RIO DE JANEIRO & CHICAGO--()--Government support, access to local capital and long-term credit, and adequate demand support a stable 2013 outlook for Brazilian homebuilders, according to a new Fitch Ratings report.
'While the health of the Brazilian homebuilding sector is stable, a number of companies retain their Negative Outlook as a result of company-specific issues, such as weak internal cost controls. The Rating Outlooks for a number of these companies are expected to be revised to Stable during 2013,' said Fernanda Rezende, director.
Homebuilders' debt levels increased due to strong business growth during the past few years. Excluding outliers, the average net debt/EBITDA ratio for the sector was 4.6x as of September 2012. This compares with 4.2x in 2011 and 3.1x in 2009. Rising leverage resulted in several negative rating actions in 2012. Growth of EBITDA margins should be limited in 2013, and debt and leverage levels are not expected to decline materially.
While stable-to-low growth in new construction launches is expected for 2013, companies are focused on reducing inventory levels and improving operating cash flow generation. This stabilization is a credit positive, as the strong growth rates reported in recent years were not sustainable from an operating cash flow perspective.
Most companies will have to increase efficiency by controlling their operating costs to achieve profitability. The positive impacts of strategic decisions made in 2012 should be gradually reflected in the results, considering the industry's long project cycle.
Following the completion of an aggressive growth cycle, cash burn rates have reduced. Given the sector's long project cycle, the maintenance of positive cash flow generation for consecutive periods will depend on, among other factors, the pace of project launches in the future.
For more information, a special report titled '2013 Outlook: Brazilian Homebuilders' is available on the Fitch Ratings web site at www.fitchratings.com.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research: 2013 Outlook: Brazilian