ICRA rating agency suspends RPS Infra's rating on Rs 13 crore bank lines

[rgajra]

Below is one latest rating-related news on RPS Infrastructure from ICRA rating agency:

Before you read the latest ICRA rating action here is a rough guide of what the series of ICRA ratings (which covers the A4 given earlier to RPS Infra) indicates:

ICRA-A1 means: Short-Term Rating Scale All instruments with original maturity upto one year. Instruments with this rating are considered to have very strong degree of safety regarding timely payment of financial obligations. Such instruments carry lowest credit risk.

ICRA-A2 means: Instruments with this rating are considered to have strong degree of safety regarding timely payment of financial obligations. Such instruments carry low credit risk.

ICRA-A3 means: Instruments with this rating are considered to have moderate degree of safety regarding timely payment of financial obligations. Such instruments carry higher credit risk as compared to instruments rated in the two higher categories.

ICRA-A4 means: Instruments with this rating are considered to have minimal degree of safety regarding timely payment of financial obligations. Such instruments carry very high credit risk and are susceptible to default.

ICRA-D means: Instruments with this rating are in default or expected to be in default on maturity.


-- rg


Source: ICRA rating company

RPS Infrastructure Limited
Instrument Amount Rated Rating Action
In Rs. crore September 2012
Non-fund-based Limits 12.89 [ICRA]A4 Suspended

ICRA has suspended short term rating of [ICRA]A4 (pronounced ICRA A four) assigned to Rs.12.89 crore bank lines of RPS Infrastructure Limited (RPS). The suspension follows ICRA’s inability to carry out the rating surveillance in the absence of the requisite information from the company.

According to its suspension policy, ICRA may suspend any rating outstanding if in its opinion there is insufficient information to assess such rating during the surveillance exercise. ICRA will withdraw the rating in case it remains under suspension for a period of three years.

Company Profile
Incorporated in 2005, RPS is promoted by Mr. Shanti Prakash Gupta (also the promoter of Henna Industries producing kali Mehandi with brands like Henna, Black rose and colormate) and Mr. R.C. Gupta (has earlier developed real estate projects with Crown Group). In the initial years, RPS developed two residential projects in Faridabad in collaboration with other developers. Currently, RPS is developing three residential projects –RPS Savana, RPS Palms and RPS Rythm, all part of 100 acre RPS city located in Sector 88 in Faridabad. RPS is also developing one commercial project viz., RPS Oxypark located in sector-41 aggregating to 0.95 million sq. ft.

September 2012

For further details please contact: Analyst Contacts: Mr. Rohit Indamdar, (Tel No. +91-124-4545847)
rohit,inamdar@icraindia.com Relationship Contacts: Mr. Vivek Mathur, (Tel. No. +91-124-4545310) vivek@icraindia.com

[rgajra]

There is an update to the rating by Icra. Last month, January 2013, Icra has revoked the rating suspension but reduced the credit amount to Rs 5.35 crore (from about Rs 13 crore earlier).

I present below Icra's January 2013 rating update on RPS Infrastructure. If I have more time I will share my understanding of the statements and financials made in this Icra rating update, but one quick comment on RPS Infra's financials (as covered by the rating update) -- The operating revenues have been around Rs 100 crore in the last 3 years upto FY12 (Apr 2011 to Mar 2012), mainly coming from payments made by us (Savana & Palms) going upto 85-95% of the total cost. But Operating profit before depreciation, interest, tax and amortization (OPBDITA) is being shown to be only around Rs 3-4 crore in each of these years. This means operating expenditure is around Rs 95-100 crore every year. I find this hard to believe. Can the construction cost (in Savana & Palms where any amount of actual construction took place in those years) this high?

Moreover, the OPBDITA is before the interest component. The total debt of RPS Infrastructure stands at around Rs 120 crore in FY11 and FY12 and even as low as 10% interest cost would result in about Rs 12 crore as interest outgo every year. This should have resulted in a net loss of about Rs 8 crore (operating profit of Rs 3-4 crore minus Rs 12 crore). But strangely, and this is extremely strange, RPS Infrastructure's profit after tax (PAT) which is the figure you arrive at after interest, tax, etc is being shown as around Rs 3 crore each year. Isn't RPS Infrastructure paying any interest on its debt? Even if you take out that part of the debt which the promoters themselves have loaned to the company the external debt stands at around Rs 60 crore which means an interest of Rs 6-12 crore should be getting paid. But no. No such level of interest cost is being shown. Strange, very very strange.

Moreover, if there is anything fishy about its operating expenditure (as we understand to be the construction cost and related costs) then can it mean the revenues are being diverted to the promoters and routed back to the company in the form of loans from promoters? Or is the EDC and enhanced EDC collected from us, which can range from anywhere between Rs 50 crore and Rs 90 crore (as the Icra rating report says RPS has sold 80% of Savana and Palms) of the Rs 100-110 crore EDC-cum-EEDC which RPS has not paid to the Haryana government/DTCP, being used to pay the interest on the external debt and for other things?

Here is what the Icra rating update states (since the tables won't be seen below here is the internet link for the rating report -- http://www.icra.in/Files/Reports/Rationale/RPS%20Infrastructure%20%20_r_26092012%20.pdf )

ICRA Rating Services Page 1
RPS INFRASTRUCTURE LIMITED
Analytical Contact
Kapil Banga kapil.banga@icraindia.com +91-124-4545391 Shubham Jain Shubhamj@icraindia.com +91-124-4545306 Rohit Inamdar rohit.inamdar@icraindia.com +91-124-4545847
Relationship Contact
Vivek Mathur vivek@icraindia.com +91-124-4545310
Website:
http://www.icra.in
Ratings
ICRA has revoked the suspension and reaffirmed the short-term rating of [ICRA] A4 (pronounced ICRA A four)†for Rs. 5.35 crore (earlier 12.89 crore‡) non-fund-based limits of RPS Infrastructure Limited (RPS). (Refer Annexure for Instrument Details)
Source; Company; *: figures for H1FY2013 are provisional
† For complete rating definition please refer to ICRA website http://www.icra.in or any of the ICRA Rating Publications ‡ 100 lakh = 1 crore = 10 million
Particulars (Rs. crore)
31.03.10
31.03.11
31.03.12
Months
12
12
12
Operating Income (OI)
173.61
101.19
100.51
Operating profit before depreciation, interest, tax and amortization (OPBDITA)
3.58
3.99
5.56
Profit after tax (PAT)
3.23
3.02
4.84
Equity Capital
38.75
38.75
38.75
Tangible Net Worth(TNW)
72.88
74.98
79.14
Total Debt
67.39
117.74
125.13
OPBDITA/OI
%
2.06%
3.94%
5.53%
PAT/OI
%
1.86%
2.99%
4.81%
PAT/TNW
%
4.43%
4.03%
6.11%
PBIT/(Total Debt + TNW +DTL – CWIP)
%
3.73%
2.58%
3.73%
OPBDITA/Interest and Finance Charges
Times
36.04
21.30
15.05
Gross Cash Flows+interest/ Interest
Times
-320.49
-226.92
-15.32
Net Cash Accruals/Total Debt
%
6%
3%
4%
Total Debt/(TNW+ Minority Interest)
Times
0.92
1.57
1.58
Total Debt/OPBDITA
Times
18.80
29.52
22.52
Net Working Capital/OI
%
63.50%
154.58%
166.98%
ICRA Credit Perspective
December 2012
ICRA Credit Perspective RPS Infrastructure Limited
ICRA Rating Services Page 2
Credit Strengths
 Experienced management, with presence of more than a decade in the real estate business
 Low approval risks in its on-going projects
 Low commitment in terms of land payments due to its business model of entering into Joint Development Agreements (JDA) with the land owner
 Good response to the company’s projects in the residential segment
Credit Challenges
 High competition due to the presence of many completed and on-going projects in Greater Faridabad (Haryana) region.
 Exposure to market risk for the unsold area, especially the commercial project as the demand is yet to pick up in Faridabad in this segment.
 Significant delays in the company’s first project, which coupled with the limited track record of the company reflects high execution risk.
 Part of the projects’ funding is planned to be met from customer advances, which is contingent on timing of bookings and collections from customers thus giving rise to funding risk.
 Like other real estate players, the company is exposed to the risk of slowdown in demand, falling property prices and inherent cyclicality in the sector
 Exposure to geographical concentration risk as all its projects are located in one city i.e. Faridabad (Haryana)
Rating Rationale
The rating reaffirmation takes into account improvement in RPS’ liquidity profile driven by healthy response to its Savana project- the said project is nearing completion now and the complete repayment of the related loans has been done. The rating continues to draw comfort from the experience of the promoters in the real estate industry, low approval risks in the projects, financial closure achieved for all ongoing projects and low commitment in terms of land payments due to its business model of entering into Joint Development Agreements (JDA) with the land owners. The rating is however constrained by the delays in project execution and significant exposure to commercial real estate project, Oxypark, in Sector 41 in Faridabad (Haryana), which has seen slowdown in demand due to sluggish economic segment. The rating is also constrained by the company’s geographical concentration risks as all its projects are located in the city of Faridabad and its limited track record in the real estate sector.
Company Profile
Incorporated in 2005, RPS is promoted by Mr. Shanti Prakash Gupta (also the promoter of Henna Industries producing kali Mehandi with brands like Henna, Black rose and colormate) and Mr. R.C. Gupta (has earlier developed real estate projects with Crown Group). In the initial years, RPS developed two residential projects in Faridabad in collaboration with other developers. Currently, RPS is developing three residential projects –RPS Savana, RPS Palms and RPS Rythm, all part of 100 acre RPS city located in Sector 88 in Faridabad. RPS is also developing one commercial project viz., RPS Oxypark located in sector-41 aggregating to 0.95 million sq. ft.
Business and Competitive Position
Geographical concentration risks due to the presence in a single territory All projects developed by the group are located in Faridabad (Haryana), including the projects currently under execution. The promoters enjoy goodwill and have created a strong investor base in this area over the last few years of operations. However, the presence of its all its operations in a single geography exposes the company to concentration risks. Low bookings in RPS Oxypark accentuate market risks
ICRA Credit Perspective RPS Infrastructure Limited
ICRA Rating Services Page 3
RPS’ two residential projects, RPS Savana and RPS Palms, are under execution and company has sold nearly 80% of the area in both the projects, indicating low market risks for these projects. However, sales in the company’s first commercial project, RPS Oxypark, has been low (~30%) on account of subdued demand in commercial segment in Faridabad as well as slowdown in economic activity in the country. Significant delays in completion of first project, coupled with limited track record, highlights the execution risks faced by the company.. RPS Savana is the first project launched by the company. The project was initially expected to be delivered by the end of 2011 but has been delayed and possession is now expected to be start in April 2013. RPS’ limited track record in real estate sector, coupled with significant delays in the first project, indicates execution risks faced by the company. Funding of the project is contingent on collections from customers RPS expects to meet most of the projects’ cost through customer advances. The firm has relied largely on customer advances for meeting the funding requirements of the projects thus far. However, collection efficiency has been low particularly in the company’s commercial project, in which it has raised demands for Rs. ~63 crore and has received Rs. ~19 crore (collection efficiency of ~30%). In this scenario, the funding and execution is highly dependent on the company’s ability to sell the remaining area as well as improve the collection efficiency.
Financial Position
Operating income has been stagnant in FY2012 on account of tepid execution; however, the operating margin has improved due to increase in realizations, particularly in the residential segment The company has reported revenues of Rs. 100.5 crore in FY12, against total income of Rs. 101 crore in FY11 on account of tepid execution and no new launches. The FY12 revenues have been booked mainly from Savana project which is the first project to be launched by the company. The company has not booked any revenues from Oxypark project as the construction did not reach the threshold level for revenue recognition (RPS follows percentage completion method in which revenues can be recognized once the threshold level of expenses is crossed). Despite the stagnant revenue base and rising material costs, the company’s operating margins have improved from 3.9% ion FY2011 to 5.5% in FY2012 due to the higher realization of the Savana project, as the rates have increased across the residential segment in Faridabad. Higher operating margins coupled with lower financial costs, led to better PAT margin in FY12- PAT margin increased from 3.0% in FY11 to 4.8% in FY12. Increase in debt in FY12, due to higher unsecured loans from promoters The total debt for the company as of March 31, 2012 includes Rs. 46 crore of unsecured loans from promoters, Rs. 67 crore term loans from banks for Savana and Oxypark projects and working capital borrowings of Rs. 12 crore. On y-o-y basis, the company’s gearing has remained same at ~1.58 times despite the repayment of term loans as well as accrual in FY12, on account of the infusion of Rs. ~10 crore by promoters in the form of unsecured loans. As of September 2012, the external debt stood at Rs. ~63 crore, which is for the Oxypark project and the company has repaid the entire term loan taken for the Savana project. The company has Rs. 100 crore sanction for Oxypark project, out of which Rs. 33 crore has to be repaid in FY15 and the balance Rs. 67 crore in FY16. Going forward, RPS’ ability to maintain its sales momentum in the current economic scenario as well as to ensure timely payments from the existing bookings in the commercial project would be the key sensitive factors. Recent Results In FY2012, RPS Infrastructure Limited (RPS) reported operating income of Rs. ~100 crore and net profit of Rs. ~5 crore. December 2012
ICRA Credit Perspective RPS Infrastructure Limited
ICRA Rating Services Page 4
Annexure 1: Rating
Instrument
Amount (Rs. Cr.)
Rating Action
Non-fund-based Limit
5.35 (earlier 12.89)
[ICRA]A4 Suspension Revoked and Rating Reaffirmed
ICRA Credit Perspective RPS Infrastructure Limited
ICRA Rating Services Page 5
ICRA Limited An Associate of Moody's Investors Service CORPORATE OFFICE Building No. 8, 2nd Floor, Tower A; DLF Cyber City, Phase II; Gurgaon 122 002 Tel: +91 124 4545300; Fax: +91 124 4545350 Email: info@icraindia.com, Website: http://www.icra.in REGISTERED OFFICE 1105, Kailash Building, 11th Floor; 26 Kasturba Gandhi Marg; New Delhi 110001 Tel: +91 11 23357940-50; Fax: +91 11 23357014 Branches: Mumbai: Tel.: + (91 22) 24331046/53/62/74/86/87, Fax: + (91 22) 2433 1390 Chennai: Tel + (91 44) 2434 0043/9659/8080, 2433 0724/ 3293/3294, Fax + (91 44) 2434 3663 Kolkata: Tel + (91 33) 2287 8839 /2287 6617/ 2283 1411/ 2280 0008, Fax + (91 33) 2287 0728 Bangalore: Tel + (91 80) 2559 7401/4049 Fax + (91 80) 559 4065 Ahmedabad: Tel + (91 79) 2658 4924/5049/2008, Fax + (91 79) 2658 4924 Hyderabad: Tel +(91 40) 2373 5061/7251, Fax + (91 40) 2373 5152 Pune: Tel + (91 20) 2552 0194/95/96, Fax + (91 20) 553 9231 © Copyright, 2013 ICRA Limited.

[rgajra]

Two errors in my previous post:

1. The rating update by Icra took place in December 2012 and not in January 2013.

2. The internet link I provided for the latest rating update was actually for the September 2012 rating action where Icra had suspended the rating.

The correct link for the latest December 2012 rating update is this:

[rgajra]

Really sorry for this but here is another (3rd) correction in the post I made today:

One the lines I wrote was:
"The operating revenues (of RPS Infrastructure) have been around Rs 100 crore in the last 3 years upto FY12 (Apr 2011 to Mar 2012)".

I forgot to mention that the operating revenue figure of Rs 100 crore was for every year for the 3 years -- FY10, FY11, FY12. In fact, in FY10 the revenue was much higher at Rs 173 crore. In FY11 and FY12, it was Rs 101 crore and Rs 100 crore respectively.