Moody's downgrades Lodha Developers' outlook to 'stable' on weak sales

Credit rating agency Moody's on Monday said it has affirmed the ratings of corporate family and bonds issued by realty major Lodha Developers but changed the outlook to stable from positive on weak operating sales during the first half of this financial year.

Lodha Developers, however, said the company's two transactions -- divestment of London assets and fundraise of about Rs 500 crore in Palava township -- have not been considered while assigning the ratings.

"Moody's Investors Service has affirmed the B2 corporate family rating of Lodha Developers Ltd (LDL). Moody's has also affirmed the B2 rating of the US dollar-denominated bonds issued by Lodha Developers International Limited and guaranteed by LDL. Moody's has changed the outlook on the ratings to stable from positive," the agency said in a statement.

The change in outlook reflects the company's weaker-than-expected operating sales during the six months to September 2018 and high debt maturities in fiscal years ending March 2020 and March 2021, said Saranga Ranasinghe, assistant vice-president and analyst, Moody's.

Commenting on the ratings, Lodha Developers Managing Director and Chief Executive Officer Abhishek Lodha said: "While we are pleased that our rating has been reiterated, we were expecting an upgrade in the rating, which we hope will happen in the next review."

Lodha said the company would achieve Rs 9,500 crore of collections and it is also on track for net sales of about Rs 8,000 crore.

"Over the next few weeks, we will be making announcements in relation to a Rs 500 crore equity investment from a reputed PE firm in our marquee Palava project as well as the funding from the sale of our stake in our UK business these have not been taken into account by the rating agency since we have not yet formally announced them," Lodha said, adding that the company has ample liquidity and it recently announced buyback of $bonds up to $65 million.

However, according to Moody's, Lodha Developers' total operating sales in the financial year ending March 2019 may be around 25 per cent lower than in previous fiscal and around 38 per cent lower than its previous expectations for 2018-19.

During April-September 2018, the company achieved Rs 3,460 crore in operating sales from its India operations and Rs 420 crore in operating sales from its London operations.

On an annualised basis, these numbers are respectively 27 per cent and 70 per cent below Moody's previous expectations for the two locations.

Moody's expects LDL's leverage to remain weaker than required for a higher rating.

"Although LDL's operating sales were lower than expected, Moody's expects cash collections to be in line with expectations and around 20 per cent higher than in fiscal 2018, supported by the sales mix," the statement said.

Lodha also has ready-to-move-in units, which are typically preferred by customers and also guarantee faster cash collections.

"LDL's credit profile is further constrained by its weak liquidity position. LDL has large debt maturities over the next 12-18 months, which are significantly higher than the company's cash balance and expected cash flow from operations," the agency said.

The realty firm has debt maturities of around Rs 1,300 crore in India over the next 12 months.