Key Rating Drivers & Detailed Description

Strengths:

Moderate track record in real estate development

With more than 50 lakh sq ft (lsf) of residential development over the last decade spread across Bengaluru, Hyderabad, Kochi, and Ranchi, track record is moderate. The company is currently developing around 15 lsf of residential projects in Bengaluru and Ranchi and has plans to further launch more than 45 lsf over the medium term.

Saleability has improved with sold area of around 4.7 lsf during fiscal 2022 and around 3.9 lsf in fiscal 2021 due to a healthy portfolio of completed assets despite covid-19 pandemic. Improvement in sales has resulted in improvement in collections with around Rs 360 crore of collections in fiscal 2022 and Rs 216 crore of collections in fiscal 2021. The company benefits from the healthy portfolio of completed assets which has supported saleability. Four out of seven projects are at completed and remaining three projects are also at advanced stage of construction progress with around 80-90% completion till Dec 31, 2021. This should ensure momentum in saleability and collection in the medium term as well.

The company is also planning to launch five new projects, with two in Chennai, two in Bengaluru and one in Hyderabad. Ability to sell these projects at good price and profitability in these locations will remain a key rating monitorable. Benefits from NCCUIL’s reputed brand presence and experience in executing real estate projects should continue to support the business.

Modest financial risk profile and healthy financial flexibility

The debt has reduced to Rs 135 crore as on Dec 31, 2021 from peak of Rs 624 crores in fiscal 2018. Resultantly, leverage as improved to around 28% debt-to-total assets from more than 80% in fiscal 2018 due to debt reduction. Maintaining or further reduction of leverage shall remain a key rating sensitivity factor. NCCUIL credit profile also benefits from land bank of around 180 acres spread across geographies which have been used to service debt in the past. NCCUIL can also defer repayments on promoter loans in case of liquidity mismatch which stood at around Rs 78 crore as on December 31, 2021. The parent/inter-corporate loans do not have defined repayment terms and are to be repaid only if surplus is available. NCCUIL though plans to pay off the remaining loan in current fiscal backed by significant increase in collections.

Weakness:

Exposure to implementation risks and susceptibility of cash flow to cyclicality inherent in the real estate sector

With progress of 80-90% for under-construction projects as on December 31, 2021, as well as upcoming launches of five new projects, the company remains exposed to implementation risks. Supported by healthy customer advances, construction activity was largely funded through internal accruals in fiscals 2021 and 2022. Slow construction progress in ongoing projects could adversely impact customer advances from already sold units. Further, time and cost overruns in projects could adversely affect the company’s debt servicing ability. Construction progress as per schedule will remain critical for maintaining regular cash flow from customers.

Furthermore, 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.

Key Financial Indicators

Annexure - Details of Instrument(s)

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