| Euthoria Developers Private Limited | ||
| Rating outlook revised to 'Stable'; ratings reaffirmed | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the non-convertible debentures (NCDs) of Euthoria Developers Private Limited (EDPL; part of Nexus Malls [The Blackstone Group (Blackstone) India retail platform]) to ‘Stable’ from ‘Negative’ while reaffirming the rating at ‘CRISIL A-’.
The outlook revision reflects strong recovery in retail sales witnessed across the mall in the second quarter of fiscal 2022 and in October 2021 post reopening of the mall after the second wave of the Covid-19 pandemic. Sales are expected to improve to pre-Covid levels in the second half of fiscal 2022, along with strong recovery in rental income. Consequently, debt protection metrics will remain adequate for fiscal 2022 and over the tenure of the debt.
After closure of mall in May 2021 due to the second wave, the mall gradually reopened from June 2021, albeit with restrictions. Strong recovery was witnessed, with retail sales reaching 84% and 76% of the pre-pandemic level in the second quarter of fiscal 2022 and October 2021 respectively. Moreover, footfalls had recovered to 70% and 82% of pre-Covid levels, respectively. Consumption was lower in year-to-date October 2021 as compared to pre-COVID majorly on account of closure of Reliance stores. However, the stores are likely to open from January 2022.
Although the income and earnings before interest, tax, depreciation and amortisation (EBIDTA) in the first half of fiscal 2022 were impacted by the waivers in rentals given to tenants it is expected to improve in the second half as most of the waivers will be over, aided by strong recovery in retail sales. Hence rental income for the full year 2022 is expected at ~80% of that in fiscal 2020.
The outlook revision does not factor in any possible lockdown or disruption in mall operations due to risk of a third wave of the pandemic. Hence this will remain a key monitorable.
The rating continues to reflect EDPL’s stable cash flow from lease rentals, supported by healthy mall occupancy, diverse and reputed clientele, strong operational and management support from the sponsor and moderate debt protection metrics. These strengths are partially offset by the exposure to volatility in interest rates and occupancy, and competition in Amritsar’s real estate market. |
Analytical Approach CRISIL Ratings has considered the standalone business and financial risk profiles of EDPL. The company does not have financial fungibility with other companies of the Nexus Malls group.
Unsecured loan of Rs 30.09 crore as on March 31, 2021 (including accrued interest), from the subsidiary, Ruchi Malls Pvt Ltd, has been treated as neither debt nor equity. This is because the loan is subordinate to bank debt and will remain in the business over the medium term. |
Key Rating Drivers & Detailed Description Strengths:
Of the 5.4 lakh sq ft of leasable area of the Mall of Amritsar, currently 93% is leased. The mall has a healthy mix of anchors, vanilla and food and beverage tenants. Tenant concentration is moderate with top 10 clients occupying around 47% area and contributing to 30% of minimum guaranteed rentals. The rating also factors in the well-secured lease structure, with lock-in and weighted average lease expiry of 8 years for the top 10 tenants and in-built revenue escalation clause for most of them. Further, a portion of the total rental is generated through revenue share income.
The company benefits from the strong parentage of Blackstone. Blackstone owns and operates one of the largest portfolios of retail real estate in India, spread across diverse micro markets. The sponsor’s experience in asset management and sizeable portfolio of properties in India have resulted in healthy occupancy and steady improvement in rentals across assets. Additionally, the company benefits from the management's proactive approach towards asset maintenance to ensure tenant stickiness and quality, in line with its global portfolio.
Steady cash flow from rentals and ballooning repayment structure of external debt should lead to a moderate debt service coverage ratio (DSCR) over the medium term. Further, the NCDs are zero-coupon bonds with redemption in fiscal 2026 with an internal rate of return of 14.2%. However, these NCDs are subordinate to bank debt and will be paid based on availability of surplus cash flow after meeting operating expenses and servicing external bank debt. EDPL is expected to benefit from the promoter group’s track record of successfully refinancing loans/renegotiating terms of debt at the time of redemption. Also, the company is expected to have a comfortable loan-to-value ratio of less than 40% at the time of redemption, further mitigating refinancing risk. Nevertheless, any significant increase in debt will weaken the debt protection metrics and remain a key rating sensitivity factor. Only excess funds post NCD interest payment will be used for redemption.
Weaknesses:
Rental collection, the main source of revenue, is exposed to volatility because of economic downturns, thereby impacting the tenant's business risk profile and, hence, occupancy and rental rates. Further, close to 25% of the agreements will be due for renewal over the three and a half fiscals through 2025. The company has been able to successfully renew/ enter into new agreements with tenants for close to 6% of the total leasable area from January 2021. However, the ability of the entity to continue the same will be closely monitored, especially because of the impact of the pandemic. Moreover, the floating interest rate on debt exposes the company to interest rate risk. Although cash flow will be able to absorb the impact of fluctuations in occupancy and interest rate to some extent, it remains a rating sensitivity factor.
Although Mall of Amritsar is one of the city’s largest malls, that too in a prime location, there are other retail assets, albeit smaller in size, and established main streets. Moreover, a large-format mall that is likely to be refurbished over the medium term, could heighten competition and hence, is a key monitorable. |
Liquidity: Adequate DSCR is expected over 1 time in fiscal 2022 despite waivers in rentals. The company maintains a debt service reserve account (DSRA) covering three months of debt obligation, at Rs 4.77 crore, and had cash and equivalent and undrawn bank lines of around Rs 5.8 crore as on September 30, 2021. The loan-to-value ratio is expected to be healthy at less than 40% at the time of redemption of the NCDs. |
Outlook: Stable The business and financial risk profiles of EDPL will continue to be supported by stable cash flow, aided by healthy occupancy and rental rates. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company EDPL, part of Nexus Malls, retail arm of Blackstone, owns and operates the Mall of Amritsar. The mall has leasable area of 5.4 lakh sq ft. It has a well-diversified clientele, and had healthy occupancy of 93% as of September 2021. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
^ The ISIN is still in the name of Alpha Corp Development Pvt Ltd on stock exchanges pending compliances. However, NCDs have been moved to the books of EDPL post National Company Law Tribunal’s order of demerger. |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
Criteria Details
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