OREANDA-NEWS. Fitch Ratings has revised the Outlook on India-based property developer Lodha Developers Private Limited (Lodha) to Negative from Stable, and affirmed its Long-Term Foreign-Currency Issuer Default Rating at 'B+'. The agency has affirmed the 'B+' long-term rating and Recovery Rating of 'RR4' on Lodha's outstanding USD200m senior unsecured notes due in 2020.

KEY RATING DRIVERS
Deleveraging Slower Than Expected: The Outlook revision reflects weaker-than-expected operating performance for the financial year ended March 2015 (FY15), and that a rating downgrade is likely unless Lodha's performance improves significantly over the next 12 months. Annual presales of INR77bn (around USD1.2bn) were 4% lower than in FY14, and 13% below the company's target of INR90bn. Cash collections also fell short of expectations, due to weaker demand and slower construction of some of its larger projects. Consequently, leverage (measured as net debt/inventory minus customer advances) had increased to 91% by FYE15 from 77% at FYE14, and is worse than our initial expectations of 84%.

Improving Sales Momentum: Lodha's presales show an improving trend over FY15. Furthermore, Lodha achieved more of its annual presale targets than some of its domestic peers, indicating the relative strength of its products as well as its marketing and execution capabilities. Fitch expects presales to improve to at least INR110bn by FYE16, as more of its large, high-end projects will come to a close in the next 24 months. Our expectations for an improvement in performance is also supported by early signs of an improving macroeconomic climate, led by monetary easing earlier in 2015, which has spurred an increase in bank retail lending.

Largest Domestic Developer: Lodha is India's largest residential real estate property developer based on presales. Its land bank of 25 million square metres is among the biggest, with the land valued at over USD10bn by external valuers. The company expects its current land bank to support developments and sales over the next seven years.

Project Concentration: Lodha's rating reflects its high concentration in a few projects despite the considerable scale of its operations. Its four largest projects will account for nearly 80% of contracted sales in FY16, declining to around 60% in FY19.

Most medium-term sales are focused on the high-end and luxury segments, which are defined by the company as properties with per-square-foot prices of over INR20,000 (USD325) and over INR50,000, respectively. The bulk of presales in FY15 stemmed from these two market segments. Sales here typically exhibit a higher correlation with economic cycles, and therefore are generally more volatile - owing to consumers' ability to delay their purchase decisions.

KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for the issuer include:
- 30% growth in annual presales in FY16
- Leverage to trend between 80% - 90% in FY16 and 70%-80% in FY17
- No new land purchases in FY16
- EBITDA margins to remain wider than 25%

RATING SENSITIVITIES
Negative: Developments that may, individually or collectively, lead to negative rating action include:
- Leverage sustained above 55%
- Annual presales / gross debt sustained below 1x
- EBITDA margin sustained below 25%

Positive: Developments that may lead to the Outlook being revised to Stable include:
- Quarterly presales trending towards achieving an annualised value of at least INR110bn by FYE16