Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL AA/Stable' rating on the proposed long-term bank facility of Mahindra Lifespace Developers Ltd (MLDL).

 

The rating continues to reflect the strong brand name, established track record of developed area, robust operating performance and healthy debt protection metrics. The rating also draws comfort from the strong parentage and expectation of need-based support from Mahindra & Mahindra Ltd (M&M; rated 'CRISIL AAA/Stable/CRISIL A1+'). These strengths are partially offset by exposure to cyclicality inherent in the real estate business.

 

The business risk profile is supported by the company’s highest-ever sales for the third consecutive year in fiscal 2024, with consistent surplus generated. CRISIL Ratings expects the operating performance of the residential portfolio to further improve with sales volume of more than 3 million sq ft (msf), sales value of over Rs 2,500 crore and collection of around Rs 2,000 crore in fiscal 2025, compared with sales volume of 2.5 msf, sales value of Rs 2,328 crore and collection of Rs 1,385 crore in fiscal 2024. The increase in sales will be backed by both ongoing projects and new launches. The healthy operating performance of MLDL continued in the first half of fiscal 2025, as the company reported strong sales of Rs 1,415 crore, steady collections of Rs 999 crore along with healthy operating surplus. The sales booking and construction progress in the ongoing residential projects also continue to be steady. The integrated cities and industrial clusters (IC&IC) segment is expected to continue contributing Rs 350-450 crore to the overall collections in the near term.

 

The financial risk profile is comfortable, supported by strong cash flow from operations (CFO) and healthy leverage. The consolidated external debt stood at Rs 1,313 crore as on September 30, 2024, compared with Rs 733 crore as on March 31, 2023. Furthermore, the debt is expected to increase over the medium term primarily for land acquisition as the company plans to significantly increase sales to Rs 8,000-10,000 crore by fiscal 2028, primarily driven by growth in the residential portfolio. However, given the healthy surplus generation and adequate visibility on sales and collections in the near to medium term, the coverage ratios are expected to be comfortable. As per CRISIL Ratings estimates, the debt protection metrics as characterised by debt to CFO and CFO to interest ratios are expected to be at 1.2-1.7 times and more than 8 times, respectively, over the medium term. The liquidity is comfortable, as indicated by cash and equivalents of around Rs 815 crore (including cash designated for the RERA account) and fund-based facilities of Rs 750 crore with moderate utilisation of around 57% as on September 30, 2024.

 

In line with its growth strategy, MLDL plans to incur capital expenditure (capex) towards land acquisition and construction over the medium term. The capex will be funded through a mix of cash accrual, external debt and external equity partnerships. The finalisation of such deals and their impact on the financial risk profile are monitorable.

 

That said, MLDL continues to be a key entity in the Mahindra group. MLDL is one of the ‘growth gems’ identified by M&M and hence, will remain core to the diversification strategy of M&M.

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). This is 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 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 over 21 msf of residential space across the premium, mid-income and affordable housing segments in Mumbai Metropolitan Region (MMR), Pune and Nagpur in Maharashtra; National Capital Region (NCR), Chennai, Hyderabad and Bengaluru. It also has several ongoing projects with 17.25 msf area under development and planned over the medium term, as on September 30, 2024.

 

The collections from residential projects rose to Rs 1,385 crore in fiscal 2024 from Rs 1,165 crore in fiscal 2023. The healthy business risk profile should sustain over the medium term, with multiple launches planned and healthy sales velocity in the ongoing projects.  

 

• 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 group has also identified MLDL as one of its ‘growth gems’. 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: The financial risk profile is supported by healthy collections from the real estate segment, with collections of Rs 2,000-3,000 crore expected per year over the medium term (as per CRISIL Ratings estimates). In line with the growth plans, leverage is expected to increase over the medium term. The consolidated external debt stood at Rs 1,313 crore as on September 30, 2024 (Rs 1,279 crore as on March 31, 2024). The financing of growth plans and their impact on the financial risk profile will be monitorable. However, given the healthy collections, the debt protection metrics are likely to remain comfortable over the medium term.

 

Weakness:

• Exposure to risks and cyclicality inherent in the residential and integrated cities segments of the real estate sector: The company is present across various segments (premium, 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 IC&IC segment, the total sale of area on long-term lease depends on the local demand and hence, the level of industrial activity. Exposure to risks and cyclicality inherent in both the residential and IC&IC segments of the real estate sector may cause volatility in saleability and realisation.

Liquidity: Strong

The company held cash equivalents of around Rs 815 crore (including RERA cash) and moderate utilisation at 57% of their available Rs 750 crore fund-based limits as on September 30, 2024. The company, its subsidiaries and JVs have minimal long-term debt obligation per fiscal over the next two fiscals. The major principal repayment will start from fiscal 2027. 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.

 

Environment, social and governance (ESG) profile

 

CRISIL Ratings believes that MLDL’s ESG profile supports its already strong credit risk profile.

 

The real estate sector has a significant impact on the environment owing to high emissions, waste generation and impact on land and biodiversity. The impact on social factors consists of labour-intensive operations and safety issues on account of construction-related activities.

 

MLDL has an ongoing focus on strengthening the various aspects of its ESG profile.

 

Key ESG highlights:

• Achieved CDP A rating for launching industry-first three net zero projects
• Renewed zero waste to landfill status for Mahindra World City, Chennai
• MWC Chennai became India’s first integrated city to be IGBC Stage 2 Platinum certified township
• Launched MLDL’s first carbon calculator for promoting sustainable lifestyle
• Developed daylight plug-in tool at Mahindra TERI Centre of Excellence to calculate accurate daylight simulations to be as close to the actual illuminance values

 

There is growing importance of ESG among investors and lenders. MLDL’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given its high foreign portfolio investor shareholding (~10%) and access to capital markets.

Rating sensitivity factors

Upward factors:

• Significant and sustained increase in collections, driven by high sales in residential projects
• Strengthening of the financial risk metrics, for instance, improvement of the debt to CFO ratio to below 1 time on a sustained basis
• Increase in shareholding by M&M or higher strategic importance of MLDL

 

Downward factors:

• Sharp decline in revenue and operating profitability, or higher-than-expected debt-funded land acquisition, leading to debt to CFO sustaining above 2.5 times
• Downgrade in the rating of M&M or change in its support philosophy towards MLDL

About the Company

Incorporated as Gesco Corporation Ltd in 1999, MLDL was renamed as Mahindra Gesco Developers Ltd in fiscal 2003, and got the current name in fiscal 2008. The company develops residential real estate projects and integrated business cities.

 

MLDL’s development portfolio comprises premium and mid-premium residential projects, and affordable projects (under the brand name of Mahindra Happinest). MLDL also has a commercial portfolio under IC&IC projects under the brand names of Mahindra World City and Origins by Mahindra. In the IC&IC category, the company has several strategic partnerships.

 

MLDL is listed on the Bombay Stock Exchange and the National Stock Exchange, and M&M held ~51% stake in the company as on March 31, 2024.

Key Financial Indicators (MLDL – Consolidated)

As on/for the period ended March 31*	Units	2024	2023
Revenue from operations	Rs crore	212	606
Profit after tax (PAT)	Rs crore	98	101
PAT margin	%	46.2	16.7
Adjusted debt/adjusted networth	Times	0.46	0.15
Interest coverage	Times	NM	NM

* CRISIL Ratings-adjusted figures

NM – Not meaningful

Any other information: Not Applicable