| Mahindra Lifespace Developers Limited | ||||
| Rating 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 reaffirmed its 'CRISIL AA/Stable' rating on the long-term bank facilities of Mahindra Lifespace Developers Limited (MLDL).
The rating continues to reflect strong support from the parent, Mahindra & Mahindra Ltd (M&M; 'CRISIL AAA/Stable/CRISIL A1+'), a strong brand name, high saleability, healthy collections and construction progress of ongoing projects, and an established track record. These strengths are partially offset by a moderately sized and concentrated land bank, and exposure to cyclicality inherent in the real estate segment.
Construction activities were impacted in the first half of fiscal 2021 owing to the nationwide lockdown imposed by the Government of India to contain the Covid-19 pandemic. However, post lifting of restrictions, construction activities have resumed to pre-pandemic levels since August 2020. Though new project launches and completions are expected to be lower for fiscal 2021 as compared with the previous fiscal, recovery is expected in fiscal 2022. However, with the second intensified wave of the pandemic coupled with the company’s fairly high exposure to hotpots like Maharashtra and the National Capital Region (NCR), this would remain a monitorable.
Despite lower collections for fiscal 2021, debt protection metrics should remain comfortable over the medium term, with debt-to-total assets ratio below 20.0% and debt service coverage ratio at around 3 times. Liquidity is strong, as indicated by cash and equivalents of Rs 217 crore and undrawn bank lines of about Rs 340 crore, as on December 31, 2020. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of MLDL with its subsidiaries and joint ventures (JVs). That’s because all these entities operate in the real estate and related space, with significant operational and financial linkages with MLDL, and share a common management with the parent.
CRISIL Ratings has also applied its parent notch-up framework to factor in distress support available from M&M owing to the strategic importance to the parent.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strength:
The company represents the Mahindra group’s interest in real estate, and is strategically important to the parent given its visibility and branding as a Mahindra venture. M&M oversubscribed to a rights issue by MLDL in fiscal 2018, in which it invested about Rs 157 crore. The rating factors in the financial flexibility arising from the ability to raise funds in the capital markets. The ratings are further supported by the operational oversight from M&M.
The company has an established track record, backed by a strong brand, focus on timely execution and high saleability of projects. Its ongoing projects have had adequate bookings, with about 54% area sold, and around 62% of construction completed as of December 31, 2020. The company has cumulatively completed 17.8 million square foot (msft) of residential real estate across the premium, mid-income and affordable housing segments in Mumbai Metropolitan Region (MMR), NCR, Chennai, Hyderabad and Bengaluru, and Pune, and Nagpur in Maharashtra. Currently, it has ongoing projects with 3.52 msft area under development, and is planning to launch another 4.39 msft over the medium term.
In fiscal 2020, collections from residential projects were stable at Rs 930 crore (Rs 963 crore in fiscal 2019). However, with the decline in launches and completions owing to the pandemic, collections will contract in fiscal 2021. With the vaccination drive and favourable market sentiment, new project launches as well as project completions are expected to rebound in fiscal 2022. The strong business risk profile is thus likely to be sustained over the medium term, backed by stable saleability in ongoing projects, thereby improving overall profitability.
The financial risk profile is supported by healthy collections from the real estate segment, which is likely to generate customer advances of over Rs 1,000 crore per year, over the medium term (CRISIL Rating estimates). Further, financial flexibility is enhanced by significant deleveraging over past few fiscals, with consolidated external debt at Rs 710 crore as on December 31, 2020. Debt is likely to remain low over the medium term, given the continued funding through JVs, modest investment in the integrated cities & industrial cluster (IC&IC) segment, and healthy cash flows expected from residential projects.
Debt protection metrics are expected to remain comfortable over the medium term, with debt-to-total assets ratio below 20.0% and debt service coverage ratio at around 3 times (CRISIL Ratings estimates).
Weaknesses
The risks and cyclicality inherent in both residential and IC&IC segments of the real estate sector may result in volatility in saleability as well as realisations.
In its residential segment, the company benefits from a diversified presence across segments (luxury, mid-premium and value) and across several cities. However, its projects in Gurugram (NCR) comprise a sizable portion of the overall portfolio by value.
In the IC&IC segment, the company is developing integrated business city projects in Chennai, Jaipur and Ahmedabad. In its commercial segment, total sale of area on long-term lease is subject to local demand, which depends on industrial activity. The company has entered into a strategic partnership with International Finance Corporation (IFC) for its projects in Jaipur and Ahmedabad.
As of December 31, 2020, the land bank was 10.4 msft, of which 9.5 msft was in a single site at Mahindra World City, Chennai. Nevertheless, the existing land bank and subsequent phases of ongoing projects should sustain the current pace of development in the near term. Going ahead, land could either be acquired independently or through the joint development model. Any major, debt-funded land acquisition that results in significant weakening of the capital structure will remain a key rating monitorable. |
Liquidity: Strong Cash equivalents were about Rs 217 crore and undrawn bank lines Rs 340 crore, as on December 31, 2020. Healthy surplus cash flows from residential projects should continue in the medium term. In the commercial segment, operations and maintenance income and lease premium income is stable at Rs 80-100 crore per fiscal, while incremental investments are expected to be modest.
The company, including its subsidiaries and JVs, has long-term repayment obligation of around Rs 106 crore in fiscal 2022 and Rs 218 crore in fiscal 2023. Internal cash accrual, cash and equivalents and unutilised bank lines should be sufficient to meet repayment obligation as well as incremental construction costs. Moreover, the parent, M&M, is likely to continue to provide need-based support. |
Outlook: Stable MLDL should continue to maintain its adequate business and financial risk profiles, given the strong brand name and execution capabilities, while increasing the land bank over the medium term. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company MLDL was incorporated as Gesco Corporation Ltd in 1999, renamed Mahindra Gesco Developers Ltd in fiscal 2003, and got the current name in fiscal 2008. It operates mainly in two major segments - residential development and integrated business cities.
The company is executing integrated business city projects in Chennai through Mahindra World City Developers Ltd (MWCDL; 89% shareholding) and Mahindra Industrial Park Chennai Ltd (MIPCL; a 60:40 JV between MWCDL and Sumitomo Corporation), and in Jaipur through MWCJL (74:26 JV with Rajasthan Industrial Development and Investment Corporation). Further, it has acquired land in Ahmedabad through its subsidiary, Mahindra Industrial Parks Pvt Ltd (held 100%). It has a strategic partnership with IFC for development of the industrial parks in Jaipur and Ahmedabad.
In the residential segment, the company is developing projects in Gurugram and Bengaluru through its 50:50 JV with Actis, Mahindra Homes Pvt Ltd, and projects in MMR through its 51:49 JV with HDFC Capital, Mahindra Happinest Developers Ltd.
MLDL is listed on the Bombay Stock Exchange and the National Stock Exchange, and M&M held 51.46% stake in the company as on March 31, 2021. |
Key Financial Indicators
*Coverage calculated as cash available for debt servicing to Interest expense |
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)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Name of Lender | Amount (Rs.Crore) | Rating |
| Proposed Fund-Based Bank Limits | Not Applicable | 100 | CRISIL AA/Stable |
This Annexure has been updated on 26-Sep-2021 in line with the lender-wise facility details as on 01-Aug-2021 received from the rated entity.
Criteria Details
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