Cyrus Mistry's handling of SP Group's debt was on right track; ICRA upgrading Shapoorji Pallonji’s ratings is proof

Credit ratings agency, ICRA, in its report, dated 22 August, said Shapoorji Pallonji and Company Private Limited’s (SPCPL) successful exit from a one-time restructuring plan ahead of timelines has been a positive. That has led to the holding-cum-operating company of the diversified Shapoorji Pallonji Group (SP Group) now seeing its ratings being upgraded from “watch with developing implications” to “stable outlook.” 

The group, under the burden of debt (most of it coming from its real estate business), was left with no option but to sell some of its assets. Last year, Eureka Forbes, a company known for its vacuum cleaners and water purifiers, was sold to PE major, Advent International, where the promoters got Rs 3,100 crore for their 72.56 per cent holding. That was soon followed by Sterling & Wilson, another group company, being acquired by Reliance New Energy Solar for Rs 2,850 crore or Rs 375 per share and more importantly, at a 14 per cent discount to the market price. 

Much of the debt restructuring was overseen by Cyrus Mistry, who was killed in a car accident on Sunday. With his brother Shapoor, they were in charge of overseeing the businesses of the SP Group, among which were real estate, offshore oil and gas, bridges and flyovers, marine works, road construction, hydro and tunnelling, pipe laying and general civil engineering works. “The consolidated external debt reduced by around Rs. 13,500 crore during FY22 to Rs 23,475 crore as on March 31, 2022 and is expected to further reduce by around Rs. 4,000 crore in FY23 through asset divestment. ICRA notes the sizeable reduction in contingent liabilities over the last two years (FY21–22),” said the report.  

SPCPL is the flagship of the SP Group and provisional estimates, according to the report, show an operating income of Rs 8,769 crore in FY22 (up from Rs 6,680 crore in the previous fiscal), with a net profit of Rs 143 crore compared to a loss of Rs 1,396 crore in FY21. ICRA outlines that the ratings, however, “remain constrained by the modest profitability in SPCPL’s core construction business in FY22, owing to slow pace of execution due to limited working capital availability. The company’s fund-based facilities were closed as a part of the OTR plan, which had constrained order execution in the recent past.” It adds that going forward, “with expected sanction of the working capital limits, and a healthy order book, the core construction margins are expected to improve, which along with reduction in interest expenses (because of de-leveraging) should improve the overall net profit.” 

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