CRISIL Assigned Grade To Nitesh Estates IPO (03-Mar-2010)
Credit Rating and Information Services of India Ltd. (CRISIL) has assigned 2/5 Grade to the proposed Initial Public Offering (IPO) of Nitesh Estates Ltd.
The 2/5 ratings indicate that the fundamentals of the IPO are below average relative to other listed securities. Nitesh Estates Ltd. (NEL) is a Bengaluru-based Real Estate Development company and conducts business under the joint development model. Since 2004, NEL has developed 3 housing projects in the high-end luxury market, totaling 0.55 mn sq ft of saleable area.
Recently, the company has forayed into the mid-income housing segment. The company has 4 ongoing projects in the residential segment, having total saleable area of 3.0 mn sq ft (NEL's share is 49%), 5 forthcoming projects of 2.3 mn sq ft (NEL's share is 71%) and 5 planned projects of 6.5 mn sq ft (NEL's share is 65%).
On the commercial and retail fronts, the company has 4 planned projects of a total developable area of 3.0 mn sq ft (NEL's share is 65%). These projects (except one residential project) are being developed on the joint development model. Out of the Rs 4.5 bn that NEL eyes to raise through the IPO - Rs 905 mn is expected to fund the acquisition of joint development rights of 2 residential and 1 retail project, Rs 884 mn would be used to fund the construction of a residential project, Rs 460 mn will be invested in equity of Nitesh Residency for construction of the 'Ritz Carlton' hotel, Rs 1,357 million will be used to repay the debt and the balance will be utilised for general corporate use. CRISIL 2/5 rating to the company forthcoming IPO, reflects the company's venture into the highly competitive mid-income housing segment, and development of retail, commercial and hospitality projects.
In 2008-09, the company defaulted on its debt and interest payments, which was subsequently repaid. Besides, the second-rung management is fairly new and highly dependent on the promoter.
Due to low-margin contractual income and high corporate expenses compared to its revenue, NEL's operating (OPBDIT) and net margin in FY09 were low at 7.6 % and 3.2 %, respectively. In the first half of the current financial year, operating margin was negative 19.1 % and net margin was positive at 11.7 % - due to a one-time gain of Rs 174 mn from sale of investments in subsidiary company (Nitesh Housing Developers).
Nitesh Estates is an integrated property development company for homes, hotels, office buildings and shopping malls. The company is planning to expand its operations in other cities like - Goa, Chennai, and Kochi shortly and plans to scale up its development portfolio to 20 million sq ft by 2014.
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