Rationale

The revision in the rating outlook takes into account the high resilience in sales demonstrated by Puravankara Limited, which along with raising of project-specific equity capital and expected monetisation of identified commercial real estate development will support continued debt reduction for the Group. The company recognised sales of 2.42 million square feet (mn sqft) in the nine-month period ending in December 2020, which was 13% higher than the sales achieved in the corresponding period in FY2020, despite the impact of Covid-19 pandemic. It has also made a healthy progress in the sale of ready to move-in (RTM) inventory with reduction in its RTM stock to 0.80 mn sqft as on December 2020 from 1.26 mn sqft as on March 2020. In FY2021, Puravankara raised project-specific investments of around Rs. 300 crore from an institutional investor, which have been primarily used towards debt reduction and land-related payments. Aided by the capital raised and healthy sales in RTM segment, the net debt reduced to Rs. 2,372 crore as on December 2020 from Rs. 2,536 crore as of March 2020. The Group is in the advanced stages of entering into a forward sale agreement for a commercial real estate development, which is likely to bring in additional cash flows in FY2022. The ratings continue to draw comfort from the track record of Puravankara Group in the residential real estate market, and the steady market share being gained by it in both the existing and new markets. The company has presence in both premium and affordable housing segments and has already delivered projects with cumulative saleable area of 42.67 mn sqft over the last four decades. The ratings, however, are constrained by the execution and market risk linked to significant expansion plans of the Puravankara Group, which plans to launch new projects with developable area of more than 8 mn sqft over the next 12 months. The ratings note the moderate funding risk with receivables from the sold area covering 42% of the balance construction cost of the ongoing projects and debt outstanding as of December 2020. Despite the healthy recovery in sales in 9M FY2021, customer receipts stood at Rs. 848 crore which was lower than 9M FY2020 due to the pandemic-induced slowdown in construction progress. The company's leverage, though improving, remained elevated in FY2020 on account of the unsold inventory in RTM segment, investments in land bank and the initial stage of several projects in its portfolio. Notwithstanding the reduction in debt during FY2021, the ratings note that the debt profile of Puravankara Group included a large proportion of general corporate debt, which resulted in a high average rate of interest of 12.0% as of December 2020. The ratings are also constrained by moderate operating profit margins with greater revenue mix from Provident projects, resulting in low return on capital employed (ROCE) in the range of 10-11% during FY2019-FY2020.