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 company’s strong brand and track record, high saleability, healthy collections and progress in construction of ongoing projects. The rating also draws comfort from the 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.

 

Healthy operating performance continued in fiscal 2023, when MLDL reported the highest sales volume and steady collections and surplus. Financial risk profile has remained strong, with debt to total assets ratio of below 25% over the four fiscals through March 2023 (CRISIL Ratings estimates).

 

With adequate cash flow expected over the medium term, debt protection metrics should also be comfortable, with debt-to-total assets ratio of 22-23% and debt service coverage ratio at around 5 times. Liquidity is strong, as reflected in cash and equivalent of around Rs 413 crore and utilisation of fund-based limit of around 59%, as on March 31, 2023.

 

The company plans to incur capital expenditure (capex) towards land acquisition and construction over the medium term. It has recently acquired land in Pune and Bengaluru. The capex will be funded through a mix of cash accrual, external debt and equity partnerships. Finalisation of these deals and their impact on financial risk profile will be key monitorables.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of MLDL and its subsidiaries and joint ventures (JVs) because all these entities operate in the real estate sector and related segments, have significant operational and financial linkages, and share a common management.

 

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 highlights 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 its strong brand, focus on timely execution and high saleability of projects. The company has cumulatively developed over 20 million square foot (msft) of residential space across the premium, mid-income and affordable housing segments in Mumbai Metropolitan Region (MMR), National Capital Region, Chennai, Hyderabad, Bengaluru, and Pune and Nagpur in Maharashtra. It also has several ongoing projects with 6.6 msft area under development, and plans to launch another 7.1 msft over the medium term.

 

In fiscal 2023, the company launched three new projects — Citadel and Nestalgia in Pune, and Eden Kanakpura in Bengaluru — and also launched fresh inventory in 6 of its existing projects – cumulatively adding up ~3.2 msft. MLDL has also recently ventured into society redevelopment projects in prominent localities of Mumbai.

 

Collections from residential projects rose to Rs 1,165 crore in fiscal 2023 from Rs 1,153 crore in fiscal 2022. The company’s healthy business risk profile should sustain over the medium term, with strong saleability in ongoing projects improving overall profitability.  

 

Strong support from the parent

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

Financial risk profile is supported by healthy collections from the real estate segment, which are expected to be Rs 1,200-1,400 crore per annum over the medium term (as per CRISIL Ratings estimates). Financial flexibility is aided by deleveraging over the past few fiscals, with consolidated external debt of Rs 709 crore as on March 31, 2023 (Rs 759 crore as on March 31, 2022). Financing of growth plans and their impact on financial risk profile would be key monitorables. However, given healthy commensurate collections, 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 segment of the real estate sector

Exposure to risks and cyclicality inherent in both the residential and commercial-for-sale segments of the real estate sector may cause volatility in saleability as well as realisations. The company is present across various segments and cities in the residential space.

 

In the IC&IC segment, it 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 local demand and hence, the level of industrial activity. In this category, the company prefers to develop projects with strategic partnerships.

Liquidity: Strong

Cash equivalent stood at around Rs 413 crore as while utilisation of fund-based limit was 59% as on March 31, 2023. Healthy cash flow from residential projects should continue over the medium term. In the commercial segment, income from operations and maintenance activity and sales are expected to remain stable at Rs 400-500 crore.

 

The company, including its subsidiaries and JVs, has minimal term debt obligation per fiscal over the medium term. Internal cash accrual, cash and equivalent and unutilised bank limit should suffice to cover debt obligation and incremental construction cost.

 

Environment, social and governance (ESG) profile

The ESG profile of MLDL 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:

• Launched ‘Mission BOCW’ - Facilitating access to government's social welfare
• Launched the learning series, One brick at a time, as part of the sectoral decarbonisation business charter
• Developed the net zero roadmap to align with net zero commitment
• MLDL has obtained IMS re-certification for ISO 9001 Quality Management System, ISO 45001 Occupational Health & Safety Management, and ISO 14001 Environmental Management System
• 100% of the company’s residential portfolio IGBC Gold & above certified, GRIHA 4-star and above are net zero energy certified, while one project is net zero waste certified
• MLDL’s governance structure is characterized by 38% of its board comprising independent directors, split in chairman and CEO positions, presence of an investor grievance redressal cell, and extensive disclosures
• 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 (more than 11%) and access to capital markets.

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

• Substantial and sustained increase in cash flow driven by higher sales in residential projects, along with healthy liquidation of inventory in the absence of any large, debt-funded capex
• Better operating performance leading to significant and sustained deleveraging, strengthening of financial risk profile with debt to total assets ratio sustaining under 13-15%, and lower refinancing requirement
• Increase in shareholding by M&M or higher strategic importance of MLDL

 

Downward Factors

• Sharp decline in revenue and profitability triggered by slackened saleability of the existing and proposed projects, or any major debt-funded land acquisition leading to sustained debt to total assets ratio of over 30%
• Downgrade in the rating of M&M or change in its support philosophy towards MLDL

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 develops 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 (a 60:40 JV between MWCDL and Sumitomo Corporation), and in Jaipur through Mahindra World City (Jaipur) Ltd (74:26 JV with Rajasthan Industrial Development and Investment Corporation). Furthermore, it has acquired land in Ahmedabad through its subsidiary, Mahindra Industrial Parks Pvt Ltd (held 100%).

 

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% stake in the company as on March 31, 2023.

Key Financial Indicators (Mahindra Lifespace Developers Ltd – Consolidated)

As on/for the period ended March 31*	Units	2023	2022
Revenue from operations	Rs crore	617	397
Profit after tax (PAT)	Rs crore	103	161
PAT margin	%	16.7	40.4
Adjusted debt/adjusted networth	Times	0.15	0.16

*CRISIL Ratings adjusted figures

Any other information: Not applicable