Detailed Rationale CRISIL Ratings on the long-term bank facilities of SBG Software Pvt Ltd (SBG; part of the Bagmane group) continues continues to reflect the strong operational, managerial, and financial support of the group, stable cash flow due to full occupancy and reputed clientele, and healthy debt protection metrics. These strengths are partially offset by exposure to revenue concentration risk and susceptibility to fluctuations in interest rates and occupancy.
Earlier on Jan 31, 2022 CRISIL Ratings has upgraded its rating on the long-term bank facilities of SBG to 'CRISIL A+/Stable' from ‘CRISIL A/Stable’.
The upgrade reflects the improvement in the standalone credit profile of SBG and the Bagmane group.
The lease rental income for SBG grew by 18% year on year in fiscal 2021 supported by full occupancy of its asset, Bagmane Goldstone, along with lower than expected operating expenses.
The group increased its total operational leasable area to 18 million square feet (msf) from 14 msf as of October 2020 and rentals for another 3.05 msf is expected to start in the next 9-12 months. Lease rental income grew by 23% year on year in fiscal 2021 supported by rental income from the additional area and steady inflow of existing rentals. The financial risk profile of the group is strong, reflected in debt to lease rentals ratio of less than 3 times. Leverage is expected to remain comfortable, with debt expected at less than Rs 5,000 crore over the medium term, against Rs 3,970 crore as on December 31, 2021, despite additional debt for capital expenditure (capex). |
Analytical Approach To arrive at its rating, CRISIL Ratings has applied its criteria for rating entities in homogeneous groups, as all entities in the Bagmane group have strong financial fungibility and operated in the same line of business. All the assets are managed by common management and have financial fungibility. All the assets, except Bagmane Goldstone, are under the flagship company of the group, Bagmane Developers Pvt Ltd (BDPL).
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:
The Bagmane group has strong brand presence in the commercial real estate market in Bengaluru, and has developed 18 msf of office space in India with 3.05 msf completed recently. The assets had healthy occupancy of 94% as on December 31, 2021, and tenants are marquee players such as Amazon, Google, Samsung, Accenture and Qualcomm. The group has healthy financial risk profile and adequate financial flexibility to meet the debt obligation of the company. SBG owns and operates the Bagmane Goldstone office space in Bengaluru, which is part of Bagmane World Technology Centre, and shares the brand and logo of the group. SBG’s operations are integrated with that of the group, which manages the property. The company benefits from the management's proactive approach towards asset maintenance to ensure tenant longevity and quality. The group will continue to provide financial support to the company during exigencies.
Debt service coverage ratio (DSCR) is expected to remain well above 1.3 times throughout the tenure of the loan. Debt protection metrics are supported by adequate liquidity in the form of a debt service reserve account (DSRA) covering debt obligation of 3-4 months. The debt to lease rentals ratio is expected to be healthy at less than 4 times as on March 31, 2022. However, any increase in debt, in the absence of an additional revenue stream, will impact the financial risk profile, and will remain a key rating sensitivity factor.
Weaknesses:
The company faces high concentration risk as its entire property is leased to only two tenants, Samsung and Nvidia. Surrender of lease by any one tenant will significantly weaken the financial risk profile of the company.
Cash inflow is vulnerable to volatility in occupancy or realisations (derived from rentals per sq ft), while cash outflow is relatively fixed, except fluctuations in interest rates (as it is floating). The economic impact of the Covid-19 pandemic poses a downside risk to occupancy, given the material impact on market rentals and overall demand. The vacancy may increase in the near term due to tenant vacating owing to the impact of Covid-19. Although cash flow will be able to partly absorb the impact of volatility in interest rates and occupancy, these will remain rating sensitivity factors. |
Liquidity: Strong Liquidity will remain strong over the medium term driven by steady cash flow from lease rentals, which will be sufficient to meet yearly debt obligation. The company had cash and liquid surplus of around Rs 29.7 crore as on March 31, 2021, including DSRA covering three months of debt obligation. |
Outlook Stable CRISIL Ratings believes SBG will continue to benefit from the full occupancy of its asset and steady cash flow over the medium term. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company SBG is a subsidiary of Akruthi Infra Build Developers Pvt Ltd (fellow subsidiary of BDPL); it operates the Bagmane Goldstone office space in Bengaluru. |
Key Financial Indicators
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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)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||
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Criteria Details
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