Rustomjee Realty Private Limited: Rating assigned - ICRA Limited
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April 01, 2020
Rustomjee Realty Private Limited: Rating assigned
Summary of rating action
Current Rated Amount
Instrument Rating Action
(Rs. crore)
Term Loan 135.00 [ICRA]BBB (Stable); assigned
Total 135.00
Rationale
The rating assigned to Rustomjee Realty Private Limited (‘RRPL’ or ‘the company’) factors in the long-standing experience
of Rustomjee Group, in real estate business with around 176 lakh sq. ft. of area developed till date and well-recognized
brand in the Mumbai Metropolitan Region (MMR). The company is executing a project Rustomjee Elements in Andheri
West in Mumbai and the rating considers the comfortable sales track record, low project approval risk and adequate
cash flow cover to support the pending construction cost and debt obligations. Out of the total saleable area of 6.8 lakh
sq. ft. for the project, RRPL has already completed construction over 5.3 lakh sq. ft. and sold ~90% of the completed area
till February 2020. In March 2020, RRPL has launched one residential tower (tower C – Ignis), which has saleable area 1.3
lakh sq. ft. The construction on this tower had started earlier with work completed of ~70% till February 2020, while
pending work is estimated to be completed by December 2020. The rating also takes note of the committed receivables
of Rs. 60.9 crore and liquid investments of Rs. 164.9 crore as on February 2020 which is adequate to fund the pending
cost of ~Rs. 128 crore. The rating also draws comfort from structure of the rated loan, which is secured by 20 units in
completed towers with an approximate market value of ~Rs. 300 crore. The loan is having a moratorium of six quarters
and the repayments are scheduled to start from September 2021. Further, the collections from the secured units will
have an escrow mechanism and the net proceeds from sales of identified units will be fully utilised for prepayment of the
loan.
The rating, however, is constrained by the project’s exposure to moderate execution risk and market risk. Timely sale of
completed units at adequate rates and healthy collection efficiency will be essential going forward. Further, ramping up
sales velocity of under construction units will be necessary to maintain the comfortable liquidity position. ICRA also
notes that the sales velocity for high ticket sized units has remained weak over the last few years due to slowdown in
economic environment in general and residential real estate sector in particular. Nevertheless, the established brand of
the Rustomjee Group supports saleability of the project to some extent. While the location of the project is attractive,
the competitive intensity in the micro-market is high with the presence of various well-known players. The company is
also exposed to high geographical concentration risk which is inherent to the single project portfolio.
ICRA notes that the company has NCDs along with accrued interest of Rs. 360.3 crore on its books as on March 31, 2019
wherein the investor is a group company named Kapstone Constructions Private Limited (KCPL). The NCDs and the
accrued interest has a redemption date of April 14, 2020. As per the management feedback, there will be a revision in
terms of the NCDs and the investor will continue to be a group company. ICRA expects the revision in the NCD terms to
be completed before the redemption date and hence no redemption liability is expected to arise on RRPL in the near to
medium term.
1Credit strengths
Extensive experience of promoters, track record of the group and well recognized brand name – The key promoters
Mr. Boman Irani, Mr. Chadresh Mehta and Mr. Percy Chowdhry have an extensive experience of more than two decades
in the real estate industry. The Rustomjee Group has a strong execution track record which includes development of
luxury residential real estate, affordable housing, shopping mall, schools and commercial spaces. The Group has
delivered 62 projects till March 2020 and 10 projects are under construction. The Group’s execution track record is
supported by the completed construction of 176 lakh sq. ft. area, under construction project comprising saleable area of
111 lakh sq. ft. and upcoming development of 215 lakh sq. ft. The group has a well-recognized brand in the Mumbai
Metropolitan Region (MMR).
Strategic location of the project with good connectivity to social infrastructure – The project Rustomjee Elements is
located at premium location of upper Juhu, Andheri West, Mumbai. The project has total saleable area of ~6.8 lakh sq. ft.
of which the company has already completed development of 5.4 lakh sq. ft. The key location of projects benefits in
terms of an easy access to the evolved social infrastructure of the Western Mumbai. Strategic location along with
established brand presence supports healthy realisation and sales velocity of the residential units.
Limited external debt obligations, proposed debt with escrow and sweep mechanism: The company’s reliance on
external debt has remained limited. RRPL has repaid the complete external term debt obligations outstanding as on
March 2019 by February 2020 which supported the improvement capital structure. The company has received a sanction
of Rs. 135 crore of loan against security of 20 units in completed project. The debt quantum remains modest as
compared to the unrealized sales potential of the company. Further, escrow mechanism for collections of the secured
units as well as mandatory prepayment of the loan from collections of the secured units strengthen the credit risk profile
of the company.
Credit challenges
Vulnerability to moderate project execution risk – The project is exposed to moderate execution risk since it is in under
construction stage and is expected to be completed by December 2020. As on February 2020, RRPL has already incurred
~45% of the project cost. Albeit, any delay in the project execution due to change in government policy or other factors
can adversely impact the project cost as well as collection schedule. Moreover, any breach of RERA timeline may impact
the project negatively; however, the risk is moderate at present.
Exposure to cyclical nature of real estate industry and market risks – The Real estate market is characterized by its
sluggish and cyclical nature and regulatory intervention. Further, the residential real estate market has been
experiencing significant slowdown over the last few years and the outlook is negative in near term. The company faces
market risks due to completed unsold inventory as well as new inventory in the under-construction project. The sales
velocity is expected to be moderate due to high ticket size of the project. However, Rustomjee’s established brand
presence in Mumbai’s real estate market mitigates the market risk to an extent.
Geographic concentration risk with presence limited to Mumbai city – The company has a single project which is
located in Mumbai. Hence, it is exposed it to the geographical concentration risk. Moreover, the Group’s presence is
limited to the Mumbai city, which constrains it to the geo-political issues in the city.
2Liquidity position: Adequate
The company has pending cost to be incurred is ~Rs. 128 crore while the committed receivables are Rs. 60.9 crore. As on
February 2020, RRPL had unencumbered cash of Rs. 164.93 crore which will also support its near term working capital
requirement if required. The company does not have any scheduled principal obligations on external debt for the next six
quarters. Average monthly interest expense for the external debt is ~Rs. 0.85 crore for FY2021.
Rating sensitivities
Positive triggers: ICRA could upgrade RRPL’s rating if it is able to achieve better than expected sales velocity and
collections leading to ramp-up in operational surplus and subsequent reduction in leverage levels over the near to
medium term.
Negative triggers: Negative pressure on RRPL’s rating could arise if weak operational cash flows lead to lower-than-
expected debt reduction or any upstreaming of cashflows to group the companies adversely impacting its liquidity
position. Further, deviation in the proposed NCD terms from the indicated terms will also remain a key rating sensitivity.
Analytical approach
Analytical Approach Comments
Corporate Credit Rating Methodology
Applicable Rating Methodologies
Rating Methodology for Real Estate Entities
Parent/Group Support Not applicable
Consolidation/Standalone The assigned ratings are based on the issuer's standalone financial statements
About the company:
Incorporated in 2003, Rustomjee Realty Private Limited is a part of the Rustomjee Group, a Mumbai-based real estate
developer. The company is undertaking a premium residential project – Rustomjee Elements – in Upper Juhu, Andheri
West, Mumbai. The project includes saleable component - seven residential towers as well as non-saleable components -
eight rehabilitation towers. The saleable component of seven residential towers has a saleable area of 6.8 lakhs sq. ft.
wherein construction of six residential towers covering 5.4 lakh sq. ft. has already been completed. At present, RRPL is
undertaking construction of tower C named Ignis, where construction is estimated to complete by December 2020. The
tower comprises of 29 premium residential units.
Key financial indicators (audited)
FY2018 FY2019
Operating Income (Rs. crore) 349.7 253.8
PAT (Rs. crore) 45.2 30.2
OPBDITA/OI (%) 43.8% 47.5%
ROCE (%) 51.8% 53.9%
Total Debt/TNW (times) 11.7 3.3
Total Debt/OPBDITA (times) 1.5 1.4
Interest Coverage (times) 1.8 1.6
Source:RRPL financials and ICRA research
3Status of non-cooperation with previous CRA: Not applicable
Any other information: None
Rating history for last three years
All figures in Rs. Crore
Current Rating (FY2020) Rating History for the Past 3 Years
Instrument Amount Amount Rating FY2019 FY2019 FY2018
Type
Rated Outstanding
02-Apr-2020 - - -
Long [ICRA]BBB
1 Term Loan 135.00 135.00^
Term (Stable)
Source: ^Outstanding as on March 27, 2020
Complexity level of the rated instrument
ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The
classification of instruments according to their complexity levels is available on the website www.icra.in
4Annexure-1: Instrument details
Amount
Instrument Date of Issuance / Coupon Maturity Rated Current Rating and
ISIN No Name Sanction Rate Date (Rs. crore) Outlook
NA Term Loan FY2020 NA FY2023 135.00 [ICRA]BBB (Stable)
Source: Rustomjee Realty Private Limited
5ANALYST CONTACTS
Shubham Jain Anand Kulkarni
+91 124 4545 306 +91 22 6169 3326
shubhamj@icraindia.com anand.kulkarni@icraindia.com
Sanket Thakkar
+91 79 4027 1528 Tanay Chhaya
+91 79 4027 1524
sanket.thakkar@icraindia.com
tanay.chhaya@icraindia.com
RELATIONSHIP CONTACT
Jayanta Chatterjee
+91 80 4332 6401
jayantac@icraindia.com
MEDIA AND PUBLIC RELATIONS CONTACT
Ms. Naznin Prodhani
Tel: +91 124 4545 860
communications@icraindia.com
Helpline for business queries:
+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)
info@icraindia.com
About ICRA Limited:
ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
companies as an independent and professional investment Information and Credit Rating Agency.
Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit
Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.
For more information, visit www.icra.in
6ICRA Limited
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Contents may be used freely with due acknowledgement to ICRA.
ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subjec t to a process of
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