India’s Largest Real Estate Developer Downgraded
India's largest real estate developer, Lodha Developers, has been downgraded by Fitch Ratings to ‘B' from ‘B+'. The outlook for the rating is negative.
The rating agency also downgraded the long term rating of Lodha's $200 million senior secured notes due in 2020 to ‘B' from ‘B+'. These notes were issued by Lodha Developers International, and guaranteed by Lodha Developers and its subsidiaries.
Fitch Ratings attributes the downgrade to Lodha's inability to reduce its leverage. The company's debt to adjusted inventory rose to 80 percent at the end of December 2015 from 76 percent in financial year 2014-15.
The ratings agency points out that the company continues ramp up pace of construction despite lower than expected pre-sales and cash collections in the last 12 to 18 months.
Negative Outlook
Fitch says the negative outlook reflects the heightened liquidity risk that Lodha may face in the short term in case there is an under-performance of pre-sales or if there is a significant increase in cash requirements for its London joint venture, where it holds 40 percent stake.
Missed Targets
Fitch says Lodha missed the 2015-16 pre-sales target. Lodha pre-sold Rs 6,400 crore worth of properties as against the expectation of Rs 11,000 crore. As a result, the cash collections were lower by Rs 6,200 crore. Though, on a year on year basis, cash collections rose by 15%.
And the problem may persist in the current financial year. Fitch expects pre-sales to be between Rs 6,000-6,500 crore.
Debt Worries
Fitch expects cash collections to improve to Rs 8,000-8,500 crore this year as many of Lodha's projects are on track. Also, the rating agency does not expect the company to deleverage in the next 12 months. Lodha Developers had a total debt of Rs 14,400 crore as on December 31, 2015.
Lodha Developers is one of the largest developers in terms of pre-sales and land bank in India. It sold $970 million worth of properties across 20 projects in financial year 2015-16. It has a land bank of 25 million square meters, which is valued at $10 billion.
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