| 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 proposed long-term bank facility of Mahindra Lifespace Developers Limited (MLDL).
The rating continues to reflect the strong brand name and track record, high saleability, healthy collections and progress in construction of ongoing projects. The ratings also draw comfort from strong parentage and expectation of need-based support from Mahindra & Mahindra Ltd (M&M; 'CRISIL AAA/Stable/CRISIL A1+'). These strengths are partially offset by exposure to cyclicality inherent in the real estate business.
Operating performance of MLDL recovered well in fiscal 2022, after an adverse impact of weak economic activity and the Covid-19 pandemic in fiscals 2020 and 2021, respectively. Construction activity picked up and the company reported the highest ever sales, collections and surplus in fiscal 2022. Financial risk profile has been healthy with a debt to total assets ratio of around 20% over the four years through March 2022.
With adequate cash flow expected over the medium term, debt protection metrics should also be comfortable, with debt-to-total assets ratio below 20.0% and debt service coverage ratio at over 3 times. Liquidity is strong, as indicated by cash and equivalents of around Rs 570 crore and undrawn bank limit of about Rs 340 crore, as on March 31, 2022.
MLDL plans to incur capital expenditure (capex) towards land acquisition and construction over the medium term. It has acquired land in Pune under its industrial cluster segment and may purchase land in Bengaluru for its residential business. The capex will be funded through a mix of cash accrual, external debt and external equity partnerships. Finalisation of such deals and their impact on the financial risk profile is a key monitorable. |
Analytical Approach To arrive 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 sector and related segments, 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, given the strategic importance of MLDL 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 Strengths: Established brand and market position MLDL has an established track record, backed by a strong brand, focus on timely execution and high saleability of projects. The company has cumulatively developed 19.23 million square foot (msft) of residential space across the premium, mid-income and affordable housing segments in Mumbai Metropolitan Region (MMR), NCR, Chennai, Hyderabad, Bengaluru, and Pune and Nagpur in Maharashtra. It also has several ongoing projects with 4.03 msft area under development and is plans to launch another 6.72 msft over the medium term.
Collections from residential projects rose to Rs 1,153 crore in fiscal 2022, from Rs 758 crore in fiscal 2021. The strong business risk profile should sustain going forward, with stable saleability in ongoing projects improving overall profitability.
Strong support from the parent, M&M The company represents the Mahindra group’s interest in real estate, and hence, remains strategically important to the parent, given its visibility and branding as a Mahindra venture. The rating factors in the financial flexibility arising from the ability to raise funds in the capital market and the operational oversight from the parent.
Healthy financial risk profile Financial risk profile is supported by healthy collections from the real estate segment, with customer advances of over Rs 1,000 crore expected per year over the medium term (as per CRISIL Ratings estimates). Financial flexibility is further enhanced by significant deleveraging over the past few fiscals, with consolidated external debt at Rs 759 crore as on March 31, 2022. Debt may remain low, given the continued funding through JVs, modest investment in the integrated cities & industrial cluster (IC&IC) segment, and healthy cash flows likely from residential projects. Financing of growth plans and their impact on the financial risk profile would be a key monitorable.
Debt protection metrics are likely to remain comfortable over the medium term, with debt-to-total assets ratio remaining below 20% and debt service coverage ratio at over 3 times (CRISIL Ratings estimates).
Weakness: Exposure to risks and cyclicality inherent in the residential and integrated cities segment of the real estate sector Exposure to risks and cyclicality inherent in both the residential and IC&IC segments of the real estate sector may cause volatility in saleability as well as realisations.
The company is present across various segments (luxury, mid-premium and value) and across several cities in the residential space.
In the IC&IC segment, the company is developing integrated business city projects in Chennai, Jaipur and Ahmedabad. In the commercial segment, the total sale of area on long-term lease depends on the local demand and hence, the level of industrial activity. The company has a strategic partnership with International Finance Corporation (IFC) for its projects in Jaipur and Ahmedabad. |
Liquidity: Strong The company held cash equivalents of Rs 573 crore and undrawn bank limit of Rs 340 crore, as on March 31, 2022. Healthy surplus cash flow from residential projects should continue in the medium term. In the commercial segment, income from operations and maintenance activity and lease premium remains 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 debt obligation of Rs 100-200 crore per fiscal over the medium term. Internal cash accrual, cash and equivalents and unutilised bank limit should suffice to cover the debt obligation and incremental construction cost. |
Outlook: Stable MLDL is expected to maintain its adequate business and financial risk profiles, backed by a strong brand name, execution capabilities and expansion in 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 as Mahindra Gesco Developers Ltd in fiscal 2003, and got the current name in fiscal 2008. It is mainly engaged in development of residential real estate projects 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, 2022. |
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)
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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 | ||||||||
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This Annexure has been updated on 29-Jul-2022 in line with the lender-wise facility details as on 01-Aug-2021 received from the rated entity.
Criteria Details
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