Rating Rationale
November 30, 2023 | Mumbai
KHFM Hospitality And Facility Management Services Limited
Ratings reaffirmed at 'CRISIL BB-/Stable/CRISIL A4+'; Rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.62 Crore (Enhanced from Rs.50 Crore)
Long Term RatingCRISIL BB-/Stable (Reaffirmed)
Short Term RatingCRISIL A4+ (Reaffirmed)
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 reaffirmed its 'CRISIL BB-/Stable/CRISIL A4+’ ratings on the bank loan facilities of KHFM Hospitality And Facility Management Services Limited (KHFM)

 

CRISIL Ratings had on October 20, 2023, revoked the suspension of its ratings on the bank facilities of KHFM and has assigned its 'CRISIL BB-/Stable/CRISIL A4+’ ratings to the bank facilities of KHFM

 

The rating reflects KHFM's extensive tenure with established customer base in facility management and security services industry, and comfortable capital structure. These strengths are partially offset by its modest scale of operations in intensely competitive industry and exposure to risks related to its tender-based business, working capital intensive operations and average debt protection metrics.

Analytical Approach

For arriving at the rating, CRISIL Ratings has consolidated the business and financial risk profiles of KHFM and its subsidiaries, which are strategically important to, and have a significant degree of operational integration with KHFM. These companies are KHFM Infra Projects Private Limited and KHFM & D.P Jain Company respectively. CRISIL Ratings considers these entities as being strategic to KHFM in view of their strong integration with KHFM’s operations.

 

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:

  • Extensive tenure with established customer base in 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 various locations in India. Also the company has added various additional services to improve its market position. The long presence has also helped the company to establish a strong relationships with customers leading to healthy renewal of tenders over the years. Further, KHFM also has in-house training facility to train employees which helps the company in providing 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 long-standing presence, and its established customer base in the facility management industry will continue to help the company to maintain its business profile over the medium term.

 

  • Comfortable Capital Structure: KHFM’s capital structure have been at comfortable level due to moderate reliance on external funds and healthy networth which improved to Rs 40.54crores due issuance of rights issue as on march 31, 2023. As a result, gearing and total outside liabilities to adj tangible networth (TOL/ANW) improved to of 1.22 times and 1.51 times for year ending on 31st March 2023 from 2.89 times and 3.62 times respectively a year ago. The capital structure is expected to improve further over medium term with steady accretion to reserves.

 

Weaknesses:

  • Modest scale of operations in intensely competitive industry and exposure to risks related to its tender-based business: Company's scale of operations is modest at around Rs. 91.05 crore for FY2023. The operations have had muted growth with revenues in the range of Rs.91-115 crore in the last three years ending 2022-23. The scale has remained modest as it operates in a highly competitive and fragmented industry marked by 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 future scale of operations is highly relied on KHFM's ability to win tender in future.

 

  • Working capital intensive operations: KHFM has large working capital requirements, as reflected from its high gross current assets (GCAs) excluding cash is around 241 days as on March 31, 2023. The company's high GCAs primarily resulted from large credit period extended to customers. KHFM receives payments from its customers in 75-90 days, on average.  Further, inventory primarily includes unbilled or WIP revenues which typically ranges around 98-175 days. The company had bad debts to the tune of Rs 4.18 crores in FY2023, though no large bad debts are expected over the medium term. Recovery of receivables and efficient working capital management with increasing scale remains a key rating monitorable over the medium term, as any significant stretch in realisations from debtors could materially weaken the company's liquidity.

 

  • Average Debt protection metrices: KHFM’s debt protection measures has been at average level due to moderate profitability and high interest expenses. The interest coverage and net cash accrual to total debt (NCATD) ratio are at 1.57 times and 0.07 times for fiscal 2023. KHFM debt protection measures are expected to improve further over the medium term in absence of major debt requirements and improvement in profitability.

Liquidity: Adequate

Bank limit utilisation is high at around 93 percent for the past 12 months ended August 2023. Cash accruals are expected to be over Rs. 3.0-4.5 crore which are sufficient against annual term debt obligation of Rs. 2.0-3.0 crore over the medium term. In addition, it will be act as cushion to the liquidity of the company. Current ratio was healthy at 1.71 times on March 31, 2023. The promoters are likely to extend support in the form of equity and unsecured loans to meet its working capital requirements and repayment obligations.

Outlook: Stable

CRISIL Ratings believe the group will continue to benefit from the extensive experience of its promoter, and established relationships with clients.

Rating Sensitivity factors

Upward factors:

  • Significant improvement in scale of operation and sustenance of operating margin, leading to higher cash accruals of Rs. 5 crore.
  • Improvement in working capital cycle and debt protection measures

 

Downward factors:

  • Decline in net cash accruals below Rs 2.5 crore on account of decline in revenue or operating profits
  • Witnesses a substantial increase in its working capital requirements thus weakening its liquidity and financial profile.

About the Company

KHFM, formerly known as Kalpatarus Hospitality And Facility Management Services Private Limited, 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 private limited company. KHFM is engaged in providing facility management services (housekeeping), mechanised cleaning services, gardening services, etc. KHFM has established network of around 24 branches at various location of India, with headquarter based in Mumbai. The company is listed on the SME Platform of National Stock Exchange of India Limited (NSE).

 

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

Key Financial Indicators

As on / for the period ended March 31

 

Q1 FY2024*

2023

2022

Operating income

Rs crore

20.68

90.23

96.42

Reported profit after tax

Rs crore

0.65

2.93

19.27

PAT margins

%

3.14

3.24

-19.98

Adjusted Debt/Adjusted Net worth

Times

NA

1.22

2.89

Interest coverage

Times

NA

1.57

-2.59

*Provisional

Status of non cooperation with previous CRA

KHFM has not cooperated with INFOMERICS Valuation and Rating Private Limited which has classified it as issuer not cooperative vide release dated October 31, 2023. The reason provided by INFOMERICS Valuation and Rating Private Limited 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 A4+
NA Cash credit NA NA NA 28.37 NA CRISIL BB-/Stable
NA Term Loan NA NA Dec-25 6 NA CRISIL BB-/Stable
NA Working Capital Term Loan NA NA Mar-28 6.45 NA CRISIL BB-/Stable
NA Proposed Fund-Based Bank Limits NA NA NA 7.18 NA CRISIL BB-/Stable

Annexure - List of Entities Consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

KHFM Hospitality And Facility Management Services Limited

Full

Same business and common management

KHFM Infra Projects Private Limited

Full

KHFM & D.P Jain Company

Full
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 48.0 CRISIL BB-/Stable 20-10-23 CRISIL BB-/Stable   --   --   -- Suspended
Non-Fund Based Facilities ST 14.0 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 A4+
Bank Guarantee 9.18 Apna Sahakari Bank Limited CRISIL A4+
Cash Credit 5.85 State Bank of India CRISIL BB-/Stable
Cash Credit 7.52 Bank of India CRISIL BB-/Stable
Cash Credit 15 Apna Sahakari Bank Limited CRISIL BB-/Stable
Proposed Fund-Based Bank Limits 7.18 Not Applicable CRISIL BB-/Stable
Term Loan 6 Bank of India CRISIL BB-/Stable
Working Capital Term Loan 6.45 Apna Sahakari Bank Limited CRISIL BB-/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
The Rating Process
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Criteria for Consolidation

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