Moody's downgrades Lodha's credit rating to negative

Ratings agency Moody's today downgraded leading city-based realty player Lodha Developers rating to negative from stable citing weakening performance.
Moody's has, however, retained its Ba3 rating on the company's recent USD 350 million overseas bonds, issued by its subsidiary Lodha Developers International.
"The change in outlook reflects the company's weaker-than-expected cash collection for fiscal year ended FY15, which makes it less likely that the company will improve its credit metrics to a ratings-appropriate level by FY17," Moody's vice-president and senior credit officer Vikas Halan said in a statement.
Lodha made collections of Rs 5,400 crore in 2014-15, compared to Moody's expectation of Rs 7,500-8,000 crore. This was lower than the Rs 5,700 crore collected in 2013-14, it said.

As per Moody's, although Lodha achieved sales of Rs 7,800 crore in 2014-15 against an expected Rs 8,000-8,500 crore, sales mix did not support high cash collection levels.
"The projects sold had fairly low levels of mature inventory, which usually boosts collection levels. Cash collections for the residential real estate development market in India are made at various pre-determined construction milestones; slow construction progress hampered Lodha's collections for certain flagship projects," he said.

Although collections during the fiscal under review were sufficient to fund construction costs and interest payments for the year, LDPL used debt to fund its around Rs 3,000 crore in land payments.

This increased its borrowings by about Rs 2,600 crore, bringing total debt to Rs 12,000 crore as of March 31, 2015.
Lodha is targeting Rs 12,000 crore in sales for 2015-16 and collections of Rs 10,000 crore, which includes Rs 4,800 crore from sales already made for 2014-15.
"As the company continues to recognise more revenue from both existing projects and new sales, we expect revenue and EBITDA to increase over the next 12 months, which will improve its credit metrics especially if the company reduces its borrowings as planned," he said.
"Most of this are bank loans at the project level, which we expect to be refinanced or repaid with proceeds from other project loans. The outlook on the ratings will move to stable if the company achieves its sales and collection targets, and thereby reduces its borrowings and improves its liquidity position," Halan said.

Lodha has the largest land bank in the country, totalling about 481 million sqft in saleable area as of September 2014.