Mahindra World City (Jaipur) Limited

'CRISIL A/Stable' assigned to NCD issue

Rs. 650 Million Non Convertible Debentures CRISIL A/Stable (Assigned) Rs. 2.5 Billion Non Convertible Debentures CRISIL A/Stable (Reaffirmed)

CRISIL has assigned its 'CRISIL A/Stable' rating to the Rs.650-million non-convertible debentures (NCDs) of Mahindra World City (Jaipur) Ltd (MWCJL), while reaffirming its rating on the company's existing NCDs at 'CRISIL A/Stable'. The rating continues to reflect the strong financial support that MWCJL receives from its parent, Mahindra Lifespace Developers Ltd (MLDL; rated 'CRISIL A+/Stable/CRISIL A1'), and the benefits that it derives from its parent's expertise in developing integrated business city projects. These rating strengths are partially offset by the company's average financial risk profile, and its exposure to risks relating to modest demand conditions.
 
For arriving at the rating, CRISIL has treated the inter-corporate deposits extended to MWCJL by MLDL (Rs.200 million as on September 30, 2014), and the preference shares of Rs.500 million subscribed to by MWCJL's promoters (MLDL and Rajasthan State Industrial Development and Investment Corporation Ltd [RIICO]), as debt.
 
MWCJL, a 74 per cent subsidiary of MLDL, is developing an integrated business city project in Jaipur. MLDL has invested Rs.1.5 billion (equity and preference capital) in MWCJL; this amount constituted around 11 per cent of MLDL's standalone net worth as on September 30, 2014. CRISIL believes that MWCJL will continue to receive financial support from MLDL, given MWCJL's strategic importance to, and strong business and financial linkages with, its parent. The company also benefits from its parent's expertise in developing integrated business city projects; MLDL has an integrated business city project (developed by Mahindra World City Developers Ltd; 89 per cent subsidiary of MLDL) in Chennai.
 
MWCJL, however, has an average financial risk profile, marked by a gearing of 2.55 times as on September 30, 2014. The company's debt protection metrics too were average, with net cash accruals to total debt ratio at 0.05 times and interest coverage ratio at around 1.7 times for the first six months of 2014-15 (refers to financial year, April 1 to March 31). The integrated business city (with 72 per cent special economic zone [SEZ] area and the rest 28 per cent domestic tariff area [DTA]) was launched in July 2008; 41 per cent of its industrial area was leased out as of September 30, 2014. Given the subdued investment climate and discontinuation of the tax benefits for units operating in SEZs, CRISIL believes that the demand in the Jaipur SEZ will pick up only gradually.

CRISIL believes that MWCJL will continue to benefit over the medium term from the business and financial support it receives from its parent. Given the company's strong business and financial linkages with MLDL, the outlook is partly based on the rating outlook on the parent. The outlook may be revised to 'Positive' if there is a similar revision in the outlook on MLDL. Conversely, the outlook may be revised to 'Negative' if there is a slower-than-expected increase in MWCJL's occupancy levels, further constraining its financial risk profile, or if there is a similar revision in the outlook on its parent.

MWCJL is a 74:26 joint venture between MLDL and RIICO. It is being developed as a multi-product SEZ and DTA across 3000 acres. The project has received notifications for five SEZs: two for information technology/information technology enabled services, and one each for engineering and related industries, handicrafts, and gems and jewellery. As of September 30, 2014, MWCJL had 58 customers, with the facilities of 23 customers being operational.
 
For 2013-14, MWCJL reported revenues of Rs.983 million and a net profit of Rs.244 million, against revenues of Rs.1041 million and a net profit of Rs.165 million for 2012-13. For the first six months of 2014-15, the company reported revenues of Rs.405 million (Rs.706 million for the corresponding period of the previous year) and a net profit of Rs.73 million (Rs.259 million).