| My Home Infrastructures Private Limited | ||
| Rating reaffirmed at 'CRISIL A+ / Stable' | ||
| Rating Action | ||
| ||
| 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 A+/Stable’ rating to the non-convertible debentures of My Home Infrastructures Pvt Ltd (a part of the My Home group).
The rating reflects an established development track record of the My Home group, supporting healthy saleability of its residential projects in Hyderabad, strong financial risk profile supported by low leverage and good financial flexibility. These strengths are partially offset by geographic concentration of operations in Hyderabad, exposure to risks related to the execution of the large commercial real estate development plans, and subsequent leasing, and susceptibility to inherent risks in the real estate sector. |
Analytical Approach For arriving at the rating, CRISIL Ratings has fully combined the business and financial risk profiles of the ongoing and planned real estate projects in the My Home group (refer to Annexure 1). That is because all these entities are managed by the same promoters and have fungible cash flow. CRISIL Ratings has not consolidated the other businesses (such as cement, power, media and investment) but factored the possibility of need-based support that can be offered, by some of these entities.
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 Established development track record and sound saleability of residential projects With a track record of over three decades, the group has an established position in the real estate market in Hyderabad. It has developed over 260 lakh square feet (sq ft) of residential and commercial area (built up) till date. The group’s focus on quality and timely delivery ensured even large projects are delivered on time. Out of 8 ongoing projects as on 31.03.2022, 3 are already completed and now it has five ongoing projects with around 96 lakh sq ft of developer’s share of saleable area in the residential segment. These projects had healthy sales and construction progress of 90% and 81%, respectively, as on March 31, 2022. During fiscal 2022, despite the pandemic in the first quarter, the performance of the real estate group was better than the estimates for the year with the achievement of sales of Rs.2836 crore and collection of Rs.3554 crore as against previous year sales of Rs.3135 crore and collection of Rs.2289 crore.
Its strong market position enabled the group to charge premium for its projects. Annual collections are expected to remain in the range of Rs 1,300-2500 crore over the medium term, supported by new launches, healthy sales of ongoing projects and liquidation of completed projects.
Healthy financial risk profile supported by low leverage Financial risk profile should remain adequate, driven by lower leverage in the ongoing projects. Financial risk profile is supported by the management’s stance of no debt taken for land banking purposes as well as higher reliance on customer advances, supported by good saleability, for funding construction cost rather than bank debt. Thus, debt on the residential projects is low at 8% of the total assets as of March 31, 2022, which is expected to remain at the level of 10% of total assets, however debt for commercial projects may go up with the additional proposed capex.
The group is expected to book sales over Rs 1800 crore from the ongoing projects against pending construction cost of ~Rs 1750 crore, which is sufficient to take care of construction of ongoing projects.
High financial flexibility The My Home group has high financial flexibility with low debt used in residential projects. Also, it has a substantial land bank that has been acquired at attractive prices over time. Further, need-based support was provided by real estate entities from their surplus cashflows towards various entities of group. Similar support is expected to be provided by real estate entities towards its other group entities in the medium term.
My Home Industries, until recently, was a 50:50 joint venture with the promoters of the group and CRH Plc. Following the planned exit of the CRH group from all cement businesses in Asia, its stake in My Home Industries was offered to promoters of the My Home group, who then entered into a non-binding agreement with CRH Plc to buy out the latter’s stake in My Home Industries. The buyout has to be made in five tranches between fiscals 2021-2024, out of which 4 tranches are already complete, with the last tranche due in April 2024. As per the My Home group’s management, the buyout is not expected to be funded through the cash flow of the real estate business. In fact, the financial risk profile of the cement business remains strong with healthy cash accrual and low leverage, thereby providing flexibility to support other businesses, if required. However, substantial borrowing in the real estate group to fund the buyout of the residual stake, and also leverage its balance sheet for funding construction of projects, will remain a key rating sensitivity factor.
Weaknesses Geographical concentration in revenue profile The My Home group’s operations are concentrated in the micro-market of Hyderabad. This may impact revenue if there is any significant slowdown in demand or oversupply in the region and will, hence, remain a key rating sensitivity factor. That said, the Hyderabad market remains attractively priced and affordable compared to other metros, and is seeing good sale of residential units, due to buoyancy in the information technology and banking, financial services and insurance segments, which are major customers for the group. Net absorption trend for Hyderabad remained positive as against negative trend ranging from -3% to -8% witnessed for other markets from fiscals 2015 to 2020. Absorption for the city declined by 25-30% in fiscal 2021, driven by the ongoing pandemic-led economic slowdown; however, it has recovered to pre-pandemic levels in fiscal 2022.
Exposure to risks related to execution of commercial real estate development plans and subsequent leasing The group is planning to develop large commercial office space on one of the acquired land in Hyderabad, which is in the initial stages of development. Any delay in completion or cost overrun and decline in demand and subsequent leasing could hit the cash flow adversely and the group may have to raise more debt to meet obligation on construction finance loans. However, the project will be executed in a phase-wise manner and will reduce the risk of future development in case of any delays.
Susceptibility to inherent risks in the real estate sector Saleability of the ongoing projects in the residential portfolio is expected to be moderate in the near term. Cyclicality in the domestic real estate sector leads to fluctuations in cash inflow because of volatility in saleability and realisations, while outflow such as construction cost and debt repayment remain fixed. Lower-than-expected demand could result in subdued collection and adversely impact cash flow. The real estate segment is further characterised by multiplicity of property laws and non-standardised government regulations across states. However, the strong track record in the real estate space mitigates the implementation and demand risks. |
Liquidity: Strong The My Home group’s liquidity should remain supported by good saleability and collections in the ongoing projects as well as in new launches. External borrowing has been used to fund 8% (outstanding debt to total assets) of project cost and capital expenditure as of March 2022. The group has adequate financial flexibility to manage the upcoming repayments. Customer advances (to be received from sold inventory) exceeds the pending project cost (advances to pending cost ratio of 1.6 times), indicating adequate cash flow cushion. Financial flexibility is supplemented by strong refinancing ability – the group has unsold inventory of over Rs 2300 crore in ongoing projects along and a fully paid-up land bank of over 100 acres across Hyderabad. Steady cash flow from lease rentals support the lease rental discounting loans where the debt service coverage ratio is expected to remain above 1 time. Need-based support from other entities, including My Home Industries, also boosts the financial flexibility of the group. |
Outlook Stable The My Home group will continue to benefit from its established position in the Hyderabad micro market and maintain its business risk profile over the medium term, driven by strong sales and healthy advance collection. The financial risk profile too is likely to remain healthy, supported by low leverage. |
Rating Sensitivity factors Upward factors
Downward factors
|
About the Group The My Home group is a well-known Hyderabad-based group, promoted by Dr Jupally Rameswar Rao. Mr Rao started the group in 1981 to execute real estate business; since then, the group has expanded into residential and commercial construction, cement, power, transportation, education and media. The group has over three decades of experience in real estate business. The real estate arm of the group has completed around 20 projects with total area of 26 million sq ft of area, with further 11 million sq ft of projects are under construction. Mr Rao is now supported by his four sons, Mr Vinod, Mr Ranjth Rao, Mr Ramu Rao and Mr Shyam Rao, who look after critical operational areas in different group entities. |
Key Financial Indicators (consolidated)
*Provisional financials |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Yet to be placed |
Annexure – List of entities consolidated
|
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
Criteria Details
|