Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL BBB-/Stable’ rating to the long-term bank facilities of SRM Institute of Medical and Technical Research (SRM IMTR).

 

The ratings reflect the trust’s established brand and market position, diversified revenue streams, adequate infrastructure, healthy placement record and financial support from SRM Institute of Science & Technology (SRM IST; ‘CRISIL A+/Stable/CRISIL A1’) by way of donations. These strengths are partly offset by modest debt protection metrics on account of lower operating profitability, and exposure to increasing competition from other deemed universities in south India and regulatory risks.

 

As part of the board of trustees scheme of arrangement of SRM IST and Valliammai Society, four major institutes, including the land and buildings which house other institutions managed by SRM IST and Valliammai society, have been transferred to SRM IMTR.

 

Revenue of SRM IMTR was Rs 47 crore in fiscal 2024 and consisted of contribution only from Easwari Engineering College, transferred from Valliammai Society during the fiscal. The remaining institutions, viz SRM TRP Engineering College, Trichy SRM Medical College Hospital & Research Centre and SRM College of Arts and Science (located in Trichy) were also transferred in fiscal 2024; however, approvals to run the institutions under SRM IMTR were received in fiscal 2025. Hence, revenue is expected around Rs 220 crore in fiscal 2025 and at Rs 250-260 crore in the next fiscal driven by increased enrolment and planned fee hikes. While the operating margin of these four key institutions on aggregate basis is estimated at 8% in fiscal 2024, it is expected to improve over the medium term.

 

The financial risk profile and liquidity will likely remain moderate on account of weaker debt protection metrics due to lower profitability and part dependence on SRM IST during initial year of operations for funding debt servicing and operations. SRM IMTR is undertaking capital expenditure (capex) of ~Rs 400 crore in two phases for construction of hostels in the Trichy campus. While phase I of the capex is almost completed, funded through debt of Rs 150 crore in fiscal 2025, the trust is expected to commence phase II of Rs 200 crore shortly, which will also be funded by way of debt of Rs 150 crore. The hostels are expected to generate operating profit of Rs 20 crore per phase upon full occupancy. However, on account of lower profitability from the transferred institutes, debt protection metrics such as debt to earnings before interest, tax depreciation and amortisation (Ebitda) ratio, net cash accruals to debt will remain moderate over the medium term.

Analytical Approach

CRISIL Ratings has considered the standalone credit risk profile of SRM IMTR.

Key Rating Drivers & Detailed Description

Strengths:

Established brand and market position; diversified revenue streams and high enrolments

The SRM group and its flagship institute SRM IST have been part of the education sector in Tamil Nadu for three decades leading to strong market position. SRM IST is one of the largest private deemed universities in India with almost 76,000 students enrolled across five campuses (including four in Tamil Nadu and one in Uttar Pradesh (Modinagar)]. The university offers a wide range of undergraduate, postgraduate and doctoral programmes in various streams such as engineering, management, medicine, dentistry, law, arts, science and humanities. It is expanding its capacity and is set to increase its student offtake for courses such as law, agriculture and engineering over the medium term. SRM IMTR and its institutes will leverage the brand of SRM for improving market visibility, enrolment and placements. In fiscal 2025, SRM IMTR is expected to derive ~56% of revenue from medical courses, ~29% from engineering, ~13% from hospitals and ~2% from arts and science.

 

Financial support from SRM IST by way of donations

SRM IMTR has received additional assets from SRM IST apart from the major institutions mentioned earlier, as part of the scheme of arrangement. These assets have been leased back to SRM IST and will continue to be run by them, while the operating profit of Rs 130-140 crore from the institutes is expected to be transferred to SRM IMTR by way of donations on a continuous basis. Revenue of SRM IST was Rs 2,676 crore in fiscal 2024, compared with Rs 2,315 crore in fiscal 2023. Operating margin, excluding donations, was 35.4% and 35% in fiscals 2024 and 2023, respectively. Cash donations in fiscals 2024 and 2023 stood at Rs 302 crore and Rs 255 crore, respectively.

 

Adequate infrastructure and healthy placement record

The institutes managed by SRM IMTR have over 6,000 students and comfortable teacher-student ratio of approximately 1 teaching faculty for 17-18 students. These also offer adequate in-house infrastructure and research facilities, providing avenues for students and faculty alike to pursue advanced research in their fields. The institutes managed by SRM IMTR have healthy record of over 1,400 offers for ~2,000 students in fiscal 2024.

 

Weaknesses:

Modest debt protection metrics on account of lower profitability due to initial year of operations

SRM IMTR is expected to avail debt of Rs 150 crore per annum in fiscals 2025 and 2026 for funding capex of Rs 400 crore in two phases. The capex involves construction of hostel blocks in Trichy. This debt-funded capex plan and lower operating profitability, compared with the industry, will weaken the debt protection metrics. Debt to earnings before interest, tax, depreciation and amortisation (Ebitda) ratio is expected to be high until fiscal 2027 and should moderate thereafter. Cash accrual to adjusted debt will be much lower in initial years, though supported by the flow of donations of Rs 130-140 crore per annum. However, the transfer of assets of ~Rs 1,000 crore in fiscals 2023 and 2024 contributed to strong networth of Rs 1,139 crore as on March 31, 2024, at SRM IMTR. This will likely keep the debt metrics minimal in the absence of any unexpected debt-funded capex plans.

 

Exposure to increasing competition: With the presence of many established deemed universities and major engineering colleges in south India, the trust’s ability to maintain market position will largely depend on its ability to attract students with its superior infrastructure and research facilities.

 

Susceptibility to regulatory changes: The education industry in India is highly regulated and the trust needs to invest in workforce and infrastructure regularly to comply with specific operational and infrastructure norms set by All India Council for Technical Education, Anna University, and other authorities. Setting up institutes, increasing number of seats and revision of fee structure also require regulatory approvals. Revenue may therefore remain constrained by the regulated nature of the education sector.

Liquidity: Adequate

Liquidity will be supported by the donations from SRM IST, expected to amount to ~Rs 75 crore in fiscal 2025 and Rs 130-140 crore per annum from the next fiscal. At standalone level, liquidity is modest. Capex of Rs 200 crore per annum in fiscals 2025 (phase I) and 2026 (phase II) will be partly covered by bank loans. Cash accrual is expected at Rs 15-20 crore in fiscal 2025. However, with phase I capex expected to completed in fiscal 2025, cash accrual should rise. While the trust has no term debt obligation in fiscal 2025, debt obligation is expected ~Rs 7.5 crore in fiscal 2026 and Rs 22.5 crore in fiscal 2027, which will be met through cash accrual and donations. Utilisation of working capital limit of Rs 25 crore was modest at 5% for the seven months through October 2024.

Outlook: Stable

CRISIL Ratings believes SRM IMTR will likely benefit from the strong brand of SRM, improved revenue streams and better operating profitability. The financial risk profile is moderate, but may improve, supported by increase in cash accrual from its institutes and other facilities post completion of capex.

Rating Sensitivity Factors

Upward factors

• Better-than anticipated revenue growth and operating profitability above 18-19%, leading to higher than expected cash generation.
• Prudent capital spending and working capital management leading to improvement in financial risk profile.

 

Downward factors

• Steep decline in occupancy in key courses leading to dip in operating profitability below 8-9%, also impacting cash generation.
• Higher than expected debt funded capex leading to deterioration of financial risk profile – net cash accruals to adjusted debt of less than 0.4 times.
• Change in stance of SRM Institute of Science and Technology in terms of donations, thereby adversely impacting the credit profile of SRM IMTR.

About the Trust

SRM IMTR is a trust set up in 2012 by Mr S Niranjan, grandson of Dr T R Paarivendhar, Chancellor of SRM IST. In fiscal 2024, the board of trustees’ scheme of arrangement was implemented at SRM IST and Valliammai Society (managed by the SRM group). As part of the arrangement, SRM TRP Engineering College, Trichy SRM Medical College Hospital & Research Centre and SRM Trichy Arts and Science College from SRM IST and Easwari Engineering college were transferred to SRM IMTR. These campuses are in Trichy and Ramapuram in Chennai. SRM IMTR is managed by Ms P Geetha, Managing Trustee and Mr Niranjan Shivakumar, Trustee.

Key Financial Indicators

As on/for the period ended March 31*		2024	2023*
Revenue	Rs Crore	47	-
Profit after tax (PAT)	Rs Crore	-18	-
PAT margin	%	-38.5	-
Adjusted debt/adjusted networth	Times	0.06	-
Interest coverage	Times	7.40	-

*No major operations

Any other information: Not Applicable