Prime Lands Residencies (Pvt) Ltd

ICRA Lanka reaffirms the [SL] A-(Stable) Rating for Prime Lands Residencies PLC

Instrument*Current Rated Amount (LKR Mn)Rating Action
Issuer Rating N/A[SL]A- with Stable outlook reaffirmed

Rating action                                               

ICRA Lanka Limited has reaffirmed the Issuer rating of [SL]A- (pronounced SL A minus[1]) with Stable outlook for Prime Lands Residencies PLC (“PRIMER”/ “the Company”).

Rationale

ICRA Lanka has taken a consolidated view of the Prime Group, in assigning the rating, given the operational and financial linkages among the entities of the group.

The reaffirmation of the rating takes into consideration the longstanding track record and established position of Prime Group as a leading real-estate developer in Sri Lanka. Prime Group has significant experience in the real-estate sector in Sri Lanka over the past 25 years. The Group’s lands and housing segment being the core business of the Prime Group, has performed well over the past several years. ICRA Lanka takes comfort from the Group’s healthy cash collection efficiency amidst strategically sound, efficient operational structure of the Group and the strong presales levels of the geographically diversified project portfolio. PRIMER’s forecasted future cash flow levels, proceeding from healthy operating profit margins and strong customer advances, provide further comfort to the assigned rating. The Group’s total debt levels currently remain at a moderate level compared to the scale of the ongoing project portfolio as of 30th June 2021.

During FY2017, Prime Lands Residencies PLC had started an ambitious luxury apartment project (Prime Grand) in Colombo-07. ICRA Lanka will continue to monitor the ability of the management to successfully complete this project within the time and cost targets as envisaged. Additional financial flexibility and operational support was further guaranteed for the Group with the successful Initial Public offering of Prime Lands Residencies on 11th May 2021.

ICRA Lanka also takes comfort from the positive industry outlook of the real-estate sector in Sri Lanka. The vulnerability of the Group’s financial performance to macro-economic variables and Government policies and regulations on the real estate sector remains a key consideration. The rating also takes into consideration the professional management team of the Company, the healthy relationships with various stakeholders in this industry, the brand equity in the industry and the timely delivery of the projects compared with the industry competitors.

Outlook: Stable

The Stable outlook reflects ICRA Lanka’s expectations that the Group would benefit from the recovery of the real-estate sector going forward and the Company’s Prime Grand project being completed within the time and cost targets as envisaged.

Credit strengths

The Leading real estate group in Sri Lanka: Prime Group is a leading real-estate company in Sri Lanka, operating in the residential segment of the real-estate industry in the country. Prime Group is a market leader in the affordable luxury apartment segment in Sri Lanka and operates in 18 districts of the island. The Group has been recognized as a leading real–estate developer in Sri Lanka by local and international organizations. Currently, the Group has ~80,000 customer base. Over the past 25 years, Prime Group has undertaken many property development projects, totaling to over LKR 50 Bn. Further, the Group currently has a larger land bank, amounting to ~LKR 14 Bn (at market value) as in July 2021. Prime Lands Residencies PLC, has carried out close to 35 apartment projects in Sri Lanka over the past several years. Although, in the past, the apartment market in Sri Lanka was largely confined to the Colombo City, the Company has been instrumental in expanding this concept into the suburban towns of Sri Lanka. 

Experience of the promoter and the management: The Company and the Group as a whole have been driven by the rich promoter experience and the strong and experienced management team in place, which have guided the Company through several business cycles. Over the past two decades, the Company has grown organically, specializing in the real-estate sector in Sri Lanka. The management is also strategically focused on potential markets in the real-estate sector in Sri Lanka and is conservative in the scale of the business and the increased debt exposures.

Healthy presales and increased cash collection efficiency: Given the strong brand equity of the Prime Group, the presale levels of the Company remain at a heathy level. This has also helped the Company to increase its cash collection efficiency. Most projects of the Prime Group have recorded relatively high presales levels during the first year of the project-launch. The lands & housing segment is generally regarded to have a higher demand (velocity) compared with the apartment segment. ICRA Lanka notes that good pre-sales values and collection efficiency has resulted in the group being able to under-take its projects with moderate debt levels, especially in the land segment.

Favorable Industry Outlook: The real-estate sector in Sri Lanka is expected to have a favourable long-term outlook given the constrained land availability, favorable demographics of the island and the growth in the per capita income levels. ICRA Lanka notes that current low interest rate regime and pressure on the local currency is a credit positive for the real estate sector, from a demand point of view. However, ICRA Lanka takes cognizance of the sharp increase in input prices (construction material), which could affect the overall margins for the developers.

Credit Challenges

Vulnerable to policy uncertainty: ICRA Lanka notes that, the real-estate sector in Sri Lanka is vulnerable to policy uncertainty, that could affect both demand and supply dynamics of the sector. During CY2018/19, the real estate sector (including the construction and engineering sector) in Sri Lanka has been negatively affected due to weaker macro-economic conditions and Government’s overall policy inconsistency on this industry. During this period, most construction contractors were also affected due to delayed payments from the Government authorities amidst the Government’s increased fiscal constraints. This has not only affected the construction contractors in Sri Lanka, but also the real-estate developers, who are highly dependent on the construction contractors for the completion of their apartment/housing projects. Also, the current import restrictions are affecting the construction activities as the industry in reliant on import material.  

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below.

Links to applicable criteria: www.icralanka.com/images/pdf/Corporate%20Rating%20Methology.pdf

About the Company:

Prime Lands (Pvt) Ltd was established 25 years ago by the founding members-Mr. Brahmanage Premalal and Mrs. Sandamini Perera. Prime Group has now become one of the leaders in real-estate sector in Sri Lanka (Land development for residential purpose, individual houses and apartments). In 2016 Prime Lands Residencies (Pvt) Ltd was established as a wholly own subsidiary of Prime Lands (Pvt) Ltd by amalgamating Prime Homes (Pvt) Ltd (incorporated in 2013), Living Homes (Pvt) Ltd (Incorporated in 2014) with Prime Homes International (Pvt) Ltd (Incorporated in 2005) as single entity, focusing on affordable luxury and ultra-luxury apartments in Colombo and several other cities across the country. On 11th May 2021, Prime Lands Residencies (Pvt) Ltd went through an Initial Public Offering to become a listed entity in the Colombo Stock Exchange (CSE), effectively reducing Prime Lands (Pvt)  Ltd’s ownership to 80%.

During 2011, the Group acquired Ceylinco Grameen, a micro finance company, part of the Ceylinco Group, which had suffered due to the crash of the Ceylinco Group. This company renamed as Prime Grameen, was revived as a profitable venture under the management of Prime Group. However, during 2014, under the financial sector consolidation plan initiated by CBSL, the Group divested controlling interest of 51% stake to Hatton National Bank PLC.  Prime Grameen, which has been subsequently renamed twice as HNB Grameen Finance Ltd and HNB Finance Ltd has become an associate company of the Prime group since 2014. In February 2020, HNB Finance Ltd. went through an offer for sale to be listed on the Colombo Stock Exchange. During 2017, Prime Lands (Pvt) Ltd acquired 75% stake of Summit Finance PLC and latter this was renamed as Prime Finance PLC. This has become the first listed entity of the Prime Group in 2017. Prime Finance, which was incorporated in 2004 and listed in CSE in 2012, is a licensed Finance Company.

Key Financial Indicators-Prime Lands (Pvt) Ltd
Figs are in LKR MnFY16FY17FY18FY19FY20FY21
Operating Income3,2493,7664,6064,3384,6225,713
OPBDITA414641749693763732
PAT2121,016 875 500 2,791 2,351
Total Debt2,3493,8802,9772,5611,1332,032
Networth1,5292,7823,2443,6666,4478,690
Gearing (times)1.541.390.920.700.180.23
OPBDITA/Interest & Finance Charges2.651.792.091.962.594.68
Total Debt/OPBDITA (times)5.686.053.973.691.482.78
Key Financial Indicators-Prime Lands Residencies PLC
Figs are in LKR MnFY17FY18FY19FY20FY213MFY22
Operating Income6,3085,5903,5955,7167,7321,299
OPBDITA 1,651 1,191 631 804 1,590 271
PAT1,052715273131989201
Total Debt4,3823,5285,7476,1195,3445,297
Networth2,4042,6942,7272,4433,4335,209
Gearing (times)1.821.312.112.511.561.02
OPBDITA/Interest & Finance Charges2.762.301.011.263.852.96
Total Debt/OPBDITA (times)2.652.969.127.613.364.88

Note: PAT and networth are adjusted for the revaluation gains in FY2019


[1]ForcompleteratingscaleanddefinitionspleaserefertoICRALanka’sWebsitewww.icralanka.comorotherICRARating Publications

Rating history for last three years:

Prime Lands Residencies PLC

Analysts
Gangulee Weerakoon
+94-774781591
gangulee@icralanka.com  

Nithya Debaddi
+91-9908912213
nithya.debaddi@icraindia.com

[1]ForcompleteratingscaleanddefinitionspleaserefertoICRALanka’sWebsitewww.icralanka.comorotherICRARating Publications


Disclaimer
ICRA Logo

Subsidiary of ICRA Limited

CORPORATE OFFICE
Level10, East Tower, World Trade Center, Colombo 01, Sri Lanka
Tel:+94 11 4339907;Fax:+94112333307 Email:info@icralanka.com; Website:www.icralanka.com

© Copyright, 2021 ICRA Lanka Limited. All Rights Reserved. Contents may be used freely with due acknowledgement to ICRA Lanka.

ICRA Lanka ratings should not be treated as recommendations to buy, sell or hold the rated debt instruments. ICRA Lanka ratings are subject to a process of surveillance, which may lead to revision in ratings. An ICRA Lanka rating is a symbolic indicator of ICRA Lanka’s current opinion on the relative capability of the issuer concerned to timely service debts and obligations, with reference to the instrument rated. Please visit our website www.icralanka.com or contact ICRA Lanka’s office for the latest information on the outstanding ICRA Lanka ratings.

All information contained herein has been obtained by ICRA Lanka from sources believed by it to be accurate and reliable, including the rated issuer. ICRA Lanka however has not conducted any audit of the rated issuer or of the information provided by it. While reasonable care has been taken to ensure that the information herein is true, such information is provided ‘as is’ without any warranty of any kind, and ICRA Lanka in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information.

ICRA Lanka does not take any responsibility for accuracy of material/documents prepared or published by other parties based on this document. All ICRA Lanka official rating rationales are prepared in English and external parties may present or publish translated versions of the same. Readers are henceforth advised to refer to the ICRA Lanka’s official rating rationale in the event of any inconsistency found in such documents.

ICRA Lanka or any of its group companies may have provided services other than rating to the issuer rated. All information contained herein must be construed solely as statements of opinion, and ICRA Lanka shall not be liable for any losses incurred by users from any use of this publication or its contents.