Reaffirming its rating of 'with a stable outlook' on Signature Global's term loans, credit rating agency ICRA said that the company has sold properties worth Rs 1,330 crore in the first half of this fiscal, and achieved sales bookings of Rs 2,590 crore in the last financial year.
Real estate firm Signature Global Private Limited plans to launch a public issue soon, to raise up to Rs 1,000 crore for reducing debt and future expansion. The IPO includes a fresh issue of equity shares and an offer for sale (OFS). Signature Global (India) Ltd received a nod from capital markets regulator Sebi for its IPO in November 2022. In July, the company filed the Draft Red Herring Prospectus (DRHP) with Sebi to launch its maiden public issue.
ICRA said in its report that the rating factored in the healthy sales velocity of Signature Global Group's projects in 2021-22 and the first six months of this fiscal on the back of good response to the company's new project launches. The rating reaffirmation also took into account the healthy sales velocity of the Signature Group’s projects in FY2022 and H1FY2023 on the back of good response to the company’s new project launches.
The Group sold 5.46 million square feet (msf) area with a value of Rs 2590 core in FY2022 and 1.84 msf area with a value of Rs 1330 crore in H1FY2023. It sold 77 percent of the area in its ongoing projects as on September 30, 2022. Further, the Group has healthy cashflow adequacy to cover of around 68 percent as on September 30, 2022, it said.
The rating continues to derive comfort from the established track record of the Signature Group in the NCR real estate sector, particularly in the affordable housing segment. The Group is currently developing 29 projects with a total saleable area of 16.8 (msf). The rating also derives comfort from the Group’s low-cost land bank, which provides strong visibility of launches, it said.
As on September 30, 2022, Signature Global has sold 13 million square feet, representing 77 percent of the total saleable area.
On credit challenges, ICRA said that the group's net debt increased from Rs 544 crore as on June 30, 2021, to Rs 1,010 crore by September 30, 2022, due to debt-funded land acquisition. It added that the repayments over the next two years are at Rs 361 crore in FY24 and Rs 378 crore in FY25, thereby exposing it to refinancing risks.
ICRA pointed out that the net debt/cash flow from operations remains comfortable and that the rating was constrained by continued operating losses in the last three years- resulting in net worth erosion.
"The company follows completed contract method wherein revenues get recognised on the offer of possession while the current overheads are aligned with the strong growth it has been witnessing in scale, which has led to under absorption of overheads on the reported revenue base," the report said.
"Nonetheless, the rating is constrained by continued operating losses in the last three years- resulting in net worth erosion. The company follows a completed contract method wherein revenues get recognised on offer of possession while the current overheads are aligned with the strong growth it has been witnessing in scale which has led to under absorption of overheads on the reported revenue base," ICRA said.
Further, due to its presence in the affordable housing segment, the gross margins are relatively low; thus, maintaining an adequate scale of operations is critical to improving the operating margins, it said.
The Group’s net leverage increased in the last one year due to debt-funded land acquisition. Further, the repayments over the next two years are sizeable at Rs. 361 crore in FY2024, and Rs. 378 crore in FY2025 thereby exposing it to refinancing risks, ICRA noted.
Although the company’s net debt has increased due to debt-funded land acquisition, the net debt/cash flow from operations remains comfortable and is expected to be at two times in FY2023. The rating is also constrained by the high reliance on customer advances for meeting the expenses of the ongoing projects, which exposes the Group to market and funding risks.
Being a cyclical industry, the real estate sector is highly dependent on macroeconomic factors, which in turn render the company’s sales vulnerable to any downturn in demand. Additionally, high dependence on the Gurgaon real estate market exposes the sales to any region-specific downturn in demand, ICRA said.