­­Experienced management and long track record of operations
LKCPL is promoted by Mr. Mohammed A Lokhandwala, Mr. Mohammed Moiz Lokhandwala and Mr. Aliasgar Lokhandwala who are all seasoned industry veterans managing the day to day operations of the company. The promoters of the company have amassed more than two decades of experience in the real estate industry via their association with the group companies. Further, the company has a track record of operations of more than two decades in the aforementioned line of business. The vast experience of the management, coupled with the long track of operations of the company has enabled LKCPL to execute numerous big projects in the region of Mumbai as well as overseas.

Acuité believes that the company will continue to benefit through the promoter’s extensive industry experience over the medium term.

­Low financial flexibility along with poor liquidity position
LKCPL has significantly leveraged capital structure marked by poor net worth and debt protection Metrics. The company had a gearing of (1.94) times in FY2023 as against (3.21) times in FY2022. The total outside liability to total net worth (TOL/TNW) of the company stood at (3.00) times as on March 31, 2023 as against (0.52) times as on March 31, 2022. Further, the interest coverage ratio stood at (0.20) times for FY2023 as against (0.52) times for FY2022. The debt service coverage ratios stood at (0.20) times as on March 31, 2023 as against (0.51) times as on March 31, 2022. The deterioration in the financial risk profile is further emphasized by the decline of net worth of the company to Rs. (727.36) crore in FY2023 from Rs. (446.91) crore in FY2022. In addition to the deterioration in the financial risk profile of the company, there is a significant deterioration in the liquidity position as reflected by the negative net cash losses of Rs. 280.32 crore in FY2023. Going ahead, the financial flexibility and liquidity of the company will be a key rating sensitivity.

Susceptibility to Real Estate cyclicality and regulatory risks
The real estate industry in India is highly fragmented with most of the real estate developers, having a city specific or region-specific presence. The risks associated with the real estate industry are cyclical in nature of business (drop in property prices) and interest rate risk, among others which could affect the operations. LKCPL is exposed to the risk of volatile prices on account of frequent demand supply mismatches in the industry. The Real Estate sector is under high stress on account of large amounts of unsold inventory and high borrowing costs. This is primarily attributable to the high residential property prices due to persistent rollover of bank debt which has a cascading effect on the overall finance costs. Given the high degree of financial leverage, the high cost of borrowing inhibits the real estate developers' ability to significantly reduce prices to augment sales growth. Further, the industry is exposed to regulatory risk, which is likely to impact players such as LKCPL, thereby impacting its operating capabilities. In addition to the above, due to the advent of COVID19 Pandemic, the real estate sector has been one of the worst hit sectors