November 28, 2019

Shapoorji Pallonji and Company Private Limited: Long-term rating downgraded to [ICRA]A+,
Short-term rating downgraded to [ICRA]A1; ratings removed from watch with developing
implications and ‘Negative’ outlook assigned

Summary of rating action

Previous Rated Current Rated
Instrument* Amount Amount Rating Action
(Rs. crore) (Rs. crore)
Long-term rating: [ICRA]A+; downgraded from [ICRA]AA-,
rating removed from watch with developing implications
Non-fund based limits 15,000 15,000
and ‘Negative’ outlook assigned;
Short-term rating: [ICRA]A1; downgraded from [ICRA]A1+
Long-term rating: [ICRA]A+; downgraded from [ICRA]AA-,
rating removed from watch with developing implications
Fund-based limits 6,000 6,000
and ‘Negative’ outlook assigned;
Short-term rating: [ICRA]A1; downgraded from [ICRA]A1+
Commercial Paper 2,500 2,500 [ICRA]A1; downgraded from [ICRA]A1+
Total 23,500 23,500
*Instrument details are provided in Annexure-1

Rationale
The ratings downgrade and negative outlook takes into account the slower-than-anticipated progress achieved by
Shapoorji Pallonji and Company Private Limited (SPCPL) in terms of its deleveraging plans through equity infusion and
asset monetization. ICRA has noted that the promoters have infused a total of Rs. ~2,270 crore in SPCPL during
H1FY2020, including ~Rs. 1,900 from the proceeds of the Sterling & Wilson Solar Limited (SWSL) Initial Public Offering
(IPO), however, contrary to ICRA expectations, the net debt levels have not come down because the same has been
deployed to meet the funding requirements of several group companies, especially in the real estate business, both for
meeting their debt obligations as well as construction finance to complete the ongoing projects. ICRA has also taken note
of reduction in the reported contingent liabilities (financial guarantees & DSRA support) from Rs. 2,942 crore as on
March 31, 2019 to Rs. 2,412 crore as on September 30, 2019, through a combination of funds from SPCPL as well as
project level cashflow linked debt. The increase in standalone debt has also been on account of elongation in the working
capital cycle given the slow realisation of receivables and high inventory levels, especially for EPC projects from Andhra
Pradesh government. While the maturity profile of the debt has improved, with a significant reduction in short term debt
including commercial papers, it still remains exposed to high refinancing risk. The ratings also factor in the equity
mobilization risk towards various ongoing & planned infrastructure projects given the slower pace of progress in group’s
plans to divest stake in its operational infrastructure projects to partially fund the equity commitments.

ICRA has also taken note of the recent developments in SWSL, wherein its promoters – SPCPL and Mr. Khurshed Yazdi
Daruvala, requested for revised repayment schedule of the inter-corporate deposits (ICDs) due from their jointly held
entities to SWSL. As part of the commitments made by the promoters during the Initial Public Offering (IPO) of SWSL, a
portion of the net offer proceeds from the IPO were to be utilized for repayment of these ICDs. While SPCPL is not a
borrower for these ICDs, their impending settlement has resulted in an increase in SP group’s overall funding
requirements. The management expects to fund these liabilities through mobilising funds at the promoter level as well

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as additional borrowing at the level of Sterling and Wilson Private Limited, any increase in SPCPL’s debt levels to meet
SWSL liability would be negative from credit perspective. ICRA will closely monitor the developments on this front.

The long-term ratings have been removed from watch with developing implications and ‘negative’ outlook has been
assigned. ICRA believes the financial risk profile of SPCPL will remain under pressure due to elevated debt levels, high
refinancing risk and slower than anticipated progress in asset monetization.

The ratings continue to positively factor in SPCPL’s status as the flagship company of the Shapoorji Pallonji Group (SP
Group), having a well-established presence in the construction, real estate and infrastructure business. The ratings take
into account the financial flexibility enjoyed by the SP Group driven by strong investment portfolio comprising of listed
and unlisted equity investments as well as large land and property holdings. The SP Group is the single-largest
shareholder in Tata Sons Private Limited (TSPL), the holding company of the Tata Group, with an 18.37% stake. ICRA is
given to understand that the financial flexibility arising from shareholding in TSPL remains un-diminished despite the
ongoing litigations. The ratings also derive strength from the group’s strong execution capabilities, the extensive
experience of the promoters, and the expertise of its managerial and technical personnel heading the key business
verticals. The ratings also take into account the revenue visibility of its construction business over the near to medium
term aided by strong inflow of orders across sectors and geographies. With ramp up in residential project launches
during the current year, SPCPL’s real estate business vertical is expected to witness good traction with healthy bookings
and cashflows.

Key rating drivers

Credit Strengths

• Flagship company of SP Group – The Shapoorji Pallonji (SP) Group is one of the well-established and diversified
business groups of India having a strong brand value and legacy of over 150 years. SPCPL is the flagship company of
the SP Group having presence in construction, real estate and infrastructure businesses.

• Strong investment portfolio – SP Group enjoys financial flexibility driven by strong investment portfolio comprising of
listed and unlisted equity investments and significant value of land and property holdings. SP Group is also the single
largest shareholder in Tata Sons Private Limited (TSPL), the holding company of the Tata Group, with an 18.37% stake.

• Robust and well diversified order-book position – SPCPL had an order book of ~Rs. 29,262 crore as on September 30,
2019, after adjusting the orders cancelled/put on hold by Andhra Pradesh government. The well-diversified order
book across sectors, geographies and clientele provides revenue visibility in the near to medium term and reduces
order book concentration risk. The order book to operating income ratio stands at 2.31 times of FY2019 revenues
from construction segment providing revenue visibility in the medium term. The revenue from the core EPC business
grew by ~38% during FY2019 led by strong order inflow and execution.

• Experienced promoters and competent management – SPCPL derives strength from the extensive experience of its
promoters, strong and competent management, reflecting the expertise in its execution capabilities in their key
businesses.

Credit Challenges

• Slower-than-expected progress on asset monetization plans – The company has made slower-than-expected
progress on its asset monetization plans that has delayed the planned deleveraging of its balance sheet. While ICRA
expected major reduction in the standalone debt profit post the receipt of ~Rs. 1,900 crore (SPCPL’s share) from the
IPO of SWSL, the proceeds were largely deployed towards meeting the commitments (including debt obligation) of
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 various group companies. Timely conclusion of other monetisation, including unlocking equity value in some of the
unlisted entities in the group, and utilisation of the proceeds towards standalone debt reduction would be a key
rating monitorable.

• Highly leveraged capital structure – Being the flagship company of the SP group, SPCPL has made investments and
provided financial support to various group companies and ventures. The long gestation period of some of these
projects, especially in the real estate sector, has resulted in high debt levels for the company. SPCPL’s standalone
external borrowing increased from Rs. 8,067 crore as on March 31, 2019 to Rs. 9,019 crore as on September 30, 2019.
Besides this, the working capital cycle is expected to elongate going forward given the slow realisation of receivables
and high inventory levels, especially for EPC projects from Andhra Pradesh government, which would have a bearing
on SPCPL’s working capital borrowing levels. Furthermore, the debt at the consolidated level continues to remain
high.

• High refinancing risk – SPCPL remains exposed to high refinancing risk with Rs. 2,884 crore of debt repayments falling
due for repayment in H2FY2020 including commercial papers (CPs) of Rs. 550 crore. However, comfort can be taken
from the current liquidity maintained and a demonstrated track record of refinancing debt in the past.

• High quantum of contingent liabilities – SPCPL has extended credit support to various subsidiaries and associate
companies by way of financial, corporate and DSRA guarantees for the debt availed by them, in addition to
performance guarantees extended for various group projects. As on September 30, 2019, SPCPL reported contingent
liabilities stood at Rs.3,363 crore, of which Rs. 2,412 crore were towards financial guarantees and remaining Rs. 950
crore towards performance guarantees. However, ICRA takes note of management’s stated intent to further reduce
the DSRA/financial guarantees by March 2020.

Liquidity position: Adequate

SPCPL’s liquidity position is adequate. The cash and bank balance stood at ~Rs. 1,300 crore as on September 30, 2019
along with unutilised working capital limit of Rs. 215 crore. The estimated cash flow from operations are not adequate to
meet the high repayment obligations falling due over the short to medium term. Therefore, the company remains
exposed to refinancing risk. However, comfort can be taken from the promoter’s commitment to bring in sizeable
amount of equity in the near term, financial flexibility enjoyed by the group with a demonstrated track record of
refinancing debt in the past.

Rating sensitivities
Positive triggers – The crystallisation of scenarios for rating upgrade is unlikely over the medium term. The rating
upgrade would be contingent upon SP Group’s ability to successfully achieve significant deleveraging through various
asset monetisation plans, including unlocking equity value in some of the unlisted entities in the group, and equity
infusion by promoters. In addition, significant reduction in contingent liabilities especially DSRA/Corporate guarantees by
replacing it with long term non-recourse project cashflow linked debt and/or collateral backed security could support an
upward change in rating.

Negative triggers – Negative pressure on SPCPL’s rating could arise if there is lower than anticipated progress on the
Group’s deleveraging & DSRA/corporate guarantee reduction plan and any cash outflow from the company to meet the
liability of Sterling & Wilson Solar Limited.

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Analytical approach:
Analytical Approach Comments
Corporate Credit Rating Methodology
Rating Methodology for Construction Entities
Applicable Rating Methodologies
ICRA approach for rating commercial paper
Financial consolidation and Rating approach
Parent/Group Support NA
For arriving at the ratings, ICRA has used limited consolidation approach, under
which only the proposed equity investments/funding commitments to various
Consolidation / Standalone subsidiaries towards debt servicing and operational shortfall have been
considered. The list of companies that are consolidated to arrive at the rating are
given in Annexure 2 below.

About the company:

Shapoorji Pallonji and Company Private Limited (SPCPL), is the flagship company of the Shapoorji Pallonji Group (SP
Group), which is a diversified industrial conglomerate comprising of a group of companies held by the Mistry Family. The
SP Group has a diversified presence across sectors such as construction (SPCPL, Afcons Infrastructure Limited),
mechanical electrical and plumbing (Sterling & Wilson Private Limited), contracting (Sterling & Wilson Private Limited),
water purification (Eureka Forbes Limited), infrastructure development (Shapoorji Pallonji Infrastructure Capital
Company Private Limited), solar power generation and contracting (Sterling & Wilson Private Limited and Shapoorji
Pallonji Infrastructure Capital Company Private Limited ), floating production storage and offloading (FPSO) vessels (SP
Oil & Gas Private Limited) etc. The SP Group is also the largest private shareholder (18.37%) in Tata Sons Private Limited,
the holding company of the Tata Group.

SPCPL, which is held by Mistry family through various group companies, functions as the holding-cum-operating
company of the SP Group. The company holds stakes in various listed and unlisted companies, within and outside the SP
Group, and also has significant investments in properties that have high market value. SPCPL is one of India’s leading
construction companies, with a heritage of more than 150 years. Over the years, SPCPL has built diverse civil and
engineering structures such as factories, stadiums and auditoriums, airports, hospitals, housing complexes, and power
plants.

Key Financial Indicators (Standalone)

FY2018A FY2019A
Operating Income (Rs. crore) 9,823 13,474
PAT (Rs. crore) 342 368
OPBDIT/ OI (%) 13.4% 11.9%
RoCE (%) 11.6% 12.1%

Total Debt/ TNW (times) 2.9 2.7

Total Debt/ OPBDIT (times) 5.8 5.9
Interest coverage (times) 1.8 1.9
Source: Company, ICRA Research

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Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for last three years:

Rating (FY2020) Rating History for the past 3 years

Current
Earlier rating FY2019 FY2018 FY2017
Amou rating
nt 21- 27- 26-
28-Nov- 26-Nov- 08-Dec- 10-Nov-
Instrum Rated Amou June- May- June
2019 2018 2017 2016
ent Type nt O/s 2019 2019 2018
1 Fund Long 6,000 - [ICRA]A+ [ICRA]A [ICRA]A [ICRA]AA [ICRA]A [ICRA]A [ICRA]A
based Term/Sh (Negativ A- &/ A- &/ &/ A+ A+ A+
limits ort Term e)/ [ICRA]A [ICRA]A [ICRA]A1 (Stable) (Stable) (Stable)
[ICRA]A 1+ 1+ +& / / /
1 [ICRA]A [ICRA]A [ICRA]A
1+ 1+ 1+
2 Non- Long 15,00 - [ICRA]A+ [ICRA]A [ICRA]A [ICRA]AA [ICRA]A [ICRA]A [ICRA]A
Fund Term/Sh 0 (Negativ A- &/ A- &/ &/ A+ A+ A+
based ort Term e)/ [ICRA]A [ICRA]A [ICRA]A1 (Stable) (Stable) (Stable)
limits [ICRA]A 1+ 1+ +& / / /
1 [ICRA]A [ICRA]A [ICRA]A
1+ 1+ 1+
3 CP Short 2,500 - [ICRA]A [ICRA]A [ICRA]A [ICRA]A1 [ICRA]A [ICRA]A [ICRA]A
Term 1 1+ 1+ +& 1+ 1+ 1+
Amount in Rs. Crore; &: Rating watch with developing implications

Complexity level of the rated instrument:

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The
classification of instruments according to their complexity levels is available on the website www.icra.in

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Annexure-1: Instrument Details
Date of Amount
Issuance / Coupon Maturity Rated
ISIN No Instrument Name Sanction Rate Date (Rs. crore) Current Rating and Outlook
NA Fund Based Limits - - - 6,000 [ICRA]A+ (Negative)/[ICRA]A1
NA Non-fund based limits - - - 15,000 [ICRA]A+ (Negative)/[ICRA]A1
NA CP - - - 2,500 [ICRA]A1
Source: Company

Annexure-2: List of companies where limited consolidation has been used to arrive at the
ratings

Company Name Ownership Consolidation Approach

Afcons Infrastructure Limited 68.20% Limited Consolidation
Bengal Shapoorji Housing Development Private Limited 20% Limited Consolidation
Bengal Shapoorji Infrastructure Development Private Limited 100% Limited Consolidation
Bengal Shapoorji Developers Private Limited 100 Limited Consolidation
Delphi Properties Private Limited 100% Limited Consolidation
Mrunmai Properties Limited 100% Limited Consolidation
Floreat Investments Limited 100% Limited Consolidation
Forbes & Co Limited 73.51% Limited Consolidation
Forvol International Services Limited 100% Limited Consolidation
Galina Consultancy Services Private Limited - Limited Consolidation
Gokak Power and Energy Limited 86.52% Limited Consolidation
Gokak Textiles Limited 74% Limited Consolidation
Grand View Estates Private Limited - Limited Consolidation
High Point Properties Private Limited 100% Limited Consolidation
Joyville Shapoorji Housing Private Limited 48.50% Limited Consolidation
Lucrative Properties Private Limited 100% Limited Consolidation
Master Management Consultants (I) Private Limited - Limited Consolidation
Meriland Estates Private Limited 100% Limited Consolidation
Next Gen Publishing Limited 66.35% Limited Consolidation
Palchin Real Estate Private Limited 100% Limited Consolidation
PNP Maritime Services Private Limited - Limited Consolidation
S D Corporation Private Limited 50% Limited Consolidation
S D Suburban and Developers Private Limited - Limited Consolidation
SD SVP Nagar Redevelopment Private Limited 50% Limited Consolidation
Shapoorji Pallonji Energy (Gujarat) Private Limited 100% Limited Consolidation
Shapoorji Pallonji Forbes Shipping Limited 18.38% Limited Consolidation
Shapoorji Pallonji Infrastructure Capital Company Private Limited 100% Limited Consolidation
Shapoorji Pallonji International FZE Dafza 100% Limited Consolidation
Shapoorji Pallonji Mid-East LLC 49% Limited Consolidation
Shapoorji Pallonji Oil and Gas Private Limited 100% Limited Consolidation

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Company Name Ownership Consolidation Approach
Skyscape Developers Private Limited - Limited Consolidation
SP Imperial Star Private Limited - Limited Consolidation
SP Cement Gujarat Private Limited - Limited Consolidation
Sunny View Estates Private Limited 100% Limited Consolidation
TN Solar Power Energy Private Limited 100% Limited Consolidation

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ANALYST CONTACTS
Anjan Deb Ghosh Shubham Jain
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[email protected] [email protected]

Rajeshwar Burla Mitul Gandhi

+91 40 4067 6527 +91 22 6169 3345
[email protected] [email protected]

RELATIONSHIP CONTACT
L Shivakumar
+91 22 6114 3406
[email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
[email protected]

Helpline for business queries:

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)

[email protected]

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
companies as an independent and professional investment Information and Credit Rating Agency.

Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit
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For more information, visit www.icra.in

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