Moody's upgrades Lodha group's Macrotech Developers to B3; outlook positive

Move follows reduction in debt, improvement in performance

Rating agency Moody's on Tuesday upgraded Lodha group unit Macrotech Developers Ltd (MDL)'s corporate family rating, or CFR, from “Caa1” to “B3”, following an improvement in the company's credit profile due to debt reduction and a strong recovery in operating performance.

The outlook on the ratings is positive.

There was a strong recovery in the company's operating performance both at India and London following the easing of pandemic-related restrictions," said Sweta Patodia, a Moody's Analyst.

The positive outlook reflects the assessment that MDL's credit profile could improve further once the company raises additional equity, which would strengthen its liquidity. The refinancing over the next few months of its dollar-denominated bonds due in March 2023 will also be useful.

Moody's estimates that MDL's gross consolidated borrowings, including debt at London, have reduced to about Rs 18,800 crore as of September 30, from Rs 22,300 crore as of March 31. This has been driven largely by proceeds from an initial public offering (IPO) completed in April 2021 and repayment of a loan by the promoter in June 2021, Moody's said.

At the same time, MDL's operating performance has recovered strongly following the easing of pandemic-related restrictions. It reported operating sales of Rs 20 billion for Q2FY22, at its Indian operations, compared with Rs 10 billion in the immediately preceding quarter.

The recovery in operating sales was despite the second quarter being seasonally weak because of the monsoon season in India, when construction activity slows down, the rating agency said.

The improving pace of vaccinations and a ramp-up in economic activity have improved consumer sentiment in India. At the same time, the pandemic has resulted in structural changes in consumer preferences for bigger homes. These factors, combined, are expected to keep operating sales strong over the next 12-18 months, it said.

Moody's estimates MDL's operating sales will be around Rs 8,000 crore at its Indian operations for the fiscal year ending 31 March, 2022 (FY22).

Moody's expects that sales momentum at GSQ will remain buoyant given the gradual resumption in international travel and re-opening of UK's borders for international tourists.

MDL will use proceeds from sales of up to December 2021 to partially repay the existing inventory finance at GSQ. The company plans to enter a new inventory finance facility to be secured against the unsold inventory at the project, which Moody's estimates will be around GBP450 million by December 2021.