| Hgp Community Private Limited | ||||
| Rating placed on 'Watch Developing’ | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has placed its ‘CRISIL AA-’ rating on the long-term bank facilities of Hgp Community Private Limited (HGP; a part of the Hiranandani core group) on ‘Rating Watch with Developing Implications’.
The rating action follows reports of division of some joint realty projects in Mumbai Metropolitan Region (MMR) between the two brothers, Mr Niranjan Hiranandani and Mr Surendra Hiranandani, who are co-owners of the Hiranandani core group (HGP being a part of this group). As per the announcement, the 250-acre Powai township will be owned by Mr Niranjan Hiranandani, while the 350-acre Thane township will be owned by Mr Surendra Hiranandani. While the developments have been confirmed by the group’s management, nuances of the division are awaited.
CRISIL Ratings has combined the business and financial risk profiles of HGP and six group entities, collectively referred to as the Hiranandani core group. All these entities are owned jointly by Mr Niranjan Hiranandani and Mr Surendra Hiranandani. Given the aforementioned announcement, no cash flow fungibility is expected between the two factions once the split is complete and hence a change in analytical approach will be warranted. CRISIL Ratings is in discussion with the group’s management to understand the exact contours of the split, its timeline and expected asset-liability position of the entities post the split. The rating will be removed from watch once there is clarity on these aspects.
Furthermore, CRISIL Ratings has noted news reports regarding search by the Income Tax department on premises linked with the Hiranandani group and is in the process of seeking inputs from the management around this development as well
The rating reflects the group’s established brand and strong market position in MMR, diverse revenue profile and strong financial flexibility. These strengths are partially offset by geographical concentration in revenue, and susceptibility to cyclicality and regulatory risks in the real estate sector. |
Analytical Approach For arriving at its rating, CRISIL Ratings has combined the business and financial risks profiles of HGP and six group entities, in line with its criteria for rating entities in homogeneous groups. These entities have high business, managerial and operational linkages and significant financial fungibility. Other entities jointly held by the brothers have not been consolidated as they mainly hold land and are debt-free. CRISIL Ratings has not consolidated the entities wherein projects by the Niranjan and Surendra Hiranandani families are being undertaken individually as they are managed separately.
Please note that the analytical approach is subject to change following the recent announcement.
Also, CRISIL Ratings has treated non-convertible debentures from the promoters as neither debt nor equity as they are long-tenured, interest-free and do not have fixed repayment schedule.
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:
Presence of over three decades in the real estate segment has enabled the Hiranandani group to develop highly saleable projects, undertake quality construction and maintain strong relationships with key clients. As of September 2021, the group had developed and delivered over 200 lakh sq ft, mostly in the residential segment, and had around 112 lakh sq ft under construction or planned. The group has strong brand equity and reputation for quality in construction, which is reflected in the pricing premium of Rs 5,000-10,000 per sq ft commanded by its projects vis-à-vis other projects in the vicinity. Its market position is further underpinned by its large, low-cost land bank of around 490 acres across MMR, which supports profitability. Strong operating efficiency backed by internal construction capabilities reduce cost and help pace construction according to requirement.
The group derives income from two businesses: real estate development and lease assets. It generated Rs 2,234 crore of cash inflow in fiscal 2021 (compared with Rs 1,810 crore in fiscal 2020), with real estate development contributing close to 80% of the inflow. In addition to the ongoing development portfolio of around 112 lakh sq ft, the group has a lease asset portfolio of 47.1 lakh sq ft. The group is expected to add around 25 lakh sq ft of leasable commercial area over the next 18-24 months. This should improve lease income of the group over the long term. Customer concentration for commercial lease assets will remain high, with Tata Consultancy Services Ltd contributing around 62% of the total rental. However, track record of relationship between the two groups, long-term lease agreements (lock-in of 15 years) and high fit-out cost incurred by the tenant offset the revenue concentration risk.
The group's financial risk profile is characterised by healthy collections from the real estate segment, which is likely to generate customer advances of over Rs 1,500 crore over the medium term. Furthermore, financial flexibility is supplemented by the group’s demonstrated refinancing ability, access to cash and equivalents of over Rs 700 crore, unutilised bank limit of about Rs 1941 crore, and flexibility to top-up LRD loans against expected lease income of over Rs 375 crore per annum.
Weaknesses:
Projects in Powai and Thane are the major contributors to revenue. Therefore, significant slowdown in demand or oversupply in the region will impact revenue, and hence, will be a key rating sensitivity factor.
The group's financial risk profile is characterised by healthy collections from the real estate segment, which is likely to generate customer advances of over Rs 1,500 crore over the medium term. Furthermore, financial flexibility is supplemented by the group’s demonstrated refinancing ability, access to cash and equivalents of over Rs 700 crore, unutilised bank limit of about Rs 1941 crore, and flexibility to top-up LRD loans against expected lease income of over Rs 375 crore per annum. |
Liquidity: Strong The group’s liquidity will remain strong supported by good saleability and collections in the ongoing projects and new launches. External borrowing was used to fund 17.6% (outstanding debt to total assets) of project cost and capital expenditure as of March 2021. Term debt obligation is expected around Rs 372 crore in fiscal 2022 (excluding prepayment of ~Rs 550 crore in this fiscal), and the group has adequate financial flexibility to manage upcoming repayments. The group has unsold inventory of around Rs 10,000 crore, along with almost fully paid-up land bank of around 490 acres against which additional debt can be raised, if required. Furthermore, undrawn bank lines of around Rs 1,941 crore and cash and equivalent of over Rs 700 crore support liquidity. Liquidity is further supplemented by steady cash flow from lease rentals and ability to raise additional LRD loans. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Group The Hiranandani group was set up in the late 1970s by Mr Niranjan Hiranandani and Mr Surendra Hiranandani. The group is closely held by the Hiranandani family members and comprises partnership firms and private limited companies. It undertakes real estate development, with focus on development of large, mixed-use township projects. It 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: The Hiranandani Core Group
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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 – 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 | ||||||||||||||||||||
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This Annexure has been updated on 29-Mar-22 in line with the lender-wise facility details as on 02-Aug-21 received from the rated entity.
Criteria Details
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