Lodha Developers Limited analyst Q&A

Thank you. The first question is from the line of Pritesh Sheth from Axis Capital. Please go ahead.

Congrats on great results. First is on the demand itself since Abhishek, you highlighted about some slowness in terms of macro. I mean, how are you seeing the trends in the residential market, while obviously, I think this quarter number was good. But if you break it down on a monthly trend, anything to note there? And particularly now July -- sorry, now with January also almost at the end, are you seeing some signs of any slowness in terms of inquiries, conversions, etcetera, if you can highlight?

Pritesh, thank you. It's a very important question. The way we, of course, read all the data around demand slowdown in the broader urban economy. I'm not talking about real estate with a lot of interest. We note the commentary from some of the consumer goods companies in this regard. We also have noted the GDP data, etcetera, which is clearly this year lesser than it was last year. Having said all of that, we have not seen any slowdown in residential demand. Not just in the last quarter, but also in the first 4 weeks of January, demand has been quite robust. We believe that this is attributable to 2 facts: One, the fact that the consumer base for real estate, obviously, is not the entire urban middle class, but a subset of it. And that subset, which are probably people who may have annual household income of maybe INR10 lakhs and higher, they still, I believe, continue to do well, and that is really what is keeping the real estate demand robust. The second part of the equation, which is important to know that consumers have become increasingly more focused on buying high-quality homes, which comes from a select group of well-reputed and branded developers. And whatever growth rate that you might want to positively ascribe to the small group of 5, 7 maximum 10 developers, there is no way that the large-scale developers get anywhere close to meeting the demand that is there for their product. And therefore, even if there is a market slowdown in real estate, which happens going forward, I do believe that the branded play ers will remain in fairly good pos ition, not that they don't get affected, but they remain in very good position. It's also important to note in the first 9 months of this fiscal year, Maharashtra has had 2 election cycles. We've also had a situation where the environmental clearance processes have been changed due to an order of the NGT. And in spite of this, which obviously has had an impact on launches, our sales performance is what it is, as you've seen, 25% up year-on-year, which partly shows that the business model matters. The fact that we are not a launch-driven company, the fact that we have a large and diversified base of projects, which delivers and contribute to our sales, allows us even when we have these kinds of situations, which can happen from time to time to have more predictability in our business. Thank you.

Interesting. Second question is on the land transactions that we have been doing since last couple of quarters, both going to data centers operators. In general, through your conversation, have you come across what kind of capacity that they are looking to build in whatever like 40, 45 acres or 20, 25 acres, they are undertaking from us? And from the scope perspective, how big this data center AI opportunity can be for us so as to get a good value of our land parcel that we own in Palava, Upper Thane?

Pritesh, the way the data center operators look at their capacities that they measure it in terms of their power consumption, which is approximately about 5 megawatts per acre. So, their power consumption is coming in at about 5 megawatts per acre. And so, on a 40, 45-acre piece, they will need about 200 megawa tts of power. In terms of the sizing of the opportunity, I think we have a situation right now, where we are -- if we wanted to do all the transactions, which people want us to do or are seeking to do with us right now, we would be booked out for the next 3 years. So just like you have a situation where AI chips are in short supply, you also have a significant situation where the land for data centers is not very easily available. In terms of the scale of this opportunity, given the infrastructure and the land and various other things, we do think that this is a sustainable opportunity to monetize maybe 60 to 80 acres a year for several years into the future.

Got it. Very helpful again. And just lastly, just trying to get a sense on the mix of business development that we have done this year. So almost INR19,000, INR20,000 crores of GDV that we have added, what would be our share of revenue in that? I mean, just to get a sense of mix, I know, I mean, from a margin perspective, how we should look at, but just getting a sense in terms of mix.

Pritesh, as you well know, 100% of the revenue comes to us. Whatever has been paid out to the landowner is paid out as a cost of project or cost of land. And therefore, that's really -- there is no sort of cannibalization or multiple to be applied to this INR19,500 crores of number in terms of what will be the revenue flowing through our books in the years to come from these lands. In terms of the margins, as you know, with our current mix, which is at about 35% JDA, the EBITDA margin is for the first 9 months at about 34%. And as you know, our long-term mix target is about 40% from JDA. So that will also tell you that we are very much around the number that we expect to be from JDA over the medium term and our EBITDA margins are at the number that they are in the mid-30s now.

The next question is from the line of Kunal from Bank of America.

Abhishek, my question is also around the Palava land transaction. So second time this year, you've closed a deal. Are we now at a stage where we can start thinking of this as an ongoing contributor to your bookings profile versus bei ng opportunistic? And then just in addition to that, I know with Pritesh, you were mentioning 60 to 80 acres a year. Is that all around data centers? Or are there different kind of deals, opportunities in the pipe as well?

Kunal, thanks for your questions. Yes, we do think that the land monetization in Palava has now moved to being a regular contributor of sales. There may -- because of the chunky size of the transaction, it may not be a quarterly phenomenon, but it is definitely now can be seen as an annual phenomenon. And therefore, I sort of alluded to Pritesh's question that we can estimate it to be in this range of 60 to 80 acres per annum. In terms of the 60 to 80 acres per annum, which is largely data center but I will not say that it is 100% data center, bu t it is, I would say, you could take that at least 3/4 of that number is towards data centers.

Abhishek, sorry, but one more question on Palava. I know the previous 2 participants have also asked on Palava. But Palava is a large 4,000 acre sort of land development. And we've done well so far in terms of how things are shaping up. But do you have a larger -- can you outline a larger sort of vision in terms of a master layout plan, a timing in terms of how soon this 4,000 acres or it's still stage-wise as you sort of progress you can see what to do with the residual land? Or is there -- are you at a stage where you can see how much of this is fully developed and a time line that you could potentially put to it? Or it's still going to happen in phase-wise manner?

Murtuza, planning and design are outcomes of business strategy. We're generally taking into account how the market evolves, how consumer need is evolving and so on. We'll typically plan out anywhere between 5 to 8 years, and that's what we do at all points in time. Having said that, we have very clear assessment of what the medi um-term potential of Palava is and we put two markers in the ground, INR8,000 crores of sales from the Palava and Upper Thane township by the end of this decade. And total sales over by -- in the next 30 years, which would approach at current price upward of USD150 billion. Both of these are things, which have been done taking into account the land that we have, the extent of the demand that is available and a steady growth rate of approximately 20% per annum in terms of our sales and a higher growth rate, of course, in terms of the profitability because as land prices increase -- sorry, as product prices increase, the margin will only grow up. We, of course, we're very happy to take you through both the master planning, which is at a zoning level for the long term, and a detailed master planning is available for the sort of short and medium term, if that was to be of interest.

And just in terms of more near term, the infras tructure development of Palava, which is again important for the sort of evolution of Palava, any color you can give -- the Airoli-Katai Naka I think is the first of the infrastructure projects. So in the near term, which are the key sort of infrastructure developments and what stage they are at so that we get better sort of visibility?

Yes. Murtuza, I had alluded to in my remarks, but I'll repeat now that the Airoli tunnel should be open in the next 3 to 4 months -- the connector should be open in the next 3 to 4 months because the tunnel, which was the bottleneck, has now been completed. That is physically completed, we have verified that. So next 3 to 4 months for that, which will itself be a big step up for Palava. Then we have the Navi Mumbai International Airport, which is about 30-ish minutes drive from Palava, becoming operation for commercial flights, I think, in the next 12- ish months. Thereafter, we will have Metro Line number 12 and Metro Line number 14 becoming operational in 2028 or thereabouts and then the bullet train in 2029. There are various other road projects, which include the widening of the road, which goes from our Palava Phase 2 up to Taloja MIDC, which has been converted from 2 lane to 6 lane. Work is already underway. There is a new connector road connecting this MIDC road all the way back to Navi Mumbai, which is also -- work has commenced. This all should be completed over the next 2 to 3 years. We have the Mumbai Multimodal Corridor connecting Virar to Alibaug, which also goes through Palava. It is one of the projects, which the Honorable Chief Minister has put in te rms of his 100-day action plan. So we should soon hear about what time line that is going to happen. I mean I can only tell you is that the quantum of our infrastructure development, which is happening around Palava and Upper Thane is unimaginable. And I can tell you with a fair degree of confidence, you can -- I can always be wrong by 6 to 12 months. But just broadly, the locations are just transforming in a manner, which almost nobody can imagine and are moving from being peripheral suburbs to becoming core suburbs.

The next question is from the line of Parvez Qazi from Nuvama Group.

Congratulations for the great set of numbers. So my question is regarding the shift in our strategy towards slightly higher in the segment. I think in the previous quarter con call you had alluded that may be going ahead, we will progressively move towards having 50% of our sales coming from the slightly higher end segment. Now I mean, in economy or in real estate, we do talk about the K-shaped curve, which is happening in India. Now real estate, considering it's a long gestation business, how confident we are that this kind of strategy will work over the next 4 to 5 years, particularly when we are taking into account the business development that we are doing?

Parvez, thank you for your question. Perhaps 2 different parts, or maybe I would like to sort of respond to your question in 2 parts. One that in terms of what we're doing in our townships, yes, historically, we've primarily been focused on the entry-level mid-income housing, which are homes between INR40 lakhs to perhaps just over a INR1 crores and that is now becoming much, much wider. That segment between INR40 lakhs to a INR1.5 crores will continue to be served, but we will have a lot more between INR1.5 crores up to INR8 crores in Palava and Upper Thane. This does not in any manner, reduce what we are doing in the entry-level mid-income, but it only means that with th e infrastructure upgrades and the qu ality of life upgrades that we are putting into Palava and Upper Thane, we are getting demand now from people who are at much higher price points and perhaps 3 to 5 years ago would not have considered spending a good part of their life in Palava. So that's really additive rath er than being supplanting the lower mid-income demand. As a company at a broader level, we continue to be focused on having a broad mix of sales across segments. We don't like segmental concentration. We don't like geographic concentration. And around 60% of our sales will continue to come from mid-income housing. So that doesn't really -- there is no change in that strategy.

The next question is from the line of Abhinav Sinha from Jefferies India.

Abhinav, the mix of sales of -- we had about INR500 crores of sales in the townships other than the land transaction. And out of that, about INR100 crores of sales was from our premium and luxury portfolio, and the balance of INR400 came from, I would say, lower mid-income and upper mid-income, what we call our CASA and ASPI segments, respectively.

And what is the pricing at the upper end here versus the standard product?

So for the very top of the segment, we are approaching just under INR20,000 a square foot on carpet area, which is just under double of that for the entry-level CASA product.

Okay. Secondly, on the cash flow front, so we had a good quarter in 3Q, and I'm assuming roughly similar, we should see in 4Q. But broadly, on the gearing side, where do you see the net gearing?

Mr. Abhinav Sinha, please unmute your line in case if you muted it because you're not audible.

No, we can hear.

Sorry. I will just complete my question then. So in context of the good cash flow that we are seeing, where do you see the gearing level settling by, say, March '25 and even if you can provide some heads-up for March '26?

We'll, of course, provide a detailed guidance for the coming fiscal year at the time of our annual results in April. But for now, I think you can very safely assume that our debt on a broader level is at a stable to downward trajectory. There will be quarterly shifts based on opportunities and so on. But really, the company generating more than sufficient cash flow to finance its growth.

Okay. And sir, finally, referring to the launch slide, which is Slide #9. Can you provide some clarity to the launches that we are expecting in maybe the Southern and Central micro market and the Eastern one?

So the launches that are planned for the rest of this fiscal year. We have a launch in Alibaug. We have a launch, which is part of the South Centra l bucket. We have launch in Vikhroli, which is part of the Eastern Suburbs. We have a launch in -- which is a new phase of an existing project, then we have large aspirational launch in Palava, which is under the extended Eastern Suburbs Head. So those are sort of the 4 launches. We all have a new launch in Pune. We also hope to have a new launch in Bangalore.

The next question is from the line of Kalpit from EFG Asset Management.

Congratulations on a great quarter. So I have 2 questions. The first one is on the pricing growth, which is about 3%, 4% for this year, right? And generally, we have guided towards like 5% to 10% kind of pricing growth. So -- and it looks like the prices that are lower than what it's been in the Mumbai market, generally high single digit to double-digit growth. So what are the reasons for that? That's my first question. And secondly, could you share some color on what is the end user versus investor, speculator mix?

Kalpit, could you repeat the second question please.

Yes. Is it better? So my second question is basically on -- could you share some color on the mix of end users versus investors that speculate the kind of demand, particularly within Mumbai? And what this mix was, say, now versus a year back? Has that changed?

Yes. Kalpit, in terms of our price growth, this is calculated on a YTD basis from the start of the fiscal year. So the number that you see at the end of 3 quarters obviously has one more quarter of growth into it when you look at it against our full year guidance of between 5% to 7%. And therefore, it is in line with our guidance of 5% to 7%. If you trail back to our quarterly presentations at the end of the first quarter and the second quarter, you'd see that at the end of the first quarter, it was under 2%, at the end of the second quarter, it was more around 3%, and now it's at 4%. So it's an additive number through the course of the year. So we are on track for the 5% to 6% number, which we had estimated at the start of the year. And we haven't really seen any change or softness in the pricing trajectory. In terms of your question about investor versus end-user demand in MMR, at least for us, the demand in MMR is almost entire ly end user. As you know, Lodha does not allow any flipping or resale of units, which is very different from many other developers in other parts of the country. None of our units can be sold before completion and that itself incentivizes people to buy for their own use, not to flip. And we have occupancy generally being upwards of 80% by the end of 1.5 years after we hand over possession, which also is another indicator of the fact that most people are buying only for their end use. And the third metric we target is the percentage of resale. So once we exclude the first 18 months after the handover of the project, at which time, you do have some resales, the resale rate comes down to between 2% to 3%, which again shows that people are buying for the long term and you only have the normal trading, which happened as people change homes once every 15 to 20 years.

And just one follow-up. So what -- the pricing gr owth is lower than the pricing growth for the market, right? And are you -- like why is that? And does that kind of concern you?

No, we are concerned with pricing growth. If we can deliver margin growth with lower pricing growth, fantastic for us and great for the consum er. I think pricing growth for the market as a whole, that's a metric which we find difficult to have very good data on, but we feel quite good that the pricing in Mumbai is largely set by us being by far the largest developer. And we are well within a short range of whatever the market eventually ends up doing. But it's more us leading and the market following than the other way around.

The next question is from the line of Akash. Please go ahead.

Sir, congrats on the great results. My question was on the embedded EBITDA margin. So I think we reported very strong margins at 35%. My first question was that how much upside do we have on these embedded EBITDA margins, considering that land prices have been fairly high? And with the revenue intensity, how much further upside do we have on these margins?

Akash, it's a question which only time will answer. We do think that over course of the next few years, we can move our margins from the early 30s to where now it's moving more towards the mid-30s. But by the end of the decade, we should be close to the high 30s is what we expect to be, and that's not really based on the fact that we have some very significant pricing growth. We take very conservative price growth assumptions. This has got to do with operating and financial leverage kicking in and the brand strengthening, which gives us more pricing power.

And sir, how are we looking at land prices right now? How are you looking at it?

The land prices are always a function of the sales price growth and the construction cost growth because ultimately, it is a net value, which is left over, taking into account the sales price and the construction cost. So in markets like Mumbai, Pune, where sales price growth has been moderate, land price growth has also been moderate, and we are able to make sure that our underwriting, which is fairly co nservative is delivering on our internal targets, which we've shared in our other investor presentations of the ROE levels as well as the PBT levels that we see from both outright as well as JDA developments. And we will happily walk away from a transaction if it is not in line with those metrics because overall, ultimately, whatever mix of projects we do, we are aiming to make sure that we deliver that 20% ROE. However, in some other markets in the country where pricing growth has been quite significant, for example, NCR, obviously, land prices have increased significantly because construction costs have not grown at the pace at which the sales price has grown. So obviously, it means that the net land value goes up and that's why land prices have gone up.

Understood. And sir, one final question from my side is that have you made any changes to our payment plans for the customers in order to incentivize sales?

No. When we launch, we typica lly have some payment plan, which is more time based and thereafter we generally move to a construction-based payment schedule. And I would say that, that's the case across more than 90% of our projects that we are on that mix at launch time based and then construction based.

Last question is from the line of Puneet Gulati from HSBC.

Congrats on great numbers. My first question is we've seen a nice healthy pickup in the collections without the increase in construction cost. Can you give some sense on whether the collection would continue? Or is there some large amount which got recorded in this quarter?

Yes. I think we typically believe that collections lag sales by about 12 to 18 months because as construction sort of matches up. We do believe that we are going to ramp up construction spend in the course of this quarter and the next few quarters because that in turn fuels further collections. So that will happen. Having said that, this run rate of about INR4,000 crores of quarterly collections is what on a sales number of about INR17,000 crores is probably something likely to be on average true over the next 5 quarters, you will see some ups and downs because it's not a specific quarterly thing. But yes, on average, over the next 5 quarters, you will see numbers in this range.

Right. And in terms of newer markets, so you've got Pune and Bangalore both out of the experiment stage. And are you evaluating any other market beyond these?

Yes, we are. We, of course, have a lot of growth opportunity in Pune and Bangalore in addition to our continued scaling up in Mumbai. So ther e's already a lot that we can do there and are focused on doing that because the whole point of the pilot is to move to scale up the hard work of a pilot should lead to a rapid scale up, which is what we have seen in Pune, our sales have gone from INR300 crores at end of fiscal '21 to almost touching now INR2,500 crores by the end of this fiscal is what we expect. And we expect that Bangalore w ill also do similar kind of growth, 5-7x over the next 3 to 4 years from the base that we will end up at the end of fiscal '25. Having said that, yes, we have informed earlier that we are exploring some new markets. And we do hope that we will conclude the market in which we want to start our next pilot in the next 3 to 4 months.

Can you talk about which are these markets?

At this stage, that's confidential, but obviousl y, you are very well informed. There are only so many big markets in India that we are not part of. So you all will, of course, have a good guess.

Okay. Great. And lastly, if you can give a number for gross cash and how much of this cash is locked in their RERA account?

Our cash is around INR3,300-odd crores. So, the gross debt becomes more like INR7,500 crores.

And how much of it is RERA cash?

RERA cash would not be anything significant, really.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Anand Kumar for the closing comments. Anand Kumar Thank you, everyone, for joining the call. I hope we have been able to answer all your questions. If you have any further questions or would like any information, we'll be happy to be of assistance. Please feel free to contact the IR t eam on behalf of management. And once again, thank you all for joining the call today. Thank you.

Thank you, ladies and gentlemen. On behalf of Macrotech Developers Limited, that concludes this conference. You may now disconnect your lines.