Shapoorji Pallonji & Co to reduce debt by Rs 4,000 crore in FY23

Shapoorji Pallonji & Company (SPCPL) will further reduce its debt by Rs 4,000 crore in the current financial year (2022-23) through the disposal of assets.

The flagship company of Shapoorji Pallonji Group (SP Group), SPCPL emerged from a one-time restructuring plan (OTR) in 2021-22 (FY22) with the repayment of all OTR debt, ahead of OTR deadlines. It did so through the injection of funds by developers, proceeds from monetization of assets and a new term loan.

Its consolidated external debt was reduced from around Rs 13,500 crore in FY22 to Rs 23,475 crore as of March 31.

Recognizing the improved financial profile, including debt reduction, ICRA removed the ratings from oversight with development implications. The rating agency raised the term loan rating from “BBB+” to “A-” with a “stable” outlook.

A majority of the developer’s debt (about Rs 3,100 crore from the Rs 3,900 crore) was converted into mandatory convertible preferred shares/perpetual debt. This contributed to the improvement in its net position.

ICRA said the company had principal repayment obligations of Rs 1,500 crore between 2022-23 and 2024-25, of which Rs 300 crore was repaid in June. The remainder is expected to be largely satisfied by divesting the stake in some of its group entities.

SPCPL had a strong outstanding order backlog of Rs 32,360 crore as of March 31, providing medium-term revenue visibility. In addition, the backlog is well diversified across sectors, geographies and customers.

The group has a well-established presence in construction, real estate and infrastructure. The ratings take into account SP Group’s strong investment portfolio comprising listed and unlisted equity investments, as well as significant land and real estate properties. The group holds an 18.37% stake in Tata Sons, a holding company of the Tata group.

The rating agency said SPCPL’s strong execution capabilities and the expertise of its management and technical staff leading its core business areas are reassuring.

Ratings, however, remain constrained by modest profitability of core construction activities in FY22 due to slow execution due to limited availability of working capital.

The company’s fund-based facilities were shut down under the OTR plan, which had limited order fulfillment in the recent past.

Base construction margins are expected to improve on the back of enforced working capital limits and a healthy backlog. Lower interest charges (due to deleveraging) should improve overall net profit, ICRA observed.

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