Rating Rationale
April 23, 2020 | Mumbai
Elpro International Limited
Rating removed from 'Watch Negative' ; Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.96 Crore
Long Term Rating CRISIL BB/Stable (Removed from 'Rating Watch with Negative Implications'; Rating Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has removed its rating on the long-term bank facility of Elpro International Limited (EIL) from 'Rating Watch with Negative Implications' and has reaffirmed the rating at 'CRISIL BB' while assigning a 'Stable' outlook
 
CRISIL had placed its rating on the long term bank facilities of EIL on ''Rating Watch with Negative Implications' on March 24, 2020, since CRISIL did not had full clarity on the extent of the impact on the rental income due to the government directives of closure of malls; and thereby the company's debt servicing ability and liquidity position in the near term.
 
CRISIL has now taken into cognizance, moratorium being granted by the bankers in the term loan facilities for a period between 2-3 months, as permitted by the Reserve Bank of India (RBI), which should significantly contain the risk of default. This along with debt service reserve account (DSRA) of 3 months of principal & interest obligation should support liquidity over medium term. While debt levels have increased to Rs 234 crore as on 31st December 2019 from Rs 165 crore as on 31st March 2019; overall debt service coverage ratio (DSCR) stands comfortable at over 1.5 times since all the properties are nearly leased out.
 
Operating performance in fiscal 2021 is likely to be impacted following measures taken by the Government of India towards containment of the Novel Coronavirus (Covid-19), which includes temporary closure of non-critical establishments and inter-state transportation, along with severe restrictions on travel and visiting areas of mass gatherings. These measures are expected to impact the business profile of the company on account of temporary closure of its mall.
 
While most of the measures are applicable till May 3, 2020, revocation of the measures will be contingent upon directive from the central government and the extent of the spread of Covid-19. A sustained period of closures can result in significant deterioration in the credit profile of EIL. On the other hand, a faster reversal to normalcy may contain the extent of deterioration likely in the credit quality of company. The ability of the business to revert to operational stability and any relief measures given by the government will be a key monitorable, and CRISIL will continue monitoring these events.
 
The rating continue to reflect the company's track record in executing real estate projects and leasing of commercial units, healthy occupancy and a diverse and reputed clientele and adequate debt protection metrics. These strengths are partially offset by EIL's exposure to any disruption in lease agreements and susceptibility to cyclicality in the real estate sector.

Analytical Approach

For arriving at its rating, CRISIL has considered the consolidated financials of EIL along with its wholly owned subsidiary Elpro Estates Ltd (EEL) since both companies are into similar business activities and EEL is now merged with EIL.

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: 
* Track record in executing real estate projects and leasing of commercial units:
EIL manufactures surge arresters; over a period of time, it diversified its business activity by undertaking real estate development projects along with leasing of office space, land and industrial shed. The company also operates one mall at Pimpri-Chinchwad, Pune. Over the years, EIL has been able to leverage on its land holdings and build a reputation by timely execution of projects. Benefits from a successful track record should continue to support the business.
 
* Healthy occupancy and a diverse and reputed clientele:
All commercial properties are almost fully occupied, and houses over 60+ tenants, including prominent brands such as INOX Leisure Limited ('CRISIL AA-/Watch Negative/CRISIL A1+'), Shoppers Stop Limited ('CRISIL A1+'), Mark & Spencer among others.
 
* Adequate debt protection metrics:
Steady stream of rental from all properties should ensure that overall DSCR remains healthy at over 1.5 times throughout the loan tenure.
 
Weaknesses:
* Exposure to any disruption in lease agreements: 
EIL leases commercial properties (offices, malls etc) and industrial sheds. In the event of disruptions such as changes in location of the operating units of the lessees, or any external factors such as changes in fiscal incentive structures rendering other regions more attractive, or labour-related issues in and around Pimpri-Chinchwad region in Pune, debt-servicing ability could be affected.
 
* Susceptibility to cyclicality in the real estate sector:
EIL is susceptible to risks pertaining to the real estate sector such as long gestation period of projects. Any time or cost overruns or delay in obtaining necessary approvals could affect the realizations and profitability of projects. Apart from the above-mentioned factors, the EIL's business and financial risk profiles are expected to be driven by the level of economic activity and the outlook for the real estate sector across Pune.
Liquidity Adequate

Liquidity is adequate, as reflected in average DSCR of over 1.5 times over the loan tenure. Presence of an escrow mechanism and maintenance of DSRA equivalent to 3 months' interest and principal payment, also provides cushion to liquidity. CRISIL believes EIL has lease rentals along with cash and cash equivalents to finance its incremental working capital needs and debt repayments over the medium term.

Outlook: Stable

CRISIL believes EIL will continue to benefit from the healthy revenue visibility provided by lease rentals, given the healthy tenant occupancy.

Rating Sensitivity factors
Upward factors
* Track record of timely inflow of lease rentals
* Improvement in overall average DSCR to over 1.8 times, led by better-than-expected lease rentals or renewal rates
* Significant improvement in capital structure
 
Downward factors
* Drop in overall average DSCR to below 1.2
* Unanticipated delay in lease payments, leading to cash flow mismatches or weakening of credit profile of the counterparty
* Any major debt-funded project, or acquisition, or significant dividend payout, weakening the financial risk profile, particularly liquidity
About the Company

EIL was incorporated in July 1962 as a public limited company. The company manufactures surge arresters and undertakes real estate development. Its multi-manufacturing facilities are in Pune and Hyderabad. Mr Rajendra Kumar Dabriwala and Mr Surbhit Dabriwala are the key promoters.
 
Elpro Estates Ltd (EEL) (Formerly known as 'Trump Properties Limited'): It is wholly owned subsidiary of EIL. It is currently operating mall - Elpro City Square in Pune.

Key Financial Indicators*
Particulars Unit 2019 2018
Revenue Rs crore 16.7 37.4
Profit after tax (PAT) Rs crore 99.9 18.5
PAT margin % 599.2 49.3
Adjusted debt/adjusted networth Times 1.19 NM
Interest coverage Times 5.7 1.6
*Consolidated Figures
NM - Not meaningful
Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of instrument Date of Allotment Coupon Rate Maturity Date Issue Size (Rs Cr.) Rating Assigned with Outlook
NA Term Loan NA NA Feb-2029 96 CRISIL BB/Stable
 
Annexure - List of entities consolidated
Names of entities consolidated Extent of consolidation Rationale for consolidation
Elpro Estates Ltd Full Common management and strong operational and financial link
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  96.00  CRISIL BB/Stable  24-03-20  CRISIL BB/Watch Negative  05-07-19  CRISIL BBB-/Stable  13-07-18  CRISIL BBB-/Stable      CRISIL BB+/Stable 
                18-05-18  CRISIL BB+/Stable (Issuer Not Cooperating)*       
Non Fund-based Bank Facilities  LT/ST    --    --    --  18-05-18  CRISIL A4+ (Issuer Not Cooperating)*      CRISIL A4+ 
All amounts are in Rs.Cr.
*Issuer did not cooperate; based on best-available information
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Term Loan 96 CRISIL BB/Stable Proposed Long Term Bank Loan Facility 7 CRISIL BB/Watch Negative
-- 0 -- Term Loan 89 CRISIL BB/Watch Negative 
Total 96 -- Total 96 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs criteria for rating debt backed by lease rentals of commercial real estate properties
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings
CRISILs Criteria for Consolidation
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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