Mahindra Lifespace Developers Limited

Rating Reaffirmed

Total Bank Loan Facilities Rated Rs.5000 Million Long Term Rating CRISIL A+/Stable (Reaffirmed) Short Term Rating CRISIL A1 (Reassigned)

(Refer to Annexure 1 for Facility-wise details)

Rs. 5 Billion Non Convertible Debentures CRISIL A+/Stable (Reaffirmed)

CRISIL has assigned its 'CRISIL A1' rating to short term bank facility of Mahindra Lifespace Developers Ltd's (MLDL) while reaffirming its ratings on long term bank facilities and non-convertible debentures (NCDs) at 'CRISIL A+/Stable'.
 
The ratings continue to reflect MLDL's strong brand name, established track record and focus on execution, and strong support from its parent, Mahindra & Mahindra Ltd (M&M; rated 'CRISIL AA+/Stable/CRISIL A1+'). These rating strengths are partially offset by MLDL's moderate financial risk profile, and exposure to risks and cyclicality inherent in the real estate sector.
 
For arriving at its ratings, CRISIL has combined the business and financial risk profiles of MLDL and its subsidiaries. This is because all the entities operate in the real estate and related space, with significant operational and financial linkages, and have a common management.
 
MLDL has a strong brand name and an established track record with a focus on timely execution. This is evident from the healthy booking it has received for the projects launched in the past two years. The company has completed 7.7 million square feet (sq ft) (excluding 1.13 million sq ft of development done by Gesco Corporation Ltd prior to merger) of residential real estate in Mumbai, National Capital Region (NCR), Chennai, and Pune. Currently, MLDL is executing 4.7 million sq ft and is planning to launch another 6.6 million sq ft over the medium term driven by the recent land acquisition of 3.9 million sq ft. MLDL is also executing two integrated business city projects in Chennai (1524 acres) and Jaipur (2913 acres). MLDL is likely to maintain its market position over the medium term, given its strong brand, high saleability of projects, and focus on a significant increase in the scale of its execution capabilities. CRISIL believes that diversified portfolio of premium, mid-income, and affordable housing segment will place the company in a strong position, over the medium term.
 
MLDL represents the Mahindra group in the real estate segment. M&M, MLDL's parent, has invested around Rs.2.8 billion in the company. The rating factors in MLDL's financial flexibility and management support from M&M, as the company is a part of the Mahindra group. CRISIL believes M&M will continue to provide operational and financial support to MLDL, if required, given M&M's strategic intent.
 
In 2012-13 (refers to financial year, April 1 to March 31) and 2013-14, MLDL replenished its land bank across cities by acquiring 3.9 million sq ft (current land bank is 12.4 million sq ft, of which, 10.5 million sq ft is in Mahindra World City, Chennai). A major proportion of the land acquisition was funded through debt, impacting MLDL's capital structure and debt protection metrics. MLDL's consolidated gearing increased to more than 1 time as on March 31, 2014 from 0.5 times as on March 31, 2012. In addition, MLDL also entered into a joint venture (Mahindra Homes Pvt Ltd) with SCM Real Estate (Singapore) Pvt Ltd and acquired land in NCR and Bangalore. CRISIL believes that any larger-than-expected debt-funded land acquisition leading to further deterioration in the capital structure will remain a key rating sensitivity factor.
 
Besides this, MLDL is exposed to the risks and cyclicality inherent in the real estate sector, which could result in fluctuations in cash flows, on account of volatility in both saleability and realisations.

CRISIL believes that MLDL will maintain its business and financial risk profiles over the medium term, driven by its strong brand name, execution strength, and prudent land acquisition policy. The outlook may be revised to 'Positive' in case of higher-than-expected turnover of its ongoing and proposed residential and integrated business city projects, leading to improvement in operating cash flow. Conversely, the outlook may be revised to 'Negative' if there is a sharp decline in the company's revenue and profitability, triggered by slackened saleability of its existing and proposed projects or larger-than-expected debt-funded land acquisition.

MLDL was incorporated in 1999 as Gesco Corporation Ltd. In 2002-03, its name was changed to Mahindra Gesco Developers Ltd and in 2007-08 to its current name. MLDL has two major business segments, residential development (80 per cent of the revenue in 2013-14) and integrated business cities (20 per cent of the revenue in 2013-14). MLDL is executing two integrated business city projects in Chennai and Jaipur through its subsidiaries, MWCDL (89 per cent stake) and MWCJL (74 per cent stake), respectively. MLDL is listed on the Bombay Stock Exchange and the National Stock Exchange, and M&M held 51 per cent stake in MLDL as on March 31, 2014.
 
For 2013-14, MLDL, on a consolidated basis, reported net sales of Rs.7.0 billion and a net profit of Rs.1.0 billion, as against net sales of Rs.7.4 billion and a net profit of Rs.1.4 billion for 2012-13.

Annexure 1 - Details of various bank facilities

Current facilities Previous facilities Facility Amount (Rs.Million) Rating Facility Amount (Rs.Million) Rating Bank Guarantee^ 250 CRISIL A1 Proposed Long Term Bank Loan Facility 5000 CRISIL A+/Stable Proposed Long Term Bank Loan Facility 4500 CRISIL A+/Stable -- 0 -- Proposed Bank Guarantee^ 250 CRISIL A1 -- 0 -- Total 5000 -- Total 5000 -- ^ Includes Import & Inland LC 's