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

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

The flagship company of Shapoorji Pallonji Group (SP Group), SPCPL exited from a one-time restructuring (OTR) plan in 2021-22 (FY22) with repayment of the entire OTR debt, ahead of the OTR timelines. It did this through infusion of funds by promoters, proceeds from monetisation of assets, and a fresh term loan.  

Its consolidated external debt reduced by about Rs 13,500 crore during FY22 to Rs 23,475 crore as on March 31.

Factoring in improvement in financial profile, including debt reduction, ICRA removed ratings from watch with developing implications. The rating agency upgraded rating on term loans from ‘BBB+’ to ‘A-’ with a ‘stable’ outlook.

A majority of the promoter debt (about Rs 3,100 crore of the Rs 3,900 crore) has been converted into compulsory convertible preference shares/perpetual debt. This helped in the improvement of its networth position.

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

SPCPL had a robust outstanding order book of Rs 32,360 crore as on March 31, providing revenue visibility in the medium term. Moreover, the order book is well-diversified across sectors, geographies, and clientele.

The group has a well-established presence in construction, real estate, and infrastructure. The ratings consider the strong investment portfolio of SP Group comprising listed and unlisted equity investments, along with large land and property holdings. The group holds 18.37 per cent stake in Tata Sons — a holding company of Tata Group.

The rating agency said SPCPL’s strong execution capabilities and expertise of its managerial and technical personnel heading its key business verticals provide comfort.

The ratings, however, remain constrained by the modest profitability in 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 part of the OTR plan, which had constrained order execution in the recent past.

The core construction margins are expected to improve on sanction of working capital limits and a healthy order book. The reduction in interest expenses (because of deleveraging) should improve overall net profit, observed ICRA.