June 25, 2021

Sugam Vanijya Holdings Private Limited: Ratings reaffirmed; outlook retained at Negative

Summary of rating action

Previous Rated Amount Current Rated Amount Instrument* Rating Action (Rs. crore) (Rs. crore) Non-convertible Debenture 562.5 562.5 Programme Fund-based Term Loan 177.5 177.5 [ICRA]BBB+ reaffirmed; Fund-based Working Capital Facilities- outlook retained at 30.0 30.0 Overdraft Negative Non-fund Based Working Capital 20.0 20.0 Facilities Total 790.0 790.0 *Instrument details are provided in Annexure-1

Rationale

The rating continues to factor in the strong profile of the company’s sponsor, Virtuous Retail Group, which is an established player in the Indian retail real estate market. SVHPL derives strong operational support and enjoys healthy financial flexibility being part of the Group. Further, the rating takes into account in the adequate tenant occupancy levels observed in all malls and the presence of SVHPL’s malls in attractive catchment areas of Bengaluru and . Both the malls benefit from the presence of reputed and fairly diversified tenant profile. The marketability of the malls remains strong as a couple of large anchor tenants are expected to occupy significant space in the coming quarters in the Bengaluru mall.

The rating, however, is restricted by the severe impact of the Covid pandemic induced lockdown restrictions on the mall operations, which again came to halt due to resurgence in pandemic levels in Q1FY2022. Substantial rent waivers/deferment extended during H1FY2021, has resulted in decline in operational cash flows and debt coverage metrics in FY2021 vis-à-vis FY2020. A similar impact on the operational cash flows is expected in FY2022 as well, with the timing of the mall re-opening and recovery in trading values post that, remaining key monitorables. Even after stabilisation of operations, the debt coverage metrics are expected to remain moderate because of aggressive principal amortisation and relatively short balance maturity of the loans. ICRA notes that the credit profile of the company remains exposed to volatility in occupancy levels and/or changes in interest and tax deduction rates. The Negative outlook on the [ICRA]BBB+ rating reflects ICRA’s opinion that the credit profile of Sugam would remain under pressure with the lockdown restrictions imposed on the back of resurgence in pandemic levels in Q1FY2022. Any prolonged shutdowns could severely impact the liquidity profile of the company and increase the dependence on funding support from sponsors.

Key rating drivers and their description

Credit strengths

Reputed parentage lends strong operational support and financial flexibility - SVHPL is a subsidiary of Moribus Holding Pte Limited, which in turn is 100% held by Virtuous Retail South Asia (VRSA). VRSA is a 23:77 JV between Xander (through Virtuous Retail Pte Limited) and APG Asset Management, a Dutch pension fund. The Group, at present, operates six retail malls in with a total leasable area of over 4 mn sqft. ICRA derives comfort from the track record of the Virtuous Retail in successful construction and operation of retail malls in India. In the past one year, VR Group has extended timely support to its subsidiary

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entities towards meeting any funding mismatches. This lends healthy financial flexibility to SVHPL, providing support to its liquidity profile.

Occupancy levels remain adequate; diversified tenant profile – The tenant occupancy levels across both the malls, VR and VR Chennai, remain adequate. Occupancy levels in Chennai stands at around 93%. Though VR Bangalore mall is currently 73% occupied, the same is expected to improve to above 90% in the near term. Over the last one year, the company has not witnessed any significant tenant attrition rates. The marketability of the malls remains strong, with couple of large anchor tenants expected to occupy significant space in the coming quarters in the Bengaluru mall. The tenant profile is fairly diversified, comprising several reputed names.

Attractive catchment area - Both the malls are conveniently located and have an attractive catchment area. While the VR Mall in Bengaluru is in Whitefield, a suburb in Bangalore, with significant commercial office and residential development, VR mall in Chennai is situated in , which is a prime residential area, and is easily accessible from , and residential areas of Chennai.

Credit challenges

Adverse impact of Covid pandemic on company’s operations – In FY2021, SVHPL’s operations were severely impacted by the pandemic-induced lockdown restrictions. With complete closure of mall operations for a significant period during H1FY2021, the company had extended substantial rent payment waivers/deferment to majority of its tenants. Nevertheless, the liquidity profile of SVHPL was supported by the presence of significant free cash and bank balances and the moratorium on bank loan payments extended as per the RBI Covid regulatory package. With the lifting of lockdown restrictions, the malls witnessed good recovery in sales and footfalls and reached levels of close to 70% in VR Bangalore and 90% in VR Chennai during the last quarter of FY2021. Rental inflows improved in H2FY2021, with moderation in the levels of rent waivers/deferment extended to tenants. However, with the resurgence in pandemic levels in Q1FY2022, the operations have again come to a halt, following the imposition of fresh lockdown measures. Moderate debt coverage metrics – Substantial rent waivers/deferment extended during H1FY2021, has resulted in decline in operational cash flows and debt coverage metrics in FY2021 vis-à-vis FY2020. A similar impact on the operational cash flows is expected in FY2022 as well, with the timing of the mall re-opening and recovery in trading values post that, remaining key monitorables. Even after stabilisation of operations, the debt coverage metrics are expected to remain moderate because of aggressive principal amortisation and relatively short balance maturity of the loans.

Debt coverage metrics vulnerable to changes in occupancy levels, interest rates or TDS deduction rates – The revenue is exposed to volatility in occupancy caused by economic downturns, which could impact tenants' business risk profiles. Moreover, any termination of leases or delay in signing of new leases will impact the cash flow. The company’s income is also dependent on revenue share from tenants to some extent, which introduces some seasonality and volatility in the inflows. The coverage indicators are exposed to changes in TDS deduction rate and interest rate over the tenure of the loans. In the near term, the company’s revenues and cash flows are expected to be impacted by the Covid-19 pandemic.

Liquidity position: Adequate

The company’s liquidity profile is supported by the presence of adequate cash and bank balance and DSRA reserves, sufficient to meet any near-term funding requirements. The liquidity is further strengthened by the healthy financial flexibility enjoyed by being a part of the VR Group, which has demonstrated timely support to SVHPL’s fellow subsidiaries. Contingent to the timely lifting of lockdown measures, the company may witness business recovery during the latter half of FY2022, similar to trends observed in FY2021. The liquidity profile is further backed by the limited capital expenditure plans as well as the favourable terms of the unsecured debt which allow interest to be paid depending on the availability of cash flows. The company has cash and cash equivalent of Rs 15.5 crore and DSRA reserve of Rs. 25.8 crore as on March 31, 2021.

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Rating sensitivities

Positive factors – Any upgrade in the rating is unlikely in the near term. The outlook may be revised to Stable in case of earlier- than-anticipated recovery, followed by significant ramp up in mall operations and cash flows. Negative factors – The ratings could come under pressure in case of any delays in timely and adequate support from the sponsors, and/or prolonged shutdown of malls; or slower-than-expected ramp-up in footfalls/revenue share post resumption of operations of both malls, resulting in moderation in the company’s financial risk profile. Further, higher-than-anticipated debt and reduction in liquidity buffer may negatively impact the rating.

Analytical approach

Analytical Approach Comments Corporate Credit Rating Methodology Applicable Rating Methodologies Rating Methodology for Debt Backed by Lease Rentals Parent/Group Support Not Applicable

Consolidation/Standalone The ratings are based on the standalone financial profile of the entity.

About the company

Incorporated in 1987, Sugam Vanijya Holdings Private Limited (SVHPL) is involved in developing and operating commercial projects named VR Bengaluru Mall and VR Chennai Mall. The mall in Bengaluru is on the Whitefield Road, on the Dyvasandra Industrial Area, and has a leasable area of 5.98 lakh sq. ft; while the mall in Chennai is in Anna Nagar and has a leasable area of 10.08 lakh sq. ft. Both the retail malls have a hotel (The Waverly) and co-working office space (The Hive) apart from multiplexes, restaurants and other entertainment activities. The company is owned and funded by APG Asset Management and the Xander Group through a joint venture, Virtuous Retail South Asia Pte Ltd. The company does not have any further construction activity planned.

Key financial indicators

Standalone FY2020 audited FY2021 provisional Operating Income (Rs. crore) 248.0 115.1 PAT (Rs. crore) -85.0 -120.9 OPBDIT/OI (%) 52.3% 50.2% PAT/OI (%) -34.3% -105.1% Total Outside Liabilities/Tangible Net Worth (times) -14.2 -7.2 Total Debt/OPBDIT (times) 11.0 24.6 Interest Coverage (times) 0.8 0.4 PAT: Profit after Tax; OPBDIT: Operating Profit before Depreciation, Interest, Taxes and Amortisation Source: Company, ICRA research Status of non-cooperation with previous CRA: Not applicable

Any other information: None

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Rating history for past three years

Current Rating (FY2022) Chronology of Rating History for the past 3 years Amount Amount Date & Outstandin Date & Date & Rating in FY2019 Instrument Rated Rating in Date & Rating in FY2020 Type g as of Mar Rating (Rs. FY2021 31, 2021 crore) (Rs. crore) 25-Jun-2021 29-Jun-2020 26-Mar-2020 16-Mar-2020 17-Dec-2018 07-Dec-2018 04-Sep-2018 Non- Provisional Provisional Long [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ 1 Convertible 562.5 451.2 [ICRA]BBB+ [ICRA]BBB+ Term (Negative) (Negative) (Stable) (Positive) (SO)/Stable Debenture (SO)/Stable (SO)/Stable Provisional Provisional Fund-based Long [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ 2 177.5 150.2 [ICRA]BBB+ [ICRA]BBB+ -Term Loan Term (Negative) (Negative) (Stable) (Positive) (SO)/Stable (SO)/Stable (SO)/Stable Fund-based [ICRA]BBB+ Provisional Provisional Long [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ 3 - Working 30.0 NA (Stable) [ICRA]BBB+ [ICRA]BBB+ Term (Negative) (Negative) (Positive) (SO)/Stable Capital (SO)/Stable (SO)/Stable Non-fund Provisional Provisional Based- Long [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ 4 20.0 NA [ICRA]BBB+ [ICRA]BBB+ Working Term (Negative) (Negative) (Stable) (Positive) (SO)/Stable (SO)/Stable (SO)/Stable Capital

Complexity level of the rated instruments

Instrument Complexity Indicator Non-Convertible Debenture Simple Fund-based -Term Loan Simple Fund-based - Working Capital Simple Non-fund Based-Working Capital Very Simple The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated. It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument's credit rating. It also does not indicate the complexity associated with analyzing an entity's financial, business, industry risks or complexity related to the structural, transactional, or legal aspects. Details on the complexity levels of the instruments, is available on ICRA’s website: www.icra.in

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Annexure-1: Instrument details Amount Date of Issuance Coupon Maturity Current Rating and ISIN No Instrument Name Rated / Sanction Rate Date Outlook (Rs. Crore) NA Proposed NCD - - - 90.0 [ICRA]BBB+(Negative) INE084S07015 NCD FY2018 8.90% FY2029 305.0 [ICRA]BBB+(Negative) INE084S07023 NCD FY2018 8.90% FY2029 167.5 [ICRA]BBB+(Negative) NA Term Loan FY2018 - FY2030 147.5 [ICRA]BBB+(Negative) NA Proposed Term Loan - - - 30.0 [ICRA]BBB+(Negative) NA Overdraft - - - 30.0 [ICRA]BBB+(Negative) NA Non-fund based - - - 20.0 [ICRA]BBB+(Negative) Source: Company

Annexure-2: List of entities considered for consolidated analysis – Not Applicable

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ANALYST CONTACTS Shubham Jain Mathew Kurian Eranat +91 124 4545 306 +91 80 4332 6415 [email protected] [email protected]

Ishan Luthra +91 80 4332 6426 [email protected]

RELATIONSHIP CONTACT Jayanta Chatterjee +91 80 4332 6401 [email protected]

MEDIA AND PUBLIC RELATIONS CONTACT Ms. Naznin Prodhani Tel: +91 124 4545 860 [email protected]

Helpline for business queries

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm) [email protected]

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Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.

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