Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL BBB-/Stable' rating on the long term bank facilities of NCC Urban Infrastructure Limited (NCCUIL).

 

The rating reflects the stability of credit profile of NCCUIL, with debt levels remaining low at Rs. 44 crores as on 31st March 2024 against Rs 42 crores as on March 31, 2023. The sales for the residential development business are expected to improve to over Rs. 300 crores in FY25 supported by its significant launch pipeline. In line with the sales, collections are also expected to improve to over Rs. 200 crores in FY25. However, the performance of the real estate business has moderated in fiscal 2024, with sales value and customer advances declining by 20% and 38% respectively YoY in fiscal 2024 due to lower launches during the year along with limited pending inventory in the ongoing and completed projects. On the other hand, with the increased focus on the real estate development business, the revenues form the EPC business are expected to remain in the range of Rs. 250-300 crores in the medium term. Sales from the EPC business increased to Rs. 227 crores in FY2024 from Rs. 107 crores in FY23.

 

Going forward, for the residential segment, the company has a significant launch pipeline with saleable value and area of ~Rs.5200 crores and 56 lakh sq. ft. (lsf) respectively (developers share of Rs. 3800 crores and Rs. 41 lsf) which will be launched in a phase wise manner under the asset light model of Joint Development Arrangements (JDAs). Further, the company has an outstanding EPC order book of Rs. 487 crores as on 31st March 2024.

 

The financial risk profile of the residential business has remained comfortable with low debt and healthy cash flows resulting in a debt/ CFO (Adj.) of 0.58 times. Going forward, while Debt/CFO (Adj.) is expected to moderate to above 1-1.5 times in the medium term as the company is planning to raise external debt to finance ~40% of the project cost of the new launches, the cash flows are expected to be supported by robust sales and collection from the new projects, maintaining the financial risk profile. Achieving sales and collections growth along with debt management will remain rating sensitivity factors.

 

The ratings continue to reflect NCCUIL’s comfortable financial risk profile and healthy financial flexibility and moderate track record in real estate development. These strengths are partially offset by exposure to project implementation risk and susceptibility of cash flow to cyclicality inherent in the real estate sector.

Analytical Approach

For arriving at its ratings, CRISIL Ratings has taken a standalone approach for the business and financial risk profiles of NCCUIL. This is because while NCCUIL has around 19 subsidiaries, they have no operations, are used as land holding vehicles and has negligible debt in them. Unsecured loans (Rs 21 crore as on Mar 31, 2024) has been treated as debt since these carry an interest rate of 11% and have been reducing from the business.

Key Rating Drivers & Detailed Description

Strengths:

• Comfortable financial risk profile and healthy financial flexibility: The overall debt of the company has remained low at Rs 44 crore as on March 31, 2024 against Rs 42 crores as on March 31, 2023, reducing significantly from peak of Rs 624 crores in fiscal 2018. The financial risk profile of the residential business has remained comfortable with low debt and healthy cash flows resulting in a debt/ CFO (Adj.) of 0.58 times. Going forward, while Debt/CFO (Adj.) is expected to moderate to above 1-1.5 times in the medium term as the company is planning to raise external debt to finance ~40% of the project cost of the new launches, the cash flows are expected to be supported by robust sales and collection from the new projects, maintaining the financial risk profile. Achieving sales and collections growth along with debt management will remain rating sensitivity factors.

 

NCCUIL credit profile also benefits from fully paid-up land bank of 175 acres, which provides strong visibility of launches with healthy profitability. NCCUIL can also defer repayments on promoter loans in case of liquidity mismatch which stood at around Rs 21 crores as on March 31, 2024. The parent/inter-corporate loans do not have defined repayment terms and are to be repaid only if surplus is available. 

 

• Moderate track record in real estate development: With more than 75 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 25 lsf residential projects in Bengaluru, Ranchi and Chennai. The company has plans to further launch more than 56 lsf over the medium term.

 

The company’s portfolio is largely comprised of completed and nearing completion projects with overall sold area of 52 % across the ongoing projects. The sales value and customer advances declined by 20% and 38% respectively due to limited launch and limited inventory remaining in the portfolio.

 

The company has a launch pipeline of eight new projects across Chennai, Bengaluru and in Hyderabad having a total saleable area of 56 lsf which gives sales visibility going forward. 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.

 

Weaknesses:

• Exposure to implementation risks and marketing risk; NCC remains reliant on new sales: With significant launch pipeline of over 56 lsf in the medium term, the company remains exposed to implementation and marketing risks. Since the company has limited inventory left in the completed projects, the company remains reliant on new sales from the ongoing and new launches for growth, any delay in launching the projects or slow construction progress could adversely impact the cash inflows which can result into higher external borrowings. Ability to timely launch with no cost overruns and selling the projects will remain critical for maintaining regular cash flows.

 

• Susceptibility to cyclicality and regulatory risks in the real estate sector: Cyclicality in the real estate segment causes fluctuations in cash inflow. As against this, cash outflow towards projects and debt obligation are relatively fixed, resulting in substantial cash flow mismatch. Any decline in the pace of sales could lower expected collections in the medium term. The real estate segment is further characterised by multiplicity of property laws and non-standardised government regulations across states, and thus operations are exposed to regulatory risk.

Liquidity: Adequate

NCC’s overall liquidity profile remains adequate, aided by cash balances of around Rs. 24 crore as on March 31, 2024. Further, the unencumbered inventory, which is nearing completion spread across various projects, and a number of launches under JDA model along with unencumbered land bank are likely to keep its operational cash flows adequate. CRISIL Ratings expects realization of customer advances to be more than Rs 200 crore annually over the medium term including the contract works inflows against external debt servicing requirement of Rs 20-40 crore in the medium term. Sold receivables of Rs 41 crores further lend stability to the cash flows.

Outlook: Stable

CRISIL Ratings believes NCC Urban will continue to benefit from its established position in the real estate market.

Rating sensitivity factors

Upward factors:

• Significant and sustainable improvement in scale of operations and increase in cash flows supported by healthy launches
• Sustenance of financial risk profile resulting in a Debt/ CFO less than 2 times

 

Downward factors:

• Significant delay or cost overrun in completion of projects
• Deterioration of financial risk profile resulting in a Debt/ CFO of more than 3 times

About the Company

Incorporated in 2005, NCC Urban develops residential and commercial complexes, service apartments, special economic zones, and integrated townships. NCC Ltd holds 80% equity stake in NCC Urban, while director, holds the remaining 20%. In fiscal 2022. The company also has contract works amounting to Rs 487 crore as on March 31, 2023.

Any other information: Not Applicable