Rating Rationale
June 16, 2022 | Mumbai
Nirlon Limited
'CRISIL AA+/Stable' assigned to Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.1230 Crore
Long Term RatingCRISIL AA+/Stable (Assigned)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AA+/Stable’ rating to the long-term bank facilities of Nirlon Limited (Nirlon).

 

The rating reflects the company’s steady cash flow supported by the advantageous location of Nirlon Knowledge Park (NKP), its healthy occupancy and marquee clientele. The rating also factors in strong debt protection metrics and established track record of the asset. These strengths are partially offset by exposure to geographical and tenant concentration risks and susceptibility to volatility in occupancy and interest rates.

Analytical Approach

CRISIL Ratings has taken a standalone view of the business and financial risk profiles of Nirlon as it has only two assets, NKP and Nirlon House, and nil financial linkages with group companies.

Key Rating Drivers & Detailed Description

Strengths:

  • Stable cash flow: NKP is in Goregaon East and is close to the Western Express Highway, one of Mumbai’s arterial highways, Jogeshwari-Vikhroli Link Road and two railway stations on the Western Railway line. This has made the park an attractive destination for leading global banking and financial services companies such as JP Morgan, Morgan Stanley, Citicorp, Deutsche and BNP Paribas. The occupancy of the park has remained above 90% from March 2018 and was healthy at 96.9% (excluding area under phase V) for the quarter ended March 31, 2022. The company received occupation certificate for phase V, with leasable area of 1.16 million square feet (sq. ft), in June 2021 and the entire space has been leased with rentals commencing from May 15, 2022. The occupancy now stands at 98% including the new area under phase V.

 

The rating also factors in the secure leave and license agreements with lock-in and lease periods of 3-5 years and 4-10 years, respectively, and in-built escalations of 15% every 3-5 years for most licensees.

 

  • Strong debt protection metrics: Debt service coverage ratio (DSCR) is expected above 3 times throughout the tenure of the debt. The DSCR is supported by low debt level, with the debt-to-lease rental ratio expected at below 3 times as on March 31, 2023. Additionally, liquidity is supported by the presence of a debt service reserve account (DSRA) equivalent to one month of debt servicing obligation and an overdraft limit of Rs 80 crore (Rs 62 crore utilised as on May 31, 2022). Cash and equivalent were healthy at Rs 89 crore as on May 31, 2022.

 

The lease rental discounting loan (Rs 1,150 crore as on May 31, 2022) has a tenure of 10 years, with moratorium on principal repayment for the first five years and part debt repayment during the remaining tenure, exposing the company to refinancing risk. Nevertheless, the loan-to-value (LTV) ratio is expected to be low at less than 30%, protecting investors from sudden decline in the value of the property. The company does not have any immediate capital expenditure plans, and hence, is unlikely to contract incremental debt. However, increase in debt in the absence of an additional revenue stream may impact the financial risk profile and will be a key rating sensitivity factor.

 

  • Established track record: Nirlon benefits from its track record of over 10 years of managing, leasing and marketing the property, which has resulted in healthy occupancy, even during the pandemic. The company has a professional management team with vast experience looking after the administrative and daily operations. The company has strong relationships with all stakeholders'lenders, tenants and creditors. Additionally, it benefits from the management’s proactive approach towards asset maintenance to ensure tenant retention and quality.

 

Weaknesses:

  • Geographical and tenant concentration risks: As the company has a single asset (NKP), geographical concentration risk persists. Furthermore, the top five licenses contribute to 87.8% of gross lease rentals (as of May 2022), exposing the company to tenant concentration risk; the largest licensee contributes to 40.7% of gross lease rentals (as of May 2022). While the risk is mitigated by longstanding relationships with tenants and secured leave and license agreement terms with presence of notice period and security deposit of 6-9 months, if any of these tenants vacate the premises, it may be difficult to find an alternative within the stipulated time for the entire office space. This may adversely impact rental income and will be a key rating sensitivity factor.

 

  • Susceptibility to volatility in occupancy and interest rates: Cash inflow is susceptible to volatility in occupancy or realisations (a function of rentals per sq. ft), while cash outflow is fixed, except fluctuations in interest rates (as they are floating). Around 38.6% of the area will be up for renewal over the three fiscals through 2025. Timely renewal or leasing of this area at similar or better terms will be critical. Although cash flow will be able to absorb the impact of fluctuations in interest rates and occupancy partially, these will remain key rating sensitivity factors.

Liquidity: Strong

DSCR is expected to remain above 3 times throughout the tenure of the debt. Cash flow will be sufficient to cover interest obligation and regular maintenance over the three fiscals through 2025; the company has received moratorium on principal repayment during this period. Liquidity is further supported by a DSRA equivalent to one month of debt servicing obligation, presence of overdraft of Rs 80 crore (Rs 62 crore utilised as on May 31, 2022) and cash and equivalent of Rs 89 crore as on May 31, 2022.

Outlook: Stable

CRISIL Ratings believes the debt protection metrics of Nirlon will remain robust backed by steady cash flow from lease rentals and low debt.

Rating Sensitivity factors

Upward factors:

  • Substantial geographic diversification while maintaining financial risk profile

 

Downward factors:

  • Decline in cash flow owing to fall in occupancy below 85% or renewals at lower rental rates
  • Depreciation in the value of the underlying assets or incremental debt leading to LTV ratio of over 40%

About the Company

Nirlon owns and operates NKP. The park has total leasable area of 3.06 million sq. ft and has been developed in a phase-wise manner with the final phase (phase V), comprising of 1.16 million sq. ft, receiving occupation certificate in January 2022. The company has track record of collecting rentals for over ten years. It also owns undivided interest of 75% in Nirlon House, located in Worli (leasable area of 0.05 million sq. ft).

 

The company is majority owned by Government of Singapore Investment Corporation (GIC) with 63.9% shareholding through its affiliate, Reco Berry Pvt. Ltd (as on March 31, 2022).

 

In fiscal 2022, Nirlon’s operating income and profit after tax (PAT) were Rs 384 crore and Rs 111 crore, respectively, on a provisional basis.

Key Financial Indicators (CRISIL Ratings-adjusted numbers)

As on / for the period ended March 31

 

2021

2020

Operating income

Rs crore

326

334

Profit after tax (PAT)

Rs crore

127

109

PAT margin

%

39

33

Adjusted debt / adjusted net worth

Times

1.70

2.18

Interest coverage

Times

17.08

7.22

 

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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of instrument

Date of allotment

Coupon

rate (%)

Maturity

date

Issue size

(Rs crore)

Complexity

level

Rating assigned

with outlook

NA

Lease Rental Discounting Loan

NA

NA

Apr-32

1150

NA

CRISIL AA+/Stable

NA

Overdraft Facility

NA

NA

NA

80

NA

CRISIL AA+/Stable

 

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 1230.0 CRISIL AA+/Stable   --   --   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Lease Rental Discounting Loan 1150 Hongkong & Shanghai Banking Co CRISIL AA+/Stable
Overdraft Facility 80 Hongkong & Shanghai Banking Co CRISIL AA+/Stable

This Annexure has been updated on 16-Jun-22 in line with the lender-wise facility details as on 16-Jun-22 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs criteria for rating debt backed by lease rentals of commercial real estate properties

Media Relations
Analytical Contacts
Customer Service Helpdesk

Aveek Datta
Media Relations
CRISIL Limited
M: +91 99204 93912
B: +91 22 3342 3000
AVEEK.DATTA@crisil.com

Prakruti Jani
Media Relations
CRISIL Limited
M: +91 98678 68976
B: +91 22 3342 3000
PRAKRUTI.JANI@crisil.com

Rutuja Gaikwad 
Media Relations
CRISIL Limited
B: +91 22 3342 3000
Rutuja.Gaikwad@ext-crisil.com


Mohit Makhija
Senior Director
CRISIL Ratings Limited
B:+91 124 672 2000
mohit.makhija@crisil.com

Anand Kulkarni
Director
CRISIL Ratings Limited
B:+91 22 3342 3000
Anand.Kulkarni@crisil.com

Shrikesh Narule
Rating Analyst
CRISIL Ratings Limited
B:+91 22 3342 3000
Shrikesh.Narule@crisil.com		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper/magazine/agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.


About CRISIL Ratings Limited (A subsidiary of CRISIL Limited)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ('CRISIL Ratings') is a wholly-owned subsidiary of CRISIL Limited ('CRISIL'). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 
 



About CRISIL Limited

CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.

CRISIL is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your account and to provide you with additional information from CRISIL. For further information on CRISIL’s privacy policy please visit www.crisil.com.



DISCLAIMER

This disclaimer is part of and applies to each credit rating report and/or credit rating rationale (‘report’) that is provided by CRISIL Ratings Limited (‘CRISIL Ratings’). To avoid doubt, the term ‘report’ includes the information, ratings and other content forming part of the report. The report is intended for the jurisdiction of India only. This report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the report or of the manner in which a user intends to use the report. In preparing our report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the report is not intended to and does not constitute an investment advice. The report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind to enter into any deal or transaction with the entity to which the report pertains. The report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold or sell any securities/instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. The rating contained in the report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the report should rely on their own judgment and take their own professional advice before acting on the report in any way. CRISIL Ratings or its associates may have other commercial transactions with the entity to which the report pertains.

Neither CRISIL Ratings nor its affiliates, third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively, ‘CRISIL Ratings Parties’) guarantee the accuracy, completeness or adequacy of the report, and no CRISIL Ratings Party shall have any liability for any errors, omissions or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the report. EACH CRISIL RATINGS PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. Public ratings and analysis by CRISIL Ratings, as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any), are made available on its website, www.crisilratings.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and/or relies on in its reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public website, www.crisilratings.com. For latest rating information on any instrument of any company rated by CRISIL Ratings, you may contact the CRISIL Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301.

This report should not be reproduced or redistributed to any other person or in any form without prior written consent from CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings is a wholly owned subsidiary of CRISIL Limited.
 

 

CRISIL Ratings uses the prefix ‘PP-MLD’ for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisil.com/en/home/our-businesses/ratings/credit-ratings-scale.html