Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on Evita Constructions Pvt. Ltd (Evita, part of Niranjan Hiranandani group of companies) at ‘CRISIL BBB/Positive’.

 

The reaffirmation reflects CRISIL Ratings’ belief that the financial risk profile may strengthen over the medium term driven by monetisation of land and prepayment of external debt from the proceeds. Inflow of Rs 300 crores may be realized over the next two fiscals from transfer of land parcels housed under Evita to the group’s data centre business. The company has drawn down additional debt of Rs 50 crores in first half of fiscal 2022 for development of asset at Hinjewadi Pune for Data Centre backed by 100% mutual funds and liquid assets. Nevertheless, external debt has fallen substantially to Rs 475 crore as on September 30, 2021 from Rs 750 crore as on March 31, 2019. The prepayments were managed through monetisation of land as well as promoter infusion, and there are no major scheduled debt repayment obligations falling due till fiscal 2024. The company will continue to monetise land parcels and plans pare down entire debt over the medium term.

 

Project salability remained weak in fiscal 2021, as well as the first half of fiscal 2022. However, sales have witnessed some recovery in the third quarter of fiscal 2022, especially in the plotted development projects and the momentum is expected to continue with launch of 1.33 million square feet of plotted development in fiscal 2023. While customer advances remain weak, the construction for phase I of the project has been completed.  With no significant launches planned for Phase II of the project and no development envisaged for commercial portion of the project, there is no major construction cost envisaged in the medium term.

 

The rating continues to reflect expectation of strong operational, managerial, and financial support from the promoters, and their extensive experience in real estate development. These strengths are partially offset by weak project saleability, exposure to project implementation risks and cyclicality inherent in the real estate industry.

Key Rating Drivers & Detailed Description

Strengths:

• Strong operational, managerial and financial support from the promoters:

Evita benefits from strong linkages with the promoters, and their extensive experience in the real estate sector. Hiranandani Park is a large township project, being developed by the promoter group, and hence, is strategically important to them. The promoters are committed to offer support, and have infused Rs 1,322 crore in Evita till September 30, 2021 (net of loans given to related parties including Persipina); Rs 265 crore has been infused in the project over 18 months through September 2021. This has enabled the project to achieve healthy construction progress despite weak sales and collections.

 

The promoters are also committed to ensure timely servicing of the company’s debt, and funds infused over the past 18 months, have been utilised towards prepayment of external debt, which came down to Rs 475 crore as on September 30, 2021 from Rs 750 crore as on March 31, 2019, and is expected reduce further in the near term.

 

The promoters are expected to continue to provide financial support as and when needed over the medium term and the same will remain a key rating sensitivity factor.

 

• Extensive experience of the promoters and association with the Hiranandani brand

The promoters have a strong track record, specifically in implementation of large townships, similar to Evita’s project. As of September 2021 the Hiranandani core group, of which Evita’s promoter, Mr Niranjan Hiranandani is a 50% partner, has developed and delivered over 200 lakh square feet (sq ft), mostly in the residential segment, and has around 112 lakh sq ft of projects under construction or planned in the development business. Presence of over three decades in the real estate segment, has enabled the promoters to develop highly saleable projects, undertake quality construction, and maintain strong relationships with key clients.

 

The project shares the Hiranandani brand, which will keep demand prospects healthy over the long run. As Evita’s operations are integrated with Hiranandani core group, its daily operations are overseen by the same personnel. This ensures timely construction and enhanced collection efficiency. Evita will continue to derive significant benefits from its association with the Hiranandani brand.

 

Weakness:

• Weak project saleability:

The company has developed 44.3 lakh sq ft under the first phase of the project, which includes residential apartments and plots, while development of common infrastructure is still being undertaken.

 

The project’s sales and collections are weaker-than-expected, with sales mainly coming from plots; saleability of apartment units have remained low. The outlook on demand for apartments remains weak for the medium term as well. There were plans to launch affordable housing units, Aspire, for which 45 lakh sq ft was earmarked. However, given the weak market sentiment in Chennai, the company has decided to put this launch on hold. Similarly, the plans to launch premium residential units and commercial complex have also been put on hold indefinitely. While they intend to sell their ready-to-move-in inventory in the first phase of the project over the medium term, the company will continue to focus on sale of plotted developments, which has been witnessing moderate saleability. The company may also undertake bulk sale of plots subject to potential demand for the same. The pick-up in saleability, owing to these developments, remains a key rating sensitivity factor.

 

• Exposure to project implementation risks:

Evita is executing a township project with overall saleable area of 153.7 lakh sq ft (including commercial development). The entire project is being executed in multiple phases. While construction for Phase I has been completed, plan for any further development has been put on hold given the weak demand scenario in the Chennai market. This has reduced project implementation risk partially. Nevertheless, Evita remains subject to project implementation risks relating to infrastructure development. Any delay in implementation, or cost overrun can adversely affect the cash flow, and hence, remains a rating sensitivity factor.

 

• Susceptibility to cyclicality inherent in the real estate sector

Cyclicality in the real estate sector could result in fluctuations in cash inflow and volatility in sales. In contrast, cash outflow, such as for debt servicing, is relatively fixed. Any decline in demand for ongoing projects could result in lower collections and impact cash flows.

Liquidity: Adequate

Liquidity is backed by expectation of financial assistance from promoters; they have infused Rs 265 crore during the 18 months through September 2021. While flow of customer advances may remain weak over the medium term, the company has sanctioned debt to the extent of only 20% of the estimated project cost, thereby allowing the company to raise additional funds, if needed. Further, as a result of prepayment of debt, there is no scheduled repayment till fiscal 2024 (apart from Rs 50 crores due in July 2022) – the company has prepaid Rs 200 crore in the 18 months ended September 30, 2021; the company has raised additional debt of Rs 50 crore in the corresponding period for meeting costs related to data centre. However, this debt will be transferred to the data centre business along with transfer of land expected to happen over the next two fiscals

Outlook: Positive

CRISIL Ratings believes Evita’s financial risk profile may improve over the medium term on account of prepayment of debt supported by monetisation of land parcels, lower outflows towards construction given the focus on plotted development and expected support from the promoter group.

Rating Sensitivity factors

Upward factors:

• Substantial improvement in operating cash flow, backed by healthy saleability and customer advances, leading to improvement in debt protection metrics
• Substantial prepayment of debt, resulting in debt to total assets falling to below 20%

 

Downward factors:

• Significant time or cost overrun in project implementation
• Draw down of incremental debt leading to debt to total assets increasing to over 30%
• Lack of timely support from promoters
• Significant delay in transfer of land to data centre business

About the Company

Evita, promoted by Mr Niranjan Hiranandani and family, was incorporated in fiscal 2007, to undertake real estate development projects. It took over the project, Hiranandani Park, from Hirco Plc. in 2014 in an auction initiated by its lenders.

 

The company is currently implementing an integrated township project on 270 acre at Oragadam, Chennai, near the industrial corridor. The project comprises residential, commercial and retail units. The total saleable area of the township is 153.7 lakh sq ft, of which 44.3 lakh sq ft. is being undertaken in the first phase. Evita is also developing the basic infrastructure during the initial stages, similar to the project development model, followed by the Hiranandani core group for its Powai and Thane (both situated in MMR) projects. The overall cost of the township will be Rs 5,100 crore, likely to be completed over the next 10-15 years.

 

Mr Niranjan Hiranandani is also the promoter, with 50% ownership, of the Hiranandani core group. The core group undertakes real estate development and focuses mainly on development of large, mixed-use, township projects in MMR. The group is one of the early developers to have undertaken township development projects, such as Hiranandani Gardens in Powai and Hiranandani Meadows/Hiranandani Estate in Thane.

Key Financial Indicators

Particulars	Unit	2021	2020
Revenue	Rs crore	NM	NM
Profit after tax (PAT)	Rs crore	NM	NM
PAT margin	%	NM	NM
Adjusted debt/Adjusted networth	Times	NM	NM
Interest coverage	Times	NM	NM

Company follows project completion method for revenue recognition and the financials are not meaningful (NM)

Any other information: Not applicable