation. |
Analytical Approach For arriving at its rating, CRISIL Ratings has considered the standalone business and financial risk profiles of ETP Kerala, as the firm has no fungible cash flow with any other entity. |
Key Rating Drivers & Detailed Description Strengths Steady cash flow with full occupancy in phases I and III, diversified clientele, and long-term lease agreements The firm had completely leased out phases I and III, which have total leasable area of 20.1 lsf, and has leased out around 25,144 sq ft of the Kollam IT Park in phase V. The firm has a track record of over 25 years in lease rental collection. The management's proactive approach towards property maintenance, will help maintain tenant stickiness and asset quality. Over 442 tenants occupy phases I and III, ensuring customer diversification. Furthermore, long-term lease agreements, with annual escalation of 5%, provide revenue visibility for the medium term.
Healthy debt protection metrics, backed by strong liquidity Debt service coverage ratio (DSCR) should remain healthy over the tenure of the lease rent discounting (LRD) loan, supported by steady cash flow and low debt. Average DSCR of more than 2 times is expected through the debt repayment period. The rating also factors in the tight escrow mechanism, wherein lease rentals of 64 customers are deposited directly into the account, and servicing of the rated LRD loan has the highest priority, after which surplus cash flow will be available to meet operating expenses and capital expenditure (capex), if any. The firm is likely to maintain healthy liquidity at all point of time which will be sufficient to meet atleast six months of debt servicing obligations.
Weaknesses Susceptibility to risks related to vacancy and fluctuations in interest rate With lease rentals and land lease payments being the only sources of revenue for ETP Kerala, there is significant exposure to vacancy risk. However, long-term agreements mitigate this risk. Also, heavy demand allows the firm to maintain a wait list, and enables immediate leasing out of area, if any tenant vacates. Floating interest rate on the debt also exposes the firm to fluctuations.
Exposure to cyclicality in the real estate sector Rental collection (key source of revenue) is susceptible to economic downturns, which constrain the tenant's business risk profile and, therefore, occupancy and rental rates. Emergence of competing facilities in the vicinity could also cannibalise tenants or rental rates. Moreover, the company is exposed to geographic concentration risk as it draws the entire revenue from a single asset. Any downturn in the micro markets will impact revenue |
Liquidity: Strong Liquidity is healthy, with steady cash flow from lease rentals, which will be sufficient to meet debt obligation over the medium term. The firm has ample liquidity in forms of FDs as well as bank balance to meet its daily operations as well as debt servicing obligations. It is likely to maintain sufficient liquidity which will be able to meet six months of debt service obligation throughout the tenor of the loans, which can be used if there is any cash flow mismatch. |
Outlook: Stable CRISIL Rating believes ETP Kerala will benefit from steady cash flow, backed by long-term lease agreements from a diversified clientele, and maintain healthy debt protection metrics and adequate liquidity over the medium term. |
Rating Sensitivity factors Upward Factors
Downward Factors
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About the Company Set up by the Government of Kerala in 1993, ETP Kerala operates Technopark in Trivandrum. The park is India's first information technology (IT) park, and among the three largest in the country. It is also the first technology park to be assessed at Capability Maturity Model Integration Level 4, and to obtain International Standards Organisation (ISO) 9001:2000 certifications.
Technopark houses over 460 companies in the IT and IT-enabled sector, with a total of 63,000 employees. It houses major IT companies such as Allianz, UST Global, Guidehouse India Pvt. Ltd, Speridian Technologies Pvt., Envestnet Asset Management India Pvt. Ltd, Tata Consultancy Services, Ernst & Young Global Shared Services Center, RR Donnelley Publishing India Pvt Ltd, IBS Software Services, SunTec Business Solutions Pvt Ltd, QBurst Technologies Pvt Ltd, RM Education Solutions India Pvt Ltd.
Annual grants received from the Kerala government, are used for funding capex and land acquisition. The company generated revenue of Rs 120 crore in fiscal 2020 with profit after tax at Rs 37 crore. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
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 | ||||||||||||||||||||
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This Annexure has been updated on 30-Jun-2022 in line with the lender-wise facility details as on 24-Aug-2021 received from the rated entity
Criteria Details
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