India Ratings & Research (Ind-Ra) has assigned Rolta India a Long-Term Issuer Rating of 'BBB'. The outlook is stable. Ind-Ra has also assigned Rolta's Rs 2,240 million long-term loan (FLR) an 'BBB' rating.

The ratings reflect Rolta's blue-chip tenants, such as Google India, Blackrock Services and Rolta India (RIL: 'A+'/stable) for its Gurgaon based commercial property 'RoltaTower'. This property has a total leasable area of 4,20,000 sq ft, which is fully occupied and equally divided among its three tenants. Blackrock Services has been a tenant for more than three and a half years while Google India has been a tenant for more than a year. Further, investments made by the tenants on office furnishings provide some stickiness to the relationship between Rolta and its tenants.

Rolta, being a strategic investor in Rolta India (with around 40% equity stake) receives dividend income. During FY13, it received Rs 181 million in dividend income. Rolta also earns royalty income equivalent to 0.2% of RIL's revenues. Ind-Ra opines that at least 50% of the dividend and royalty income would be available for debt servicing in the event of a vacancy or reduction in the average rental rates. These additional sources of income, apart from lease rentals from its tenants, provide a cushion for its debt servicing.
 
The ratings are constrained by concentration risk, renegotiation risk and high dependence on dividend income. Since there are only three tenants occupying two floors each, there is high tenant concentration risk. Further, for two of its tenants the lock-in period expires in December 2014 and August 2015, respectively. This poses a renegotiation risk in the short term. Since the dividend income is sizeable (accounted for 37% of FY13 revenues) Rolta's dependence on it is very high.

Rating Sensitivities

Negative: Future developments leading to lower occupancy and/or a decline in average rental rates per sq ft resulting in DSCR (including dividend income) falling below 1.2x and/or lower-than-expected dividend income could result in a negative rating action.

Positive: Improvements in DSCR (including dividend income) due to a higher-than-expected increase in average rental rates could result in a positive rating action.

Shares of the company declined Rs 4.2, or 3.82%, to settle at Rs 105.70. The total volume of shares traded was 825,056 at the BSE (Wednesday).