Rating Rationale
December 12, 2024 | Mumbai
KHFM Hospitality And Facility Management Services Limited
Ratings downgraded to 'CRISIL D/CRISIL D'
 
Rating Action
Total Bank Loan Facilities RatedRs.62 Crore
Long Term RatingCRISIL D (Downgraded from 'CRISIL BB-/Stable')
Short Term RatingCRISIL D (Downgraded from 'CRISIL A4+')
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 downgraded its ratings on the bank loan facilities of KHFM Hospitality And Facility Management Services Ltd (KHFM) to ‘CRISIL D/CRISIL D’ from ‘CRISIL BB-/Stable/CRISIL A4+’.

 

The rating downgrade reflects delays in meeting the debt obligation on account of weak liquidity.

 

The company also has a modest scale of operations in an intensely competitive industry, exposure to risks inherent in tender-based business, working capital-intensive operations and average debt protection metrics. However, the company has established healthy relationships with customers in the facility management and security services industry, and has a comfortable capital structure.

Analytical approach

For arriving at the ratings, CRISIL Ratings has consolidated the business and financial risk profiles of KHFM and its subsidiaries - KHFM Infra Projects Pvt Ltd and KHFM & D.P Jain Company. CRISIL Ratings considers these entities strategic to KHFM in view of their strong integration with KHFM’s operations. Unsecured loan of Rs 3.09 crore is treated as debt.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key rating drivers and detailed description

Weaknesses:

  • Delays in the repayment obligation: There has been regular instances of delay in the repayment of principal and interest components. This was on account of delays in receivables from its vendors.

 

  • Modest scale of operations in an intensely competitive industry and exposure to risks inherent in tender-based business: The company's scale of operations was modest at Rs 112.09 crore in fiscal 2024. The operations had muted growth with revenue of Rs 91-112 crore in the last three years through fiscal 2024. The scale has remained modest as the company operates in a highly competitive and fragmented industry as indicated by the presence of several unorganised players in the domestic market.

 

Furthermore, KHFM's major operations are tender based, as the company primarily deals with government and private organisations. Therefore, the company has limited bargaining power with its customers. Due to tender-based nature of the business, KHFM's scale of operations will be highly reliable on its ability to win tenders over the medium term.

 

  • Working capital-intensive operations: KHFM has large working capital requirement, as reflected in its high gross current assets (GCAs), excluding cash, of around 238 days as on March 31, 2024. The company's high GCAs resulted from the large credit period extended to customers. KHFM receives payments from its customers in 78-90 days, on average. Furthermore, the inventory primarily includes unbilled or work in process (WIP) revenue, and is typically at 98-175 days. The company had bad debt of Rs 6.12 crore in fiscal 2024, and no large, bad debt is expected over the medium term. The recovery of receivables and efficient working capital management with increasing scale, remain monitorable over the medium term, as any significant stretch in realisation from the debtors could materially weaken the company's liquidity.

 

  • Average debt protection metrices: KHFM’s debt protection metrics has been average due to moderate profitability and high interest expenses. The interest coverage and net cash accrual to total debt (NCATD) ratios were at 1.93 times and 0.07 time, in fiscal 2024.

 

Strengths:

  • Established healthy relationships with customers in the facility management and security services industry: KHFM is engaged in providing facility management and security services business since 1983. Over the years, the company has expanded its presence by adding offices across India. Also, the company has added various additional services to improve its market position. The longstanding presence has also helped the company to establish strong relationships with customers, leading to healthy renewal of tenders over the years. Furthermore, KHFM also has in-house training facility to train employees, which helps the company provide quality services. Demand for facility management services in India is expected to remain healthy over the medium term, with increasing demand for private agencies for housekeeping. However, retention of existing sites and success in new tenders will remain critical to any improvement in KHFM's scale of operations. KHFM's longstanding presence and its established customer base in the facility management and security services industry will continue to help the company maintain its business risk profile over the medium term.

 

  • Comfortable capital structure: KHFM’s capital structure has been comfortable due to moderate reliance on external funds and comfortable networth which improved to Rs 47.08 crore (From Rs.43.83 crores a year prior) as on as on March 31, 2024, due to rights issue and accretion to reserve over the years. As a result, the gearing and total outside liabilities to adjusted networth (TOLANW) ratio improved to 1.02 times and 1.19 times, respectively, as on March 31, 2024, from 1.13 times and 1.40 times, respectively, as on March 31, 2023. The capital structure is expected to improve further over the medium term with steady accretion to reserve.

Liquidity: Poor

The liquidity is poor as reflected in delays in repayment obligation on the term loan. Bank limit utilisation was high at 100% on average for the 12 months through October 2024.

Rating sensitivity factors

Upward factors:

  • Timely repayment of the debt obligation continuously for at least 90 days
  • Substantial increase in revenue and profitability, leading to higher cash accrual

About the company

KHFM, formerly known as Kalpataru Hospitality And Facility Management Services Pvt Ltd, was established in 1983 by Mr Ravindra Hegde as a proprietary concern in the name and style of Kalpataru Enterprises. Later, in 2006 the firm was reconstituted as a private limited company. KHFM provides facility management services (housekeeping), mechanised cleaning services and gardening services. KHFM has established network of around 24 branches at various locations in India, and has its headquarters in Mumbai. The company is listed on the SME (small and medium enterprises) platform of National Stock Exchange of India Ltd (NSE).

 

KHFM is promoted by Mr Ravindra Hegde and Mrs Sujata Ravindra Hegde.

Key financial indicators (consolidated)

As on/for the period ended March 31

Unit

H1 FY25

2024

2023

Operating income

Rs crore

54.28

112.09

90.23

Reported profit after tax (PAT)

Rs crore

2.57

2.98

2.93

PAT margin

%

3.42

2.65

3.24

Adjusted debt/adjusted networth

Times

0.85

1.02

1.13

Interest coverage

Times

2.01

1.93

1.54

Status of non-cooperation with previous CRA

KHFM has not cooperated with INFOMERICS Valuation and Rating Pvt Ltd, which has classified it as issuer not-cooperative vide release dated Oct 31, 2023. The reason provided by INFOMERICS Valuation and Rating Pvt Ltd is absence of adequate information from the company.

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the instrument Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs.Crore)		 Complexity
Level		 Rating assigned
with outlook
NA  Bank Guarantee  NA  NA  NA  14 NA  CRISIL D 
NA  Cash Credit  NA  NA  NA  28.37 NA  CRISIL D 
NA  Proposed Fund-Based Bank Limits  NA  NA  NA  7.18 NA  CRISIL D 
NA  Term Loan  NA  NA  31-Dec-25 6 NA  CRISIL D 
NA  Working Capital Term Loan  NA  NA  31-Mar-28 6.45 NA  CRISIL D 

Annexure – List of entities consolidated

Names of entities consolidated

Extent of consolidation

Rationale for consolidation

KHFM Hospitality And Facility Management Services Ltd

Full

Same business and common management

KHFM Infra Projects Pvt Ltd

Full

KHFM & D.P Jain Company

Full
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 48.0 CRISIL D   -- 30-11-23 CRISIL BB-/Stable   --   -- Suspended
      --   -- 20-10-23 CRISIL BB-/Stable   --   -- --
Non-Fund Based Facilities ST 14.0 CRISIL D   -- 30-11-23 CRISIL A4+   --   -- --
      --   -- 20-10-23 CRISIL A4+   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 4.82 Apna Sahakari Bank Limited CRISIL D
Bank Guarantee 9.18 Apna Sahakari Bank Limited CRISIL D
Cash Credit 5.85 State Bank of India CRISIL D
Cash Credit 7.52 Bank of India CRISIL D
Cash Credit 15 Apna Sahakari Bank Limited CRISIL D
Proposed Fund-Based Bank Limits 7.18 Not Applicable CRISIL D
Term Loan 6 Bank of India CRISIL D
Working Capital Term Loan 6.45 Apna Sahakari Bank Limited CRISIL D
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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