Rationale

 The rating reaffirmation takes into consideration Prestige Estates Projects Limited's (PEPL's) long operational track record of more than 34 years in the real-estate industry, its strong project execution capabilities and the high market share in the residential real-estate segment of Bangalore. PEPL has diversified operations across residential, commercial, retail, hospitality and property management segments. Notwithstanding the adverse impact of the Covid-19 pandemic, the sales volume in the residential segment witnessed healthy improvement in FY2021 and H1FY2022. The company has made healthy progress in the liquidation of its completed inventory including some high-end projects in this segment which had provided healthy collections and helped the company in reducing its debt (both residential project and corporate) at group level to Rs 1,404 crore as on September 30, 2021 from Rs. 2,669 crore as on September 30, 2020. The company's receivables from sold area cover around 81% of the balance construction cost and debt outstanding as on September 30, 2021 in the segment. The rating reaffirmation also takes into consideration the conclusion of the first phase of the sale of identified commercial offices, retail and hospitality properties, mall management and maintenance business to Blackstone Group. The proceeds from the transaction resulted in a significant reduction in the consolidated debt of the Group to Rs 5,313 crore1 as on June 30, 2021 from Rs 10,802 crore as on September 30, 2020, while generating capital for the investments in various upcoming and planned projects. The second phase of the transaction is expected to be concluded by end of FY2022 which will result in a net inflow of around Rs 600 crore. The rating, however, is constrained by the risks associated with the large-scale ongoing and upcoming projects of the Prestige group with a pipeline of 58 mn sqft of ongoing and 79 mn sqft of upcoming projects of which 54 mn sqft is planned in the commercial real estate projects. With the sale of large share of its completed commercial real estate portfolio, the overall portfolio of the Prestige Group has shifted towards under-development assets, entailing higher capex debt in the coming years. PEPL is expanding into newer geographies such as Mumbai and National Capital Region (NCR), where around 30% of the upcoming projects are planned in these two geographies which will expose PEPL to execution and market risks, as well as risks of any non-performance by JV partners of their obligations. The rating also considers the continuing impact of the pandemic on certain operating segments including retail malls and hospitality. The hospitality segment has been further impacted by the restriction in business travel as a result of the pandemic. The recovery of the retail mall and hospitality businesses will be a monitorable going forward. The pandemic has resulted in higher adoption of flexible working arrangements which might impact the commercial office segment. The impact of such trends on the vacancy rates, rent rates and new lease tie-up will be a key rating monitorable, considering the large scale of development plans of the Prestige Group. ICRA believes the credit profile of PEPL will remain stable due to long track record of Prestige Group with its strong brand image in the South-Indian real estate market as well as its diversified business operations and healthy committed cash flow cover.