Singapore, March 05, 2015 -- Moody's Investors Service says that Lodha Developers Private Limited's
(LDPL, (P)Ba3 stable) strong results for the quarter ended 31 December
2014 support its current rating and ongoing improvement in credit metrics.
Moody's analysis is included in its just-released report
"Lodha Developers Private Limited: Strong Q3 Performance Supports
Ratings," authored by Vikas Halan, a Moody's Vice
President and Senior Credit Officer.
"LDPL's performance was strong on the back of higher revenue
recognition and improved margins, with a 91% increase year-over-year
for the quarter," says Halan. "We expect revenue
recognition to increase further over the next three years, which
in turn will further improve its credit metrics."
LDPL achieved INR14.9 billion of revenue in Q3 compared to INR23.1
billion in the six months ended 30 September 2014 (H1 F2015). Its
reported EBITDA margins also improved to 33% compared to 15%
in the same quarter the previous year.
Although Q3 operating sales declined 17%, to INR19.1
billion compared to INR 23.2 billion in Q3 F2014, Moody's
still expects the developer to achieve INR75 billion in operating sales
for F2015.
However, collections remain low in line with LDPL's low operating
sales, as the company collected only approximately INR40 billion
in the nine months to 31 December 2014, below Moody's expectation
of INR80-INR90 billion in annual collections.
But this will improve as the company launches more projects for sale and
completes a higher proportion of already-sold projects, notes
the rating agency. LDPL had uncollected sales of INR113 billion
as of 31 December 2014.
Finally, Moody's notes that increased borrowings remain a
concern, despite LDPL's improving performance. LDPL
increased its borrowings by INR15 billion since 30 September 2014 to INR116
billion as of Q3 F2015. This debt mainly funded ongoing construction
projects and land payments.
LDPL's rating remains supported by its position as the largest developer
of residential properties in India; the high quality of its projects
under construction, combined with its strong execution capability;
and its track record of delivering high-rise apartments.
The rating is further supported by the company's superior ability
to sell its products, as evident from its performance during the
downturn in the Indian real estate market these last two years.
The rating is also supported by the diversity of its project portfolio
with 49 projects, in multiple phases, contributing to sales
for the next 5 years.
On the other hand, the rating is constrained by LDPL's weak
margins and credit metrics, both of which are expected to improve
as it starts recognizing higher revenues from its current projects and
as the subsequent phases of its Palava City development project attracts
higher prices.
The rating is also constrained by the concentration of most of the company's
projects in the Mumbai Metropolitan Region and its focus on residential
development. The rating incorporates Moody's expectation
that liquidity will improve following the proposed bond issuance and that
its credit metrics will strengthen over the next two years as key projects
reach revenue-recognition thresholds.
The stable outlook reflects our expectation that LDPL will substantially
achieve its sales targets; execute its construction plans without
material delays; and stay disciplined in acquisitions for its land
bank in India over the next 2-3 years.
An upgrade over the next two years is unlikely as we expect company's
credit metrics to remain weakly positioned for its rating over this period.
Upward rating pressure could emerge beyond FY2017, if the company
successfully executes its projects, increases its margins and,
at the same time, (a) maintains a reasonable cash balance above
150% of debt maturing for the next 12 months; and (b) maintains
strong financial discipline, such that revenue/debt is above 100%
and EBTIDA/interest is above 4x on a sustained basis.
Downward rating pressure could emerge if (1) the company's liquidity and
operating cash flow generation deteriorate because of weak contracted
sales or aggressive land acquisitions; (2) there is a decline in
prices for its products, slower-than-expected revenue
recognition, or a fall in profit margins, negatively affecting
interest coverage and/or financial flexibility; or (3) the company
engages in material debt-funded acquisitions.
In such a situation, cash and cash equivalents could fall below
100% of debt maturing over the next 12 months, and/or its
credit metrics could deteriorate, such that EBITDA/interest stays
under 3.0x beyond FY2017.
Moody's subscribers may access this report here: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1003607
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for the most updated credit rating action information and rating history.
Vikas Halan
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
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Philipp L. Lotter
MD - Corporate Finance
Corporate Finance Group
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Moody's Investors Service Singapore Pte. Ltd.
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Moody's: Lodha Developers' strong Q3 performance supports ongoing credit metric improvement