Rationale

 The rating action for Shalimar Malls Private Limited (SMPL) favourably factors in the Shalimar Group ’s established track record in real estate sector in Uttar Pradesh, favourable location of its retail mall and adequate debt protection metrics. ICRA expects SCL to extend extraordinary support to SMPL, if need arises, given their financial linkages, strategic importance, and SCL’s reputation sensitivity to default. SCL had provided funding support of Rs. 195.3 crore to SMPL as of March 2024. The mall is connected to Alambagh Metro Railway Station in Lucknow and has a good connectivity to various business and residential suburbs of Lucknow. The mall has a reputed tenant profile . SMPL’s external debt declined by 34% to Rs. 94.6 crore as of March 2024 supported by funding from promoters. This, along with refinancing of the debt with elongated tenure and backended repayments, led to lower debt obligations in the medium term. Consequently, the leverage, measured by gross debt/cash flow from operations (CFO) and debt coverage metric, DSCR, are estimated to be adequate at 6.3-6.7x and 1.3-1.5x, respectively, in FY2025 and FY2026. The ratings are, however, constrained by the mall’s moderate occupancy level of 74% as of March 2024 and high tenant concentration risks, with the top five tenants occupying around 64% of the total leasable area. The risk is mitigated partly as there are no major lease renewals in the near term. SMPL has developed a hotel and banquet which commenced operations in May 2024 and given the lack of track record, its ability to ramp-up the hotel operations in a timely and profitable manner remains to be seen. Additionally, SMPL faces geographical concentration risk as all the assets are concentrated in a single location. The debt coverage ratios will be sensitive to volatility in interest rates and occupancy levels. The Stable outlook on the [ICRA]BBB- rating reflects ICRA’s opinion that the company will benefit from the favourable location of the project supporting the ramp-up of hotel operations and stable mall revenues and sustain adequate debt protection metrics.