May 30 - Fitch Ratings has assigned India's Sreenidhi University (SU) a National Long-Term rating of 'Fitch D(ind)'. A list of additional rating action is provided at the end of this commentary.
The ratings reflect SU's continuous defaults on loan repayments since April 2011. This is due to the university's high debt burden (debt/current balance before interest and depreciation: 3.04x in FY11 (year ending March)), weak operational effectiveness, limited balance sheet resources and tight liquidity (available funds/long-term debt: 33.29% in FY11). The latter is due to long average receivables of over 50 days, on account of delays in fee payment by the state government to SU on behalf of students admitted on the concessional basis (40%-50% of total students).
In the event of a rating upgrade, SU's credit profile would draw support from the growing head count (CAGR: 8.26% for FY08-FY11) and the consistent positive operating margins (FY11: 29.3%, FY10: 31.53%).
SU admits students under a state-level counseling programme, which nearly fills 70% of the available seats and the rest are filled under the management quota. Ceilings on fees for all courses are fixed by the Andhra Pradesh government. The college is affiliated to Jawaharlal Nehru Technological University, Hyderabad, and approved by All India Council for Technical Education.
Similar to other private educational institutes, the society income is dominated by the tuition fee income (average proportion during FY07-FY11: 89.78%). The society has received a grant from the World Bank for research-oriented activities, which underlines the illustrated ability of the society to meet strict quality standards. Staff costs and operating expenditure contributed on an average 45.11% and 25.03%, respectively, to the total expenditure during FY07-FY11.
Debt service coverage ratio has consistently remained above 1.5x since FY09 (FY08: below 1x). However, Fitch expects the debt servicing calendar to come under stress in the short to medium term due to the expected capex by SU.
The ratings may be upgraded if loan obligations are serviced on a timely basis for two consecutive quarters.
SU was incorporated in December 1996 under the name of Sree Educational society. The name was changed to Sreenidhi University in December 2008 by the Registrar of Societies, Andhra Pradesh. However, the society is yet to be recognised as a university by the University Grants Commission and other appropriate authorities.
Fitch has also assigned ratings to SU's bank facilities as follows
- INR120m fund-based long term bank loans: assigned 'Fitch D(ind)'
- INR32m secured overdraft: assigned 'Fitch D(ind)'