Phoenix Mills Limited – Rating outlook revised to ‘Positive’, Rating reaffirmed

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CRISIL Ratings has revised its outlook on the long-term bank facilities of The Phoenix Mills Ltd (PML; flagship company of the Phoenix Mills group and the PML-only platform) to ‘Positive’ from ‘Stable’, while reaffirming the rating at ‘CRISIL A+’.

Over the past few fiscals PML has diluted its stake in some of its operational assets to two strong private equity partners, CPPIB and GIC, forming separate platforms for future development. While PML still has majority stake in all of its SPVs, limited cash flow fungibility is expected between the entities which are controlled by PML (includes fully-controlled entities and certain joint ventures (JVs)) and the ones belonging to either of the PML-CPPIB or PML-GIC platforms. No cash flow fungibility is expected prior to debt servicing.

While surplus may be distributed to each partner, it will only happen once the under-development assets stabilise. Consequently, CRISIL Ratings is now looking at the credit risk profiles of all the three platforms, referred to as the PML-only platform (includes certain JVs), PML-CPPIB platform and PML-GIC platform, separately with only outflows from PML-only platform towards equity and support requirements for the PML-CPPIB and PML-GIC platforms.

The outlook revision reflects strong recovery witnessed in the group performance, especially post the third wave. Revenue and EBITDA (earnings before interest, tax, depreciation and amortisation) for retail segment was strong in Q4 of fiscal 2022 despite the impact of third wave in January 2022. Performance of office and residential segment remained resilient, while hospitality segment also saw strong recovery.

Operating performance is expected to remain strong in fiscal 2023 as can be seen from consumption at retail malls significantly above pre-pandemic level (i.e. corresponding months of fiscal 2020) in April 2022 and May 2022.

Better operating performance leading to healthier accruals have resulted in improved debt service coverage ratio (DSCR). The near-term DSCR has also seen improvement due to refinancing of debt at several special purpose vehicles (SPVs) with longer tenure and better repayment schedules.

Average cost of debt has also reduced by more than 50 bps over the last six months. Liquidity position continues to remain healthy with cash and equivalents at Rs 1,463 crore as on March 31, 2022 (for the PML-only platform) given stake dilution in assets and equity fund raising through qualified institutional placement (QIP) undertaken during the pandemic.

Apart from wholly owned assets, the PML Only platform has 2 operating assets with other JV partners namely St. Regis Mumbai and Palladium Mall Chennai. Further, only one asset is under-construction namely: Phoenix Palladium (SGH Realty – Ahmedabad). The Ahmedabad asset is nearing completion, and it has been able to achieve healthy pre-leasing of 75% as well.

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.