| Max Towers Private Limited | ||||
| Rating reaffirmed at 'CRISIL A/Stable'; rated amount enhanced for Bank Debt | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A/Stable’ rating on the long-term bank facility of Max Towers Private Limited (Max Towers).
Max Towers with leasable area of 3.02 lakh sq. ft is 100% occupied as of now with average rentals at Rs 106 per sq. ft per month for office tenants. The strong clientele with long term agreements expected to provide the stable lease rental cashflow through the tenure of the debt. The lease rental income for fiscal 2022 stood at Rs 30 crore. Despite refinancing of the existing debt leading to increased overall indebtedness, the debt protection metrics remain healthy throughout the tenure of the debt due to 17-years long tenure.
The rating continues to reflect the strong operational and management support the company receives from the ultimate parent, Max Ventures and Industries Ltd (MVIL), its steady cash flow from lease rentals and healthy debt protection metrics. These strengths are partially offset by susceptibility to volatility in interest rates and occupancy level and susceptibility to volatility in the real estate sector. |
Analytical Approach The ratings factor in support from the ultimate parent, MVIL, which has also guaranteed the debt of Max Towers and there is common management between the two. Managerial and financial support from MVIL is likely to continue. Financial flexibility of the group has been used in the past as well, by raising funds at MVIL to extend support across group companies, including the real estate business in Max Estates Ltd (MEL). MVIL has also supported the project funding of Max Towers. Furthermore, the common group name ensures high moral obligation on MVIL to support Max Towers, if required. |
Key Rating Drivers & Detailed Description Strengths:
The aggregate area available for leasing at Max towers is 3.01 lakh square feet (sq ft), which become operational in April 2019. The company has shown good progress in leasing by achieving a full occupancy of 100% as of September 2022 from 95% in August 2021. Correspondingly, annual rental income is expected to increase to Rs 35 crore in fiscal 2023 from Rs 30 crore in fiscal 2022. Rental rates are high, given the superior asset and service quality, favourable location in prime areas in the respective micro-markets and good demand. This is further reflected by strong and diversified tenant base which includes marquee players such as Cyril Amarchand Mangaldas, Yes Bank, Delphix Software, Regus Business Centre, Indian Energy Exchange etc. The office tenants occupy ~87% of the total leasable area. The top five office tenants acquire ~84% office area and ~84% office revenue. The average rental for office clients is at around Rs 106 per sq. ft. Continuation of healthy collections and stable occupancy rates remain key monitorables.
Max Towers is a 100% subsidiary of MEL, which is a wholly owned subsidiary of MVIL. The ultimate parent, through MEL, had funded the development of Max Towers, which is the first completed asset in the group and has started receiving rental income. The common area maintenance of Max Towers is under Max Asset Services Ltd, another subsidiary of MVIL.
MVIL had cash and bank balance of around Rs 26 crore as on September 30, 2022. It has demonstrated high financial flexibility by raising around Rs 1500 crore in the past 4-5 years. These funds have mainly been used for its real estate projects. MVIL divested its remaining 51% stake in MSFL for Rs 630 crore in February 2022 to focus completely on real estate. The company’s board has approved the reverse-merger of MEL with MVIL and the combined entity will be called as Max Estates Ltd. The new listed entity will be parent to all real estate related SPVs. Moreover, MVIL has also guaranteed the debt of Max Towers.
The existing debt of Rs 117 crore has been refinanced with LRD loan of Rs 249 crore in September 2022. There has been a marginal reduction in interest rate despite the environment of interest rate rise. Although the overall indebtedness has increased, the debt protection metrics remain healthy due to increased 17 years tenure. The average debt service coverage ratio (DSCR) is expected to remain healthy at well above 1 time at these debt levels. Debt protection metrics are supported by adequate liquidity in the form of a debt service reserve account (DSRA) of three months of debt obligation. Furthermore, current long-term lease agreements of 9 years have a lock-in period of 3 years, protecting cash flow. There are no new projects being assessed under Max Towers at this point in time. However, any increase in borrowings beyond the commensurate revenue stream will impact the financial risk profile, and hence, remains a key monitorable.
Weaknesses:
Cash inflow is susceptible to volatility in occupancy or realisations (a function of rentals per sq ft), while cash outflow is relatively fixed except for fluctuations in the floating interest rate. Max Towers has a single asset providing lower cash flow fungibility. It became operational in fiscal 2020 and has total leasable area of 3.01 lakh sq ft, of which 100% is leased out. The average rental for office clients is at around Rs 106 per sq. ft. While no area remains unleased, the downside risk to occupancy can materially affect rentals and demand. Although cash flow will be able to absorb the impact of fluctuations in interest rate and occupancy partially, these remain key monitorables.
Rental collection (key source of revenue) is susceptible to economic downturns, which may constrain the business risk profiles of tenants and, therefore, occupancy and rental rates. Emergence of competing facilities in the vicinity could also have the potential to affect tenants or rental rates. |
Liquidity: Adequate DSCR is expected to remain well above 1 time in fiscal 2023 as well as over the tenure of the existing debt. Cash accruals should sufficiently cover estimated yearly debt servicing obligation over the next three years. Liquidity will also be supported by cash and bank balance of around Rs 72.8 crore as of September 2022 which includes DSRA equivalent to three months of debt servicing obligations. Support is also likely to be available from MVIL, if required. |
Outlook: Stable CRISIL Ratings believes Max Towers will sustain its strong debt protection metrics, backed by steady cash flow from lease rentals and support from MVIL. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company Max Towers, incorporated in 2016 and acquired by MEL in 2017, has developed a single commercial project named Max Towers in Sector 16B, Noida. The total leasable area is 3.01 lakh sq ft which is 100% occupied as on September 30, 2022. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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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 21-Dec-22 in line with the lender-wise facility details as on 21-Dec-22 received from the rated entity.
Criteria Details
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