Rating Rationale
February 09, 2024 | Mumbai
Upal Developers Private Limited
Rating outlook revised to 'Positive'; Rating reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.110 Crore
Long Term RatingCRISIL A/Positive (Outlook revised from 'Stable'; Rating Reaffirmed)
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 revised its outlook on the long-term bank facilities of Upal Developers Private Limited (Upal; part of the Phoenix Mills group and PML only platform) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘CRISIL A’.

 

The revision in outlook is driven by revision in outlook of parent company The Phoenix Mills Ltd (PML).

 

Operating performance for Upal is expected to remain stable in FY24 as compared to FY23 with rental rates remaining in line with FY23. Consumption has moderated slightly by 3% y-o-y in 9M FY24 over 9M FY23 which may slightly moderate income from revenue share. EBITDA margins are also expected to remain stable.

 

Better operating performance for PML only platform leading to healthier accruals is expected to result in improved debt service coverage ratio (DSCR). The DSCR is expected to remain healthy above 2 times in the medium term. Liquidity position continues to remain robust at Rs 1,729 crore (including the unutilised OD limits) as on Sep 30, 2023 (for 100% PML Controlled Entities and other JV partnerships).

 

The rating continues to reflect strong operational, managerial, and financial support from parent, the Phoenix Mills Ltd (TPML, flagship company of the Phoenix Mills group; rated ‘CRISIL AA-/Positive’), steady cash flow, supported by healthy occupancy of the company’s mall, diverse and reputed clientele and adequate debt protection metrics. These strengths are partially offset by exposure of cash flow to volatility in revenue, interest rates and occupancy.

Analytical Approach

CRISIL Ratings has notched up Upal’s standalone rating based on expectation of strong support from the parent, TPML, on an ongoing basis and in the event of distress. This is in line with CRISIL Ratings’ criteria for notching up standalone ratings of companies based on parent support.

 

This is in addition to considering Upal’s standalone business and financial risk profiles because Phoenix United Mall (PUM) in Lucknow is the only asset on the company’s books, and cash flow from only this asset will be used to service the debt.

Key Rating Drivers & Detailed Description

Strengths:

  • Stable cash flow from lease rentals supported by moderate occupancy and diverse and reputed clientele: PUM, Lucknow has a leasable area of around 3.87 lakh square feet (sq ft), which had occupancy of over 80% as of September 2023. The mall witnessed consumption of Rs 159 crore in 9M FY24, that is 97% of 9M FY23.

 

The top 10 tenants occupy close to 62% area, resulting in moderate tenant concentration. Moreover, there is a well-secured lease structure, with a lock-in and lease period of 1-18 years and an in-built revenue escalation clause of 5-20%

 

 

The rating also factors in retention of surplus cash flow within the company over the medium term, in the absence of any large capex towards the mall. Lower-than-anticipated lease rentals, higher-than-expected additional debt draw down, or any significant cash outflow in the form of support to other TPML subsidiaries, may constrain the financial risk profile and hence, will be key rating sensitivity factors.

 

  • Strong operational, managerial, and financial support from parent: PML fully owns Upal, which in turn owns and operates PUM, Lucknow. The mall shares the brand and logo of the Phoenix Mills group, which is a leading player in the retail mall business in India. This, coupled with a combination of scale and attractive catchment area, is reflected in a healthy mix of anchors, mini anchors, and vanilla and food and beverage tenants. Additionally, the company benefits from the management’s proactive approach towards mall maintenance to ensure tenant stickiness and asset quality.

 

Weaknesses:

  • Exposure to volatility in revenue: A certain proportion of total rentals is generated through revenue share income, which is not as stable as guaranteed rentals, thereby exposing the company to volatility in income, which will be linked to the performance of the underlying stores. Market downturns, such as the pandemic or new large format malls that have come up or may come up in Lucknow, could affect footfall and retailers’ income. This will remain a key rating sensitivity factor.

 

  • Susceptibility to volatility in interest rates and occupancy: Around 32% of the agreements will be coming up for renewal over the three fiscals through 2027. Timely renewal/leasing of these at similar or better terms in comparison with the current agreements will remain key rating sensitivity factors. However, the company has history of timely renewals of the agreement which mitigates the risk to some extent. Furthermore, interest rate on the debt is floating, resulting in exposure to volatility in interest rates. Although cash flow will be able to absorb the impact of fluctuations in interest rates and occupancy to some extent, these will remain rating sensitivity factors.

Liquidity: Strong

The DSCR (CRISIL adjusted) was around 2.0 times in fiscal 2023 and average DSCR (CRISIL adjusted) for the remaining tenure of the debt is expected to be above 1.5 time. The cash accrual is expected to be sufficient to cover debt obligations of Rs 13-15 crore per annum over fiscals 2025 to 2027. Liquidity is supported by the maintenance of a DSRA equivalent to 3 months of debt servicing by the company.

 

Overall liquidity for the PML only platform is strong, with around Rs 1,729 crore (including undrawn bank lines) as on September 30, 2023, which should be available to support cash flow mismatches at Upal, if any.

Outlook: Positive

CRISIL Ratings believes Upal's business and financial risk profiles will continue derive significant benefits over the medium term from its association with PML.

Rating Sensitivity factors

Upward Factors

  • Sustained revenue growth of over 15-20% in near term, with maintenance of EBITDA.
  • Substantial reduction in outstanding debt leading to better financial risk profile.

 

Downward Factors

  • Increase in vacancy by more than 10% or reduction in rental rates, weakening the debt protection metrics.
  • Downward change in the credit risk profile of PML could have a similar rating change on UDPL.
  • Draw down of any incremental debt.

About the Company

UDPL is a 100% subsidiary of Big Apple Real Estate Pvt. Ltd (fully owned by PML). The company’s mall in Lucknow has been operational since 2010 and had a well-diversified clientele and moderate occupancy of 85% as of September 2023.

 

About the Platform

The PML Only platform has 7 retail assets namely Phoenix Palladium, Mumbai, Phoenix Marketcity, Chennai, Phoenix Palladium, Chennai, Phoenix United, Bareilly, Phoenix United, Lucknow, Phoenix Palassio, Lucknow and Palladium, Ahmedabad, one office asset: Fountainhead, Pune, two hotel assets: The St Regis, Mumbai and Courtyard by Marriott (Agra) and one residential project in Bangalore. The platform has limited construction risk with one asset under development in commercial office space, which is nearing completion and one asset under development in the residential space. The platform acquired a land parcel in Thane during November 2023 admeasuring 11.5 acres which is currently under planning and design.

About the Group

PML is a leading retail mall developer and operator in India. It is the pioneer of retail-led, mixed-use developments with completed development of over 20 million square feet spread across retail, hospitality, commercial, and residential asset classes. The company has an operational retail portfolio of approximately 11 million square feet of retail space spread across 13 operational malls in 8 cities of India. The company is further developing 2 new retail destinations in 2 major cities of India and expanding 2 of its existing retail destinations which will together add approximately 3.0 million sq. ft. of retail space. Besides retail, the company has an operating commercial office portfolio with gross leasable area of 2 million square feet and plans to add approximately 5.0 million sq. feet of commercial office across existing retail properties going forward. The company also has an exclusive residential project with saleable area of about 3.5 million sq. ft. in Bengaluru and is developing a premium project in Alipore Kolkata with a saleable area of over 1.0 million sq.ft. The company also owns and operates two hotels – The St. Regis, Mumbai and Courtyard by Marriot, Agra and currently has a Grand Hyatt hotel under planning at Whitefield Bengaluru. The PML group acquired a land parcel in Thane during November 2023 admeasuring 11.5 acres which is currently under planning and design.

Key Financial Indicators UDPL (standalone)*

As on/for the period ended March 31,

 

2023

2022

 

 

Actual

Actual

Operating income

Rs crore

54

38

Profit after tax (PAT)

Rs crore

19

14

PAT margins

%

34.7

35.7

Adjusted debt/adjusted net worth

Times

0.55

0.84

Interest coverage

Times

7.40

4.15

*CRISIL Ratings-adjusted financials

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of instrument

Date of allotment

Coupon

rate (%)

Maturity

date

Issue size

(Rs crore)

Complexity

level

Rating assigned with

outlook

NA

Working capital term loan

NA

NA

April-2027

85

NA

CRISIL A/Positive

NA

Secured overdraft facility

NA

NA

NA

10

NA

CRISIL A/Positive

NA

Proposed long-term bank loan facility

NA

NA

NA

15

NA

CRISIL A/Positive
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 110.0 CRISIL A/Positive   --   -- 14-11-22 CRISIL A/Stable 26-11-21 CRISIL A-/Stable CRISIL A-/Negative
      --   --   -- 01-07-22 CRISIL A/Stable   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Proposed Long Term Bank Loan Facility 15 Not Applicable CRISIL A/Positive
Secured Overdraft Facility 10 Kotak Mahindra Bank Limited CRISIL A/Positive
Working Capital Term Loan 85 Kotak Mahindra Investments Limited CRISIL A/Positive
Criteria Details
Links to related criteria
CRISILs criteria for rating debt backed by lease rentals of commercial real estate properties
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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