Detailed Rationale

CRISIL Ratings has upgraded its rating on the long-term bank facilities of The Phoenix Mills Limited (PML; flagship company of the Phoenix Mills group and the PML- (subsidiaries and other Joint Ventures (JVs)) which includes 100% subsidiaries and all JVs other than CPPIB and GIC platforms) to ‘CRISIL AA/Stable’ from ‘CRISIL AA-/Positive’.

 

The upgrade in rating reflects improvement in scale, strong liquidity position and continued improvement financial risk profile. The PML (subsidiaries and other JVs) has seven operational malls, two offices, two hotels and two residential projects. The PML - (subsidiaries and other JVs), excluding residential segment, witnessed a 12% revenue increase to Rs 922 crore in the first half of fiscal 2025, with a steady EBITDA (earnings before interest, tax, depreciation and amortization) margin of 65%. Looking ahead, revenue is expected to remain robust, driven by healthy rental generation from recently completed asset, growth in rental rates and increase in consumption The successful scaling up of Palladium Ahmedabad, along with the continued strong performance of existing operational malls, is expected to generate a net cash flow (before debt servicing obligations) of around Rs 900-950 crore in fiscal 2025, thereby improving the liquidity position. EBITDA is also expected to increase for fiscal 2025 with increase in scale, while EBITDA margins are expected to sustain at Fiscal 2024 levels of ~55-56%. The anticipated growth in EBITDA is expected to lead to improved leverage, with the platform's gross debt-to-EBITDA ratio projected to stay below 2.5 times in the medium term, an improvement from the 2.79 times recorded in fiscal 2024. This trend is already evident, with the ratio standing at around 2.44 times in the first half of fiscal 2025.   

 

Apart from operational assets, the PML - (subsidiaries and other JVs) has one under-construction commercial office project namely: Palladium Offices, Chennai (through a 50% Joint Venture with Crest Ventures). The office is being built on top of Phoenix Palladium Chennai and is expected to start operations from fiscal 2025-26. The PML (subsidiaries and other JVs) also has a residential project under construction at Alipore, Kolkata. Apart from the land acquisition in Thane last fiscal in November 2023, the PML - (subsidiaries and other JVs) has further expanded its land bank by purchasing a 13-acre parcel in Chandigarh-Mohali during September 2024. This new acquisition is currently in the planning and design phase, paving the way for future development opportunities.

 

The financial risk profile also remains comfortable, driven by strong operating performance and moderate leverage. The quality of its assets, strategically located in prime areas, generates a steady stream of cash flow from lease rentals. This, combined with a diverse and reliable tenant base, is expected to drive healthier accruals and improve the average debt service coverage ratio (DSCR) to over 2.5 times in the medium term, up from around 2.4 times in fiscal 2024. The company plans to develop new mixed-use projects on the recently acquired land, while maintaining a balanced debt-to-equity ratio of around 1:1 over the next 5 – 6 years. To ensure financial stability, the company will strategically phase its capital expenditures and debt repayment, creating a prudent timing gap between debt repayment and expected cash inflows each year. Liquidity position continues to remain robust at Rs 1,550 crores (including the unutilised Overdraft limits) as on September 30, 2024 (for 100% PML Controlled Entities and PML’s stake in other JV partnerships).

 

The rating continues to reflect the Phoenix Mills group’s leadership position in the Indian retail mall segment, diversified revenue profile, and comfortable financial risk profile. These strengths are partially offset by exposure to project risks because of expansion plans, volatility in occupancy, and vulnerability to cyclicality in the real estate sector.

Analytical Approach

For arriving at the rating, CRISIL Ratings has consolidated the business and financial risk profiles of TPML with its wholly owned SPVs and JV’s. This is because these entities are in the same line of business, have common promoters and financial linkages.

 

CRISIL Ratings has also moderately consolidated those entities which are part of the CPPIB and GIC platforms to the extent of equity support requirement. This is because TPML is the majority shareholder in these entities and is expected to bring in support, if required.

 

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:

• Leadership position in the Indian retail mall segment: The group has a track record of over three decades and is India’s largest retail mall operator. Its robust market position is underpinned by the prime location of the assets and their steady performance. Occupancy for most of the group’s larger malls (> 7 lakh sq ft) were over 90%, in the first half of fiscal 2025. There has been no major incremental vacancy observed in the malls. Leased Occupancy and average trading density of the group’s flagship asset – Phoenix Palladium (Mumbai) – were 99% and Rs 3,208 per sq. ft per month, respectively, in the first half of fiscal 2025 while these remained strong at 85-95% and Rs 1,000-2,000 per sq. ft per month for the rest of the assets. The platform’s newest mall, Palladium Ahmedabad, with total leasable area of approx. 7.50 lakh sq. ft is operating at a healthy 94% trading occupancy as on September 30, 2024. The PML (subsidiaries and other JVs) outstanding debt of PML as on 30th September 2024 is Rs 2676 crore.

 

• Diversified revenue profile: The group primarily focuses on retail-led mixed-use development. Revenue profile is moderately diversified and comprises four main businesses: retail assets, commercial offices assets, hospitality, and residential. Operating income for PML -(subsidiaries and other JVs) stood at Rs 922 crore in the first half of fiscal 2025, that is ~51% of total operating income (Rs 1,822 crore) of the group. Presence of other portfolios — commercial offices, hotels, and residential real estate – also support business risk profile. Additionally, the asset portfolio of the group is geographically well-diversified lending strength to the business risk profile.

 

• Comfortable financial risk profile: Low leverage, improved cost of debt and healthy operating performance will support DSCR for the PML (subsidiaries and other JVs) which is expected to remain robust. Close to 99% of the total debt is backed by operational assets, out of which ~89% of debt is backed by highly stable rent-generating assets, while 10% of the debt is against income from stabilised hotels as of the first half of fiscal 2025. Liquidity position for PML (100% PML Controlled Entities and PML’s stake in other JV partnerships %) is also robust at Rs 1,550 crore as on September 30, 2024. Debt to EBITDA for the platform is expected to remain comfortable below 2.5 times for the platform going forward. Construction of the residential project at Bangalore has already been completed (excluding Tower 8 & 9 which is yet to be launched) and all sales will directly increase the liquidity in the group since there is no debt in the residential business. The financial risk profile also derives comfort from the group’s strong financial flexibility and refinancing ability. The rate of interest averaged 2.17% over the Reserve Bank of India’s repurchase (repo) rates for the group in September 2024.

 

Weaknesses:

• Exposure to risks related to expansion plans: PML (subsidiaries and other JVs) platform has one commercial office asset under development – Palladium offices, Chennai. The construction is at an advanced stage and is expected to commence operations by fiscal 2025-26. While project risk under the PML (subsidiaries and other JVs) is limited, it is exposed to requirements of equity contribution, cost overruns or any other support, if needed, towards large projects which are under development and/or have been planned under the other two platforms.

 

Also, following the acquisition of new parcels of land over the past fiscal years, the PML (subsidiaries and other JVs) is poised to introduce a new mixed-use asset in the medium term, further expanding its portfolio.

 

• Volatility to occupancy and vulnerability to cyclicality in the real estate sector: Rental collection, the key source of revenue, is exposed to volatility because of economic downturns, thereby impacting the tenant's business risk profile and hence occupancy and rental rates. In contrast, cash outflow such as debt obligation, is relatively fixed. The mall operations were suspended in both fiscals 2020 and 2021 due to the first and second waves of the pandemic, thereby significantly reducing cash flows. However, the occupancy reaching to pre-pandemic level mitigates the risk to good extent.  Although cash flow and liquidity buffer will be able to absorb the impact of fluctuations in occupancy and interest rate to some extent, they remain rating sensitivity factors.

Liquidity: Strong

The PML (subsidiaries and other JVs) platform has debt obligation of Rs 450-550 crore per annum between fiscals 2026 and 2028 against expected cash accrual of Rs 800-900 crore. Additionally, the Phoenix Mills group maintains debt service reserve account (DSRA) covering around three months of debt obligation for all its assets. Liquidity was Rs 1,550 crore as on September 30, 2024 (including the undrawn overdraft). Liquidity is supplemented by strong refinancing ability as well as the ability to raise additional lease rental discounting loans, if required. Debt-to-lease rental ratio is expected to remain comfortable at less than 3.0 times over the medium term.

 

ESG Profile

CRISIL Ratings believes that The Phoenix Mills Limited’s (PML) Environment, Social and Governance (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.

 

Key ESG highlights:

• PML aims to achieve USGBC LEED certification for all of its upcoming mall and office projects.
• During fiscal 2024, 23% of the energy requirement of the retail portfolio of the Phoenix Group was met from green energy, mostly solar.
• PML engages regional and local suppliers to source any products and services.
• PML (standalone level) gender diversity stood at 28.71%, during fiscal 2024 and is higher than industry average.
• PML’s governance structure is characterized by 50% of its board comprising independent directors, split in chairman and CEO position, presence of an investor grievance cell and extensive disclosures.

 

There is growing importance of ESG among investors and lenders. PML’s commitment to ESG principles will play a key role in enhancing stakeholder confidence given its high foreign portfolio investor shareholding.

Outlook: Stable

CRISIL Ratings believes the credit profile of Phoenix Mills group is expected to sustain due to improvement in profitability and accruals backed by healthy occupancies in operational assets. Financial risk profile to sustain backed by healthy financial flexibility driven by lease rental backed debt.

Rating sensitivity factors

Upward factors

• Sustained growth in revenues, while maintaining EBITDA margins
• Maintaining healthy debt to EBITDA ratio below 2.3 - 2.4 times on a sustained basis
• Timely execution and scaling up of under construction projects

 

Downward factors

• Higher-than-expected borrowing with debt to EBITDA above 3.5 times weakening financial risk profile
• Significant increase in vacancy or fall in rental rates
• Significant delay or cost overrun in construction and leasing of under construction projects.

About the Company

PML is the flagship company of the Phoenix Mills group and was incorporated in January 1905 as a textile manufacturer. It diversified into real estate development in 1986 by first constructing a residential tower and then opening High Street Phoenix (HSP) mall in Lower Parel in 1999, followed by Palladium mall (next to HSP) in 2009. Palladium mall caters to uber-luxury brands. Apart from retail assets, TPML also owns and operates Phoenix House, a commercial office space of 0.09 million sq. ft. in the same premises.

 

About the Platform

The PML (subsidiaries and other JVs) platform has seven retail assets namely Phoenix Palladium, Mumbai, Phoenix Marketcity, Chennai, Phoenix Palladium, Chennai, Phoenix United, Bareilly, Phoenix United, Lucknow, Phoenix Palassio, Lucknow and Palladium, Ahmedabad, two office asset: Phoenix House, Mumbai and 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 space, which is nearing completion and one asset under development in the residential space at Alipore, Kolkata. The platform also acquired a land parcel in Thane during November 2023 admeasuring 11.5 acres and plans to build a mixed-use destination; with a retail mall (in the range of 1.2 msft to 1.5 msft gross leasable area (GLA)) in phase one. During September 2024, The platform emerged as the highest bidder for two city-centric plots in Mohali-Chandigarh, Punjab, admeasuring ~13 acres, which is currently under planning and design.

About the Group

PML is India’s leading owner, operator and developer of retail-led mixed-use destinations. PML Group’s developments are spread across retail, hospitality, commercial offices, and residential asset classes. PML and its subsidiaries have an operational retail portfolio of over 11 million sq. ft. of retail space across 8 major cities of India and are further developing over 5 million sq. ft. of retail space across 4 new malls and further densifying its existing destinations. PML Group’s mixed-use destinations also include Grade A offices with an operational office portfolio of over 2 million sq. ft. and under development office portfolio of over 5 million sq. ft.

 

PML Group has delivered three residential projects across the country and currently has one project under development in Kolkata. PML Group 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 group has expanded its business to include F&B (food and beverage), operating 39 outlets, with 10 diverse offerings, across its malls.

Key Financial Indicators - standalone*

Particulars	Unit	2024	2023
		Actual	Actual
Revenue	Rs crore	466	477
Profit after tax (PAT)	Rs crore	280	290
PAT margin	%	60.0	60.9
Adjusted gearing	Times	0.14	0.13
Interest coverage	Times	4.87	4.92

*CRISIL Ratings adjusted financials

Platform-level information is provided in the write-up

Any other information: Not Applicable