| Macrotech Developers Limited | ||||||
| 'CRISIL A/Stable/CRISIL A1' assigned to Bank Debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL A/Stable/CRISIL A1‘ rating on Macrotech Developers Limited (MDL)
The ratings reflect MDL’s established brand and strong market position in the real estate segment in Mumbai Metropolitan Region (MMR) and comfortable cash flow position and financial flexibility. These strengths are partially offset by moderate though improving capital structure because of historical debt-funded land acquisitions and susceptibility to cyclicality and regulatory risks in the real estate sector. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of MDL and its subsidiaries, joint ventures (JVs), and associates (based on the consolidated financials of MDL). This is because these entities, collectively referred to as MDL, have common promoters and are in the same business.
CRISIL Ratings has moderately consolidated Lodha Developers UK (LDUK) and other UK entities with MDL. This is because the company reduced its stake in UK entities to 51% from 75% on March 25, 2020, and there was a change in management rights over relevant activities. LDUK and its subsidiaries have been consolidated as joint ventures, rather than subsidiaries (in line with Ind AS treatment). Additionally, debt raised at UK entities is non-recourse to MDL and operations at these entities are expected to be completed over the next 12-18 months. Inventory finance of GBP 225 million has not been consolidated with debt of MDL, however USD bonds of 225 million (~Rs 1640 crores) raised at Indian entity for UK projects has been consolidated with debt of MDL.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
Lodha group has a presence of over four decades in the real estate sector and is known for large developments, quality construction and good salability. As of December 2021, the group has developed and delivered over 820 lakh sq. ft, mostly in the residential segment, and has around 980 lakh sq. ft of projects under construction or planned in the development business. Market position is further underpinned by the large, low-cost, land bank of around 4400 acres across MMR, which supports profitability of projects. Strong operating efficiencies aided by internal construction capabilities further reduce cost and manage construction pace. The group aims to leverage their leadership position to become a partner of choice for landowners through JV or Joint Development Agreement (JDA) Projects. The group has already signed 11 JDA projects in MMR and Pune with Gross Development Value (GDV) of ~Rs 14,600 Cr since IPO (April 2021), and the pipeline continues to remain strong. As per management articulation, JV/JDA is the preferred route for expansion since upfront investment is low and returns are strong.
The group also has invested in two real estate projects in London, namely Lincoln Square in the West End and No. 1 Grosvenor Square in Mayfair. Both these projects are now complete, and the net proceeds after repaying the indebtedness is intended to be repatriated to the company. There was an outflow of Rs 300 crores from Indian business to the UK business in fiscal 2022 given the sales velocity in UK was weak on account of the pandemic before August 2021. Consequently, the semi-annual interest payment on bonds due in Sep-21 was supported by the Indian entity as the same is guaranteed by MDL and thus also consolidated into MDL as per IndAS. Nevertheless, as international travel opened, the group was able to sell more than 300 million GBP (Rs 3000 crores) worth of inventory since Q2 FY2022, of which 140 million GBP has already been collected. UK projects also have balance inventory of more than Rs 3500 crores. The group intends to repay USD bonds of ~Rs 1640 crores in Q4 FY2022 itself (against scheduled payment in Q4 FY2023) using collections in UK projects. Balance proceeds from sale of inventory in UK will be used to repay inventory finance and surplus thereafter will be repatriated to India. Consequently, the group will continue to focus on MMR and Pune markets; and will not venture into international markets in future. Any material delays in receipt of funds from UK entities, utilization of funds for supporting UK entities or expansion outside India will remain key rating monitorable.
Financial risk profile is characterized by healthy operating cash flow. Sale value and collections for 9M FY2022 was strong at Rs 5568 crores and Rs 5754 crores respectively, leading to operating cash flow of over Rs 2500 crores, which has been used to pare down debt. Additionally, net funds realised through IPO (Rs 2400 crores raised in April-21), repayment of promoter loans (~Rs 1600 crores realized) and QIP (~Rs 3950 crore raised in November-21) enabled the group to further lower debt and improve gearing. The group intends to lower its net debt levels to 1 times of annual operating cash flow by March 2023. As per management articulation, deleveraging will remain the primary focus, even if the company needs to forego some growth opportunities to achieve the same and comfort has been derived from strong management articulation.
CRISIL Ratings expects the group to generate operating cash surplus (including cash inflows from monetization of commercial assets and sale of land parcels) of over Rs 5,000 crore per annum in the two fiscals through March 2024. This will be supported by expected continuation of momentum witnessed in sales and collections in 9M FY2022 given the strong launch pipeline and availability of ready-to-move-in (RTMI) inventory of ~Rs 8,300 crores (as on Dec 31, 2021), which is expected to contribute to sales and collections, however without corresponding increase in outflows. Furthermore, while annual debt service obligation is significant, financial flexibility is supplemented by the group's demonstrated refinancing ability, access to unutilised bank lines of over Rs 1100 crore, cash and bank balances of Rs 1325 crores (as on December 2021), ability to raise funds through issue of equity and land parcel of ~3430 acres earmarked for digital infrastructure platform at Palava. CRISIL Ratings does not expect any significant land purchases by Lodha group in the near term, given their focus on deleveraging, preference of JV/JDA route for expansion wherein upfront investment is low and sufficient land bank available for planned projects. Traction is sales of RTMI inventory will remain a key rating monitorable.
Weaknesses:
The group had undertaken debt-funded land purchases and growth historically, with a portion of debt being used for purchase of land. Though collections have grown in recent years, debt had been increasing till fiscal 2019 owing to continued land acquisitions, ongoing construction and outflows to UK entities to support operations. Nevertheless, land acquisition spends significantly fell in fiscal 2021 and first 9 months of fiscal 2022 given subdued market sentiment on account of the pandemic, as well as increased focus on deleveraging. Consequently, gross debt and debt-to-total assets decreased to Rs 12,873 crore (including Rs 1640 crores of USD bonds raised for UK projects) and ~35% as on December, 2021, from Rs 18,193 crore and 58%, respectively, as on March 31, 2021. The group is expected to focus on reducing debt and maintain net debt less than one time of annual operating cash flow over the medium term. Any deviation from the debt reduction trajectory will be a key monitorable.
Average cost of debt as on December 31, 2021, was 11.1%. The group has already achieved a 120-basis point reduction in the same in 9M FY2022 supported by refinancing and pre-payment of high cost debts. Cost of debt for fresh borrowings by the group is in single digits and they intend to reduce overall cost of debt substantially in the near term.
Cyclicality in the real estate sector could lead to fluctuations in cash inflow because of variations in realisations and saleability. In contrast, cash outflows related to completion of projects and debt repayment, are relatively fixed. For MDL, sale value exceeded Rs 6500 crores while collections remained over Rs 8000 crores for three fiscals through FY 2020. They declined to Rs 5968 and Rs 5204 crores in fiscal 2021 respectively on account of the pandemic. Nevertheless, there has been a strong uptick in performance in FY22, with sales and collections expected to breach Rs 8000 crores and Rs 7500 crores respectively in FY22. Sale value is expected to further ramp up to over Rs 12,000 crores by fiscal 2024.
The real estate segment is further characterised by multiplicity of property laws and non-standardised government regulations across states, and thus operations are exposed to regulatory risk. |
Liquidity: Strong The group’s liquidity should remain strong, supported by healthy saleability and collections in the ongoing projects as well as in new launches. External borrowing has been used to fund ~35% (outstanding debt to total assets) of project cost and capital expenditure as of December 2021. Debt repayment is expected to be around Rs 4,125 crore in fiscal 2023 (including scheduled repayments of ~Rs 1640 crore of USD bonds raised for UK projects, which are expected to be repaid in Q4 fiscal 2022 itself), and the group has adequate financial flexibility to manage the upcoming repayments. The group has unsold ready to move in inventory of around Rs 8,300 crore in completed, ongoing and planned projects, along with pending collections of ~Rs 6,200 crores from sold inventory. The group also has fully paid-up land bank of around 4400 acres against which additional debt can be raised, if required. Furthermore, undrawn bank lines of around ~Rs 1100 crore, ability to refinance existing debt at lower cost, ability to raise funds through issue of equity and cash and equivalents of ~Rs 1325 crore, support liquidity. |
Outlook: Stable CRISIL Ratings believes that the Macrotech Developers will continue to benefit from its established position in the MMR real estate market and expected improvement in performance. The financial risk profile is expected to continue improving given focus on deleveraging |
Rating Sensitivity factors Upward factors
Downward factors
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About the Macrotech Developers Ltd MDL is one of the largest real estate developers in India. Established since 1980s, it has developed properties over 80+ msf mostly in MMR market. It has delivered 63 msf and sold more than Rs 55,000 crores in eight years through fiscal 2021. Founded by Mr. Mangal Prabhat Lodha in 1980s, MDL is now managed by his son, Abhishek Lodha (MD & CEO). |
Key Financial Indicators– CRISIL Rating Adjusted- Consolidated
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s):
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Annexure – List of entities consolidated
*Details as on March 31, 2021 |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 09-Feb-22 in line with the lender-wise facility details as on 09-Feb-22 received from the rated entity.
Criteria Details
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