However, the agency has revised the outlook for the rated entities in its portfolio to stable from negative, as the negative impact of the sector is largely mitigated by the fact that these companies have predictable cash flows and moderate credit profiles. Moreover, they have strong execution and sales track records, which increase their financial flexibility.
Ind-Ra expects residential unit sales to remain muted in FY19 and EBITDA margins to remain under pressure owing to a rise in input costs and an increase in selling and promotion costs amid weak demand conditions. This would lead to an increase in the inventory and debt levels of real estate firms in FY19. Refinancing risk remains at an elevated level owing to weak credit profiles. The quality of inventory would be the key differentiating factor for companies in this sector to determine their relative refinancing capability.
Affordable housing projects of Ind-Ra-rated companies witnessed a rise in their contribution to the overall sector sales to 20.0%-40.0% in FY18. The uptrend is likely to gain momentum, with bank credit drifting towards the affordable segment.
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