Rating Rationale
July 28, 2023 | Mumbai
Vamona Developers Private Limited
Rating upgraded to 'CRISIL A+ / Stable'
 
Rating Action
Total Bank Loan Facilities RatedRs.650 Crore
Long Term RatingCRISIL A+/Stable (Upgraded from 'CRISIL A/Stable')
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 upgraded its ratings on the long-term bank facilities of Vamona Developers Pvt. Ltd (Vamona; part of the PML-GIC platform) to 'CRISIL A+/Stable' from 'CRISIL A/Stable’.

 

The rating upgrade reflects continued improvement in operating performance for the two operational retail assets under the platform - Phoenix Market City, Pune and Phoenix Market City, Mumbai.

 

Lease rental income for the platform is expected to increase by around 10-15% (y-o-y) in FY2024 backed by occupancies sustaining at more than 90%. Further, with consumption levels expected to sustain in FY2024, performance for the assets under the platform is expected to improve further. There are also 3 commercial assets (office) under the platform – Phoenix Paragon Plaza, Art Guild House and Centrium, which are also expected to continue contributing to lease rental income with occupancy of office assets expected to remain at 70% or higher in the medium term.

 

Increase in rental income in the medium term is also expected to lead to healthier accruals resulting in better near-term debt service coverage ratio (DSCR). Further, with the malls under the platform having operational vintage of more than 8 years, the ratio of debt to lease rentals is expected to remain comfortable at below 4 times in the medium term.

 

Higher accruals of the platform are also expected to be utilized towards capex for the existing under-construction asset / new assets of the platform. There is one under construction retail asset under the platform, which is expected to be commissioned by FY2027-FY2028. Considering PML’s extensive experience in construction and operations of retail and commercial assets, the under-construction asset is not expected to pose a significant challenge.

 

Operating income for the platform has increased by around 45% y-o-y in FY2023 contributed by around 16% increase in rental rates and 22% increase in consumption levels for PMC Pune and steady rental rates and consumption levels for PMC Kurla in FY2023 as compared to FY2020. Sustained higher consumption levels have led to PMC Pune’s rental income and EBITDA reaching to 118% and 121% respectively and PMC Kurla’s rental income and EBITDA reaching to 116% in FY2023 compared to pre-pandemic level of FY2020. Liquidity position for the platform (PMC Pune along with other PML-GIC companies) continues to remain healthy with cash and equivalents at Rs 580 crore (including the undrawn overdraft limits of ~ Rs 250 crs) as on March 31, 2023. The platform will continue to derive benefit from the financial flexibility and refinancing ability of both its sponsors – PML and GIC.    

 

The rating continues to reflect the platform’s stable cash flow, supported by healthy mall occupancies and a diverse and reputed clientele, and comfortable financial risk profile. The rating also factors in operational, managerial, and financial support from parent, The Phoenix Mills Limited (PML, rated ‘CRISIL AA-/Stable’), These strengths are partially offset by exposure to risks related to the large scale of proposed under-construction project, and vulnerability to volatility in interest rates and occupancy.

Analytical Approach

For arriving at the rating, CRISIL Ratings has consolidated the business and financial risk profiles of all existing and proposed assets of PML, if any, with GIC as partner (referred to as PML-GIC platform). This is because these entities are in the same line of business and have common promoters.

 

CRISIL Ratings has also moderately consolidated equity commitment from PML at group level to the extent of equity and support requirement. This is because PML 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:

  • Stable cash flow from lease rentals, supported by healthy occupancy, and diverse and reputed clientele: The retail area of operational malls of the platform overall has a leasable area of around 23.02 lakh square feet (sq. ft) and has maintained occupancy of over 90% for the past seven years, with reputed brands as tenants. PMC Pune witnessed consumption of Rs 1537 crore in fiscal 2023, that is ~122% of pre-pandemic level (fiscal 2020) and PMC Kurla witnessed consumption of Rs 1026 crore in fiscal 2023, that is ~105% of pre-pandemic level (fiscal 2020). Strong recovery in consumption led to rental income and EBITDA recovery reaching 118% and 121% for PMC Pune and rental income and EBITDA reaching 116% for PMC Kurla in fiscal 2023 over the pre-pandemic period fiscal 2020. The outstanding debt of the platform as on 31st March 2023 is Rs 935.5 crores and has unutilized overdraft limits of around Rs. 250 crores as on 31st March 2023.

 

The top 10 tenants occupy only around 32% area, ensuring low tenant concentration. The rating also factors in the well-secured lease structure, with a lock-in and lease period of one-five years and an in-built revenue escalation clause of 5-15% for most tenants. Furthermore, a portion of the total rental is generated through revenue share income.

 

  • Comfortable financial risk profile: Loan-to-value (LTV) for the platform is healthy at below 25%. Average DSCR (CRISIL Ratings adjusted) for the GIC platform over the remaining tenure of the debt is expected to remain above 1.5 times. Healthy liquidity of Rs 580 crore (as on March-23 including the undrawn bank lines) at platform level continues to support cash flow position. As on March 31, 2023, entire debt in the platform is backed by highly stable rent-generating assets since there is no debt raised against under-construction asset. Debt to lease rental ratio is expected to remain comfortable at below 4.0 times for the platform going forward. Lower than expected lease rentals, higher than expected incremental debt, or any significant cash outflow in the form of support to subsidiaries, may impact the financial risk profile and hence, will be key rating sensitivity factors.
  • Strong operational, managerial, and financial support from parent: PML is a majority shareholder of Vamona. 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. PML is expected to infuse funds in the platform towards equity commitments for under-construction and planned projects and in case of support requirements.

 

Weaknesses:

  • Exposure to risks related to large scale of planned project: A large project has been planned in the platform in new and current geographies, with overall expected investment of around Rs 840 crore over the next four fiscals. The plans are in nascent stage but the same is expected to funded with a mix of debt-equity ratio of not more than 1.5:1. The required equity commitment has mostly already has been brought in. Although the group has sound experience in developing and managing retail assets, its ability to execute, market, and scale-up the project on time will remain critical. Any significant delay in project execution or cost overruns may weaken financial risk profile. Any additional capital expenditure towards development of new assets, apart from currently planned assets, may lead to weakening of credit risk profile and will remain a key rating sensitivity factor
  • Susceptibility to changes in interest rates and occupancy: A substantial portion of agreements (32%) will be due for renewal over the three fiscals through March 2026 for PMC Pune. Timely renewal/leasing of this area at similar or better terms in comparison with the existing agreements, will remain a key rating sensitivity factor, however, the company has history of timely renewals of the agreement which mitigates the risk to some extent. Furthermore, the floating interest rate on debt exposes the company to fluctuation in interest rates. Although the 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

Average DSCR (CRISIL Ratings adjusted) for the platform is also expected to be healthy at above 1.5 times over the medium term. The cash accrual is expected to be sufficient to cover debt obligations of Rs 170-190 crore per annum over fiscals 2024 to 2026. Liquidity is supported by the maintenance of a DSRA of around Rs 40 crore and cash equivalents and liquid investments of Rs 580 crore (including undrawn OD lines) as on March 31, 2023. Support from PML should be available to for cash flow mismatches, if any.

Outlook: Stable

CRISIL Ratings believes Vamona will continue to benefit from steady cash flow, which will aid sustenance of adequate debt protection metrics over the medium term.

Rating Sensitivity factors

Upward factors:

  • Substantial growth in rental income by over 15% per annum on a sustained basis along with increase in scale to over Rs 750-800 crore (on a platform level).
  • Maintaining operating margins, thereby strengthening surplus generation and strong improvement in debt protection metrics like debt/NOI
  • Timely completion and leasing of under-construction asset within budgeted cost
  • Improvement in credit risk profile of PML

 

Downward factors: 

  • Increase in leased vacancy by more than 10% or reduction in rental rates, weakening the debt protection metrics
  • Undertaking significant capex funded by higher-than-expected debt
  • Significant time and cost overrun for under-construction assets
  • Weakening of credit risk profile of PML

About the Company

Vamona owns and operates the PMC mall in Viman Nagar, Pune. The mall has leasable area of about 11.8 lakh sq ft and has been operational since June 2011. It has a well-diversified clientele and had healthy leased occupancy of 97% as of March 2023. PML owns 67.10% stake in the mall, while the remaining 32.90% is held by GIC. Both sponsors have jointly formed a real estate platform to develop retail assets

 

About the Platform

Vamona is a part of the PML-GIC platform, post-acquisition of 32.90% stake by GIC. Apart from Vamona, Offbeat Developers Pvt. Ltd. (PMC Mumbai, Art Guild House, Centrium) and Graceworks Realty and Leisure Pvt. Ltd. (Phoenix Paragon Plaza) are also a part of the PML-GIC platform. The group is also constructing one new mall under this platform.

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 17.5 million square feet spread across retail, hospitality, commercial, and residential asset classes. The company has an operational retail portfolio of approximately 7.0 million square feet of retail space spread across 9 operational malls in 6 cities of India. The company is further developing 5 malls with over 6.0 million square feet of retail space in 5 cities of India. Besides retail, the company has an operating commercial office portfolio with gross leasable area of 1.5 million square feet and plans to add approximately 5.0 million sq. feet of commercial office across existing retail properties going forward.

 

On Dec 01, 2020, The Phoenix Mills Ltd and its subsidiaries, Offbeat Developers Private limited, Graceworks Realty and Leisure Private Ltd and Vamona Developers Private Ltd have jointly signed a non-binding term-sheet with GIC Private Ltd for formation and development of a strategic retail-led mixed-use platform. Subsequently, GIC has acquired 26% equity stake in these subsidiaries for an aggregate consideration of Rs. 1,111 crore; GIC’s has further invested Rs. 400 crores in the three subsidiaries on 30th June 2022 thereby increasing the stake in the companies to 32.90%. This is expected to be used as a platform to develop retail-led mixed development properties.

Key Financial Indicators: Vamona (standalone)*

As on/for the period ended March 31,   2023 (Actual) 2022 (Actual)
Operating income Rs crore 281 182
Profit after tax (PAT) Rs crore 124 47
PAT margin % 44.1 25.8
Adjusted debt/adjusted net worth Times 0.48 0.97
Interest coverage Times 5.83 3.4

*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 
levels		 Rating assigned
with outlook
NA Lease Rental Discounting Loan NA NA Feb-33 650 NA CRISIL A+/Stable

Annexure – List of entities consolidated

Names of Entities Consolidated Extent of Consolidation  Rationale for Consolidation 
Graceworks Realty & Leisure Pvt. Ltd.  Full Subsidiary of PML (PML 67.10%)
Offbeat Developers Pvt. Ltd. Full Subsidiary of PML (PML 67.10%)
Vamona Developers Pvt. Ltd. Full Subsidiary of PML (PML 67.10%)
Thoth Mall & Commercial Real Estate Pvt. Ltd. Full Subsidiary of Graceworks (Graceworks has 80% shareholding)
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 650.0 CRISIL A+/Stable   -- 14-11-22 CRISIL A/Stable 26-11-21 CRISIL A/Stable 13-10-20 CRISIL A/Negative CRISIL A/Stable
      --   -- 01-07-22 CRISIL A/Stable   -- 12-06-20 CRISIL A/Watch Negative --
      --   --   --   -- 26-03-20 CRISIL A/Watch Negative --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Lease Rental Discounting Loan 650 The Hongkong and Shanghai Banking Corporation Limited CRISIL A+/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs criteria for rating debt backed by lease rentals of commercial real estate properties
CRISILs Criteria for Consolidation

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