Fitch Ratings has today assigned India's Gurudeva Trust (Gurudeva) a National Long-term rating of 'B(ind)'. Fitch has also assigned ratings of 'B(ind)' to Gurudeva's term loans amounting to INR113.50m and overdraft limits of INR4.5m. The Outlook is Stable.
The ratings reflect the established position of the trust's sponsored educational institute, Sree Narayana Guru Institute of Science and Technology, located in the North Paravur district of Ernakulam, Kerala. However, the ratings are constrained by the institute's mixed track record in terms of the number of applications, admissions-to-seats ratio, pass percentages and student placements.
Gurudeva's ratings are also constrained by its relatively short track record of about six years and the limited number of courses offered to date; which is reflected in its small scale of operations and net losses during the period FY04 and FY06. The ratings are further limited by the trust's exposure to the regulatory framework for self-financing colleges in India and by its affiliations to operationally inefficient government-sponsored universities. The ratings also take into account the trust's stretched financial profile - in the form of high levels of overall debt - which has resulted in significantly high gearing levels and debt/EBIDTA. Historically, the total debt/EBIDTA has been very high, at more than 10x. While it has declined over the years to 5.1x in FY09, borrowings for the proposed engineering college project is likely to increase the gearing levels back to about 8x. Furthermore, an increase in the interest outgo on the outstanding debt has resulted in a decrease in operational surplus (net sur
lus margins have decreased to 5.5% in FY09 as compared to 10.2% in FY08) and a substantial deterioration in the interest coverage (FY09: 1.6x; FY03: 15.3x).
The ratings are further constrained by the execution risks associated with the trust's significantly large capex program for commencing new courses in the areas of engineering, science and management, as well as the uncertainty over the financial closure for this project. Meanwhile, the trust is in the process of tying up term loans from banks. Gurudeva is also required to raise additional contributions of about INR40m from trust members in the form of interest-free, long-term (average tenor of about five years) unsecured loans. Apart from these, the trust is planning to use forms of funding such as long-term deposits and supplier's credit to bridge the gap between the project cost and the sources of finance; the quantum and availability of which is uncertain at this point in time.
Achieving financial closure for the project, which will aid the implementation and completion of the project and result in the commencement of the new courses as scheduled, would be considered a positive ratings trigger. Significant delays in the project impacting the revenue and operational surplus levels, would be considered a negative ratings trigger.
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Gurudeva Trust, a public charitable trust was formed in 2001 to run Sree Narayana Guru Institute of Science and Technology. The institute offers courses in management, computer applications and bio-informatics. For FY09, the trust reported a fee income of INR43.3m and a surplus from operations of INR2.4m.
Contacts: Sudha Sundaram, Chennai, +91 44 4340 1705/ Sudha.sundaram@fitchratings.com; Sreenivasa Prasanna, Chennai, +91 44 4340 1711/ sreenivasa.prasanna@fitchratings.com.
Media Relations: Shivani Sundralingam, Singapore, Tel: + 65 6796 7215, Email: shivani.sundralingam@fitchratings.com.
Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA (ind)' for National ratings in India. Specific letter grades are not therefore internationally comparable.
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