The agency has also assigned MHPL's INR100m fund-based demand loan limits Long-Term 'IND BB' and Short-term 'IND A4+' ratings.
The ratings reflect MHPL's limited track record in developing residential housing projects. Though the company has over 10 years of experience in developing housing plots in Hyderabad, the present project is its first residential housing project.
Also, it is exposed to a high degree of concentration risk for being a single-project entity. As the project is in intermediate stages of construction, the company is also exposed to the risk of timely completion of the project.
Any delay in project completion might increase interest costs for the company, stressing its debt servicing ability.
The ratings are further constrained by the prevailing political uncertainty and weak economic sentiments in Hyderabad.
Any increase in political uncertainty or decline in appetite for new housing units might slowdown the sale of new space, further stressing the company's debt servicing ability.
The ratings are supported by over 40pc of sales achieved by MHPL at end-August 2013. As construction reaches various milestones of completion over the next 12 months, the entire sale value is likely to be realised and this provides revenue visibility.
The ratings also draw comfort from the location of the on-going project from where major corporate offices, schools and shopping centres are easily accessible.
Negative: Future developments that could stress cash flows for timely debt service and lead to a negative rating action include:
- time and cost overruns
- additional debt to fund new projects
- any event resulting in a substantial slowdown in sales
Positive: Future developments that could lead to a positive rating action include:
- Substantial sale of housing units leading to strong visibility of cash flows
- higher-than-expected cash flows from the on-going project resulting in substantial strengthening of credit profile.
Established in 1999, MHPL is developing a residential apartment project named Muppa Aishwarya at Narsingi village in Hyderabad.
The company has developed over 180 acres of land as housing plots in the past.
The present project is being developed on 1.54 acres of land at an estimated cost of about INR280m with a built-up area of 133,695 sq.ft.
The project is likely to be completed by end-August 2014.
--IBNS (Posted on 08-10-2013)