Detailed Rationale

CRISIL Ratings has assigned its 'CRISIL AA-/Positive' rating to Rs.500 crore non-convertible debentures (NCDs) of Macrotech Developers Ltd (MDL), and reaffirmed its ‘CRISIL AA-/Positive/CRISIL A1+’ ratings on the bank facilities.

 

The rating reflects CRISIL Ratings’ expectation of continued improvement in operating performance with maintenance of healthy sales momentum while sustaining strong financial risk profile.

 

The operating performance witnessed improvement with the company recording sales of 111.0 lakh square feet (sq. ft) for fiscal 2024 valued at Rs 14,520 crore (includes annuity income), an improvement of 18% and 20% respectively, over fiscal 2023. Healthy sales booking trajectory coupled with timely construction progress resulted in collection of Rs 10,140 crore and cash flow generated from operations of Rs 5,176 crore (excluding cash inflows of UK business) for fiscal 2024. This is expected to remain strong going forward as well, supported by a healthy launch pipeline, strong operating margin in ongoing projects and good proportion of ready-to-move inventory (RTMI).

 

The company’s financial risk profile has also improved substantially driven by continued focus on deleveraging while maintaining strong operating performance. Gross debt reduced to Rs 7,680 crore as on March 31, 2024, as against Rs 9,050 crore as on March 31, 2023. This deleveraging was supported by healthy cash flow from operations generated by MDL. Accordingly, the gross debt (excluding LRD debt) to cash flow from operations is at 1.30 times in fiscal 2024 improved from 1.80 times in fiscal 2023. CRISIL Ratings expects gross debt (excluding LRD debt) to be maintained at around 1.0 time of cash flow from operations over the medium term.

 

In addition to strong performance, MDL successfully raised Rs 3,280 crore in March 2024, via qualified institutional placement (QIP), which has further reduced its net debt to Rs 3,010 crore as on March 31, 2024 (~Rs 6,290 crore in the absence of said QIP). The net debt to equity and net debt to operating cash flow ratios stand improved at 0.17 time and 0.58 time, respectively, from 0.56 time and 1.38 times, respectively, in fiscal 2023. Net debt to equity is expected to remain below 0.50 time going forward in line with management articulation.

 

The ratings continue to reflect MDL’s established brand and strong market position in the real estate segment in Mumbai Metropolitan Region (MMR) and comfortable financial risk profile. These strengths are partially offset by geographical concentration of revenue 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.

 

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:

• Established brand and strong market position in the real estate segment in MMR: Macrotech, under the Lodha brand, has a presence of over four decades in MMR’s real estate market and is known for large developments, quality construction and good salability. As of March 2024, the group has developed and delivered around 1,000 lakh sq. ft, mostly in the residential segment, and has around 1,120 lakh sq. ft of projects under construction or planned in the development business. Its market position is further underpinned by the large, low-cost, land bank of around 4,300 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 continues to leverage their leadership position to become a partner of choice for landowners through joint ventures (JVs) or joint development agreement (JDA) projects and has signed 10 projects comprising of 103 lakh sq. ft with Rs 20,300 crore of gross development value (GDV) in fiscal 2024. The group has launched 30 projects comprising of 117 lakh sq. ft with Rs 18,210 crore of gross development value (GDV) and there is a launch pipeline of 17 projects comprising of 101 lakh sq. ft of saleable area with estimated GDV of Rs 12,100 crore for fiscal 2025.

 

CRISIL Ratings expects the group to generate an operating cash surplus (including cash inflows from sale of land parcels and Annuity Income) of over Rs 6,000 crore per annum in the next two fiscals. This will be supported by expected continuation of momentum witnessed in sales and collections in fiscal 2024 given the strong launch pipeline and availability of ready-to-move-in (RTMI) inventory of ~Rs 9,075 crores (as on March 31, 2024), which is expected to contribute to sales and collections, however without corresponding increase in outflows.

 

• Comfortable financial risk profile along with healthy financial risk flexibility: Financial risk profile of the company has improved driven by continued focus on deleveraging while maintaining strong operating performance. Gross debt reduced substantially to Rs 7,680 crore as on March 31, 2024, against Rs 9,050 crore as on March 31, 2023, and is expected to be maintained at around 1.0 time of cash flow from operations. The debt profile of the group has also improved with around 13.0% of total debt now backed by lease rentals discounting (LRD). Any deviation from the guidance in leverage will be a key monitorable. Along with this, the quality of the debt profile has further improved by refinancing and pre-payment of high-cost debts with the average cost of debt improving to 9.37% as on March 31, 2024, as against 9.8% on March 31, 2023. MDL targets to reduce the cost of debt to 8.50% to 8.70% in the medium term.

 

MDL received QIP funds of Rs 3,280 crores in March 2024 which has further enhanced the financial risk profile of the company reducing its net debt to Rs 3,010 crore as on March 31, 2024 (~Rs 6,290 crore in the absence of said QIP), the funds will be used for debt repayments and business development. However, even with the business growth a gross debt (excluding LRD Debt) of around 1 time of cash flow of operations is expected to be maintained.

 

Furthermore, financial flexibility is supplemented by the group's demonstrated refinancing ability, access to unutilised fund-based bank lines of over Rs 1,300 crore, cash and bank balances of ~Rs 4,600 crores (as of March 2024), ability to raise funds through issue of equity and land parcel of ~4,300 acres in township projects.

 

Weaknesses:

• Geographical concentration in revenue: MDL’s reliance on MMR’s real estate market has been high, with ~88% of the collections being received from the same, and in case of any significant slowdown in demand or oversupply in the region, future revenues may be impacted. However, the company is slowly focusing on geographical diversification and is growing its presence in Pune and Bangalore and has planned launches across other geographies as well. However, the extent of geographical diversification in the revenue profile will remain a key monitorable.

 

• Susceptibility to cyclicality and regulatory risks in the real estate sector: Cyclicality in the real estate segment causes fluctuations in cash inflow. As against this, cash outflow towards projects and debt obligation are relatively fixed, resulting in substantial cash flow mismatch. Any decline in the pace of sales could lower expected collections in the medium term.

 

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 salability and collections in the ongoing projects as well as in new launches. External borrowing has been used to fund ~17% (outstanding debt to total assets) of project cost and capital expenditure as of March 2024. Debt repayment is expected to be around Rs 1,400 crore to Rs 1700 crore in the next two fiscals, and the group has adequate financial flexibility to manage the upcoming repayments. The group has unsold ready to move in inventory of around Rs 9,000 crore, along with pending collections of around Rs 12,400 crore from sold inventory. The company is also targeting to build annuity income from office and retail assets, warehousing and industrial parks and facility management business which will bring robustness in the cash flows. The group also has a fully paid-up land bank of around 4,300 acres against which additional debt can be raised, if required. Furthermore, undrawn fund-based bank lines of around Rs 1300 crore, ability to refinance existing debt at lower cost, ability to raise funds through issue of equity and cash and equivalents of ~Rs 4,600 crore, support liquidity.

 

Environment, Social and Governance (ESG) profile

CRISIL Ratings believes MDL’s ESG profile supports its already strong credit risk profile.

 

The real estate sector has a significant impact on the environment owing to high emissions, waste generation and impact on land and biodiversity. The impact on social factors consists of labor-intensive operations and safety issues on account of construction related activities.

 

MDL has an ongoing focus on strengthening the various aspects of its ESG profile.

 

Key ESG highlights:

• MDL is the first Indian real estate company to have its net zero targets validated by SBTi. MDL has already achieved carbon neutrality in Scope 1, 2 emissions from operations in Mar-24, against net zero targets set with SBTi for FY28.
• Renewable Energy: Transitioning to 100% of energy used on construction sites and assets from renewable sources through on-site generation and off-site energy purchase.
• Water & Waste Management: 100% wastewater at all projects are getting treated through STPs; 100% wet garbage at MDL’s projects is getting composted through organic waste composters or biomethanation plants.
• Green Mobility: MDL to provide EV charging infrastructure – 136 chargers installed across sites as of March 24.
• Gender diversity shows an improving trend, Company have also set target to achieve 44% of gender diversity by 2027.
• MDL’s governance structure is characterized by 55% Independent Directors and two women directors; ESG Committee at the board headed by an Independent Director.
• There is growing importance of ESG among investors and lenders. MDL’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given its high foreign portfolio investor shareholding (~20%) and access to capital markets.

Outlook: Positive

CRISIL Ratings believes that the improved financial profile of the company coupled with sustenance of operating performance will benefit the overall credit risk profile.

Rating sensitivity factors

Upward factors

• Sustained improvement in business risk profile backed by healthy sales and collections, along with well-balanced distribution of projects in different stages.
• Continued strong financial risk profile with gross debt (excluding LRD Debt) to operating cash flow remaining below 1.0 time on a sustained basis, while maintaining adequate liquidity.

 

Downward factors

• Weakening of the financial risk profile with gross debt (excluding LRD Debt) to operating cash flow remaining above 1.5 time on a sustained basis.
• Sizeable outflows towards business development and commercial projects leading to higher-than-expected debt or lower-than-expected liquidity.
• Material weakening in business risk profile triggered by slackened saleability of projects or substantial delays in project execution.

About the Company

MDL is one of the largest real estate developers in India. Established since 1980s, it has developed properties around 1000 lakh sq. ft mostly in MMR market. It has sold more than Rs 91,500 crore through fiscal 2014 to 2023. Founded by Mr. Mangal Prabhat Lodha, MDL is now managed by his son, Mr. Abhishek Lodha (managing director and chief executive officer).

Any other information: Not Applicable

Annexure – List of entities consolidated

Fully consolidated entities	Extent of consolidation	Rationale for consolidation
Apollo Complex Pvt. Ltd	Full	Subsidiary
Bellissimo Buildtech LLP	Full	Subsidiary
Bellissimo Induslogic Bengaluru 1 Pvt. Ltd. (Formerly known as Bellissimo In City FC NCR 1 Pvt. Ltd.	Full	Subsidiary
Brickmart Constructions And Developers Pvt. Ltd	Full	Subsidiary
Cowtown Infotech Services Pvt. Ltd.	Full	Subsidiary
Cowtown Software Design Pvt. Ltd.	Full	Subsidiary
Digirealty Technologies Pvt Ltd	Full	Subsidiary
G Corp Homes Pvt. Ltd.	Full	Subsidiary
Lodha Developers International (Netherlands) B. V *	Full	Subsidiary
Lodha Developers International Ltd. *	Full	Subsidiary
Lodha Developers U.S. Inc. (Dissolved w.e.f. October 14, 2023)	Full	Subsidiary
National Standard (India) Ltd.	Full	Subsidiary
One Place Commercials Pvt. Ltd.	Full	Subsidiary
Palava City Management Pvt. Ltd.	Full	Subsidiary
Roselabs Finance Ltd.	Full	Subsidiary
Sanathnagar Enterprises Ltd.	Full	Subsidiary
Simtools Pvt. Ltd.	Moderate	Subsidiary
Thane Commercial Tower A Management Pvt Ltd	Full	Subsidiary
Palava Induslogic 3 Pvt. Ltd. (upto January 19, 2024)	Full	Subsidiary
Goel Ganga Ventures Pvt. Ltd. (w.e.f January 4, 2024)	Full	Subsidiary
Bellissimo Digital Infrastructure Investment Management Pvt. Ltd.	Moderate	Joint venture
Bellissimo Digital Infrastructure Development Management Pvt Ltd	Moderate	Joint venture
Bellissimo In city FC Mumbai 1 Pvt. Ltd.	Moderate	Joint venture
Lodha Developers UK Ltd*	Moderate	Joint venture
1GS Investments Limited*	Moderate	Joint venture
1GS Residences Limited*	Moderate	Joint venture
1GS Properties Investments Limited*	Moderate	Joint venture
1GS Quarter Holding Ltd. *	Moderate	Joint venture
1GS Leaseco Ltd. *	Moderate	Joint venture
Grosvenor Street Apartments Ltd*	Moderate	Joint venture
Lincoln Square Apartments Ltd*	Moderate	Joint venture
Lodha Developers 1GSQ Ltd*	Moderate	Joint venture
Lodha Developers 48 CS Ltd*	Moderate	Joint venture
Lodha Developers Dorset Close Ltd*	Moderate	Joint venture
Lodha Developers International (Jersey) III Ltd*	Moderate	Joint venture
Lodha Developers 1 GSQ Holdings Ltd*	Moderate	Joint venture
New Court Holdings Limited*	Moderate	Joint venture
Mayfair Square Apartments Ltd.*	Moderate	Joint venture
Mayfair Square Residences Ltd*	Moderate	Joint venture
38 Grosvenor Street Restaurant LLP*	Moderate	Joint venture
Palava Induslogic 2 Pvt. Ltd.	Moderate	Joint venture
Palava Induslogic 4 Pvt. Ltd.	Moderate	Joint venture
Siddhivinayak Realties Pvt. Ltd. *w.e.f. March 28, 2024)	Moderate	Joint venture

*Upto December 15, 2023