Fitch downgrades outlook on Lodha Developers to negative

Warns of rating downgrades if company fails to improve performance

Rating agency Fitch Ratings today revised the outlook on real estate major Lodha Developers Private Ltd (Lodha) to from ‘Stable” to “Negative” on weaker than expected operating performance in FY2015.

It warned that that a rating downgrade is likely unless Lodha's performance improves significantly over the next 12 months.

Rating agency, however, affirmed its Long-Term Foreign-Currency Issuer Default Rating at 'B+'.  Fitch has also affirmed the 'B+' long-term rating and Recovery Rating of 'RR4' on $ 200m senior unsecured notes due in 2020.

Lodha is India's largest residential real estate property developer based on presales.

Deleveraging Slower Than Expected

Its annual presales of Rs 7,700 crore (around $ 1.2bn) were four per cent lower than in FY14. They were 13 per cent below the company's target of Rs 9,000 crore. Cash collections also fell short of expectations, due to weaker demand and slower construction of some of its larger projects.

Consequently, leverage -- measured as net debt/inventory minus customer advances -- had increased to 91 per cent by FYE15 from 77% at FYE14. It is worse than our initial expectations of 84 per cent, Fitch said in statement.

Improving Sales Momentum

Lodha's presales show an improving trend over FY15. Furthermore, Lodha achieved more of its annual presale targets than some of its domestic peers, indicating the relative strength of its products as well as its marketing and execution capabilities.

Fitch expects presales to improve to at least Rs 11,000 crore by FYE16, as more of its large, high-end projects will come to a close in the next 24 months.

“Our expectations for an improvement in performance is also supported by early signs of an improving macroeconomic climate. It is led by monetary easing earlier in 2015, which has spurred an increase in bank retail lending”, Fitch said.

Lodha's land bank of 25 million square metres is among the biggest, with the land valued at over $ 10 billion by external valuers. The company expects its current land bank to support developments and sales over the next seven years.