The credit rating agency said that the revision in outlook reflects CRISIL Ratings belief that the credit profile of the Brigade Group may benefit from improved performance of the residential segment, reduction in debt and capital employed towards the under-construction leasing business and increasing contribution from steady lease rentals.

This is supported by healthy financial profile with strong financial flexibility with cash and equivalents of Rs 1,789 crore and undrawn bank lines of over Rs 1,500 crore as on 30 September 2022, further enhancing flexibility.

The strong brand and established market position of the Brigade group led to an all-time high sales and collection of 4.7 million square feet (msf) and Rs 3,214 crore, respectively, in fiscal 2022, reflecting a healthy 2% and 45% growth, respectively, over fiscal 2021. The momentum is expected to continue over the medium term. The group has achieved sales of 2.42 msf with sales value of Rs 1608 crore and collection of Rs.1916 crore in first half of fiscal 2023.

With the revival of demand in residential segment, well-established players with stronger balance sheets are enjoying better demand prospects as compared to smaller and financially weaker entities.

CRISIL Ratings believes the group should sustain its improved performance in the residential segment with sales of 5-6.5 msf per annum, supported by its established market position and healthy launch pipeline of 13 msf for the next rolling 4 quarters.

Operational office assets are performing well with leasing occupancy improving to 83% (including hard option) as on Sep-22 from 60% as on Sep-21. Leased area (including hard option) thus increased to 7.18 msf as on Sep 30, 2022, from 6.09 msf as on Sep 30, 2021. Rental income grew by 60% in fiscal 2022 from Rs.371 crore to Rs.596 crore.

This includes 1.31 msf of area from retail assets, for which occupancy has already reached to 91% as on Sep-22 from 87% as on Sep-21 and consequently revenue expected to surpass pre-pandemic levels in fiscal 2023, led by strong consumption recovery of 138% in Sep-22 in malls over pre-pandemic period of Sep-20.

With capital expenditure (capex) in the commercial and hospitality segments nearing completion, the group is likely to focus mainly on residential projects. Hospitality segment, which suffered the most, with a 65% decline in revenue in FY21, has revived with occupancy and ARRs bouncing back to pre-covid levels i.e. 68% and approximately Rs.5500.

Financial risk profile should remain healthy, with overall debt likely to remain at current levels. Composition of debt has changed, with around 58% of total debt backed by stable lease generating assets as on 31 March 2022, as against 49% in 31 March 2021. Share of this debt may further increase to 60-65% over the medium term. Lease rental discounting (LRD) loans are expected to be maintained at 6 times or lower of lease rentals.

The rating continues to reflect the strong track record of the group in the real estate market in Bengaluru, sound saleability of projects and the diverse revenue profile. Financial flexibility is supported by the demonstrated refinancing ability and steady progress in construction of ongoing projects.

These strengths are partially offset by exposure to risks inherent in the real estate segment, intense competition and cyclicality in the hospitality sector.

Brigade Enterprises is the flagship company of the Brigade group and is one of the largest real estate players in South India. Till date, it has developed over 300 lakh sq. ft, 80% of which has been in the residential segment. Though it mainly focuses on the Bengaluru market, Chennai is emerging as the second large market for the entity. The group has developed projects in Mysuru, Cochin, Chennai, Hyderabad, and Ahmedabad.

The company reported a consolidated net profit of Rs 77.58 crore in the quarter ended September 2022, which is significantly higher as compared with a profit of Rs 12.03 crore during the previous quarter ended September 2021. Sales rose 16.82% to Rs 879.24 crore in Q2 FY23 over Q2 FY22.

The scrip fell 2.55% to end at Rs 467.55 on the BSE today.