Lodha Developers Limited analyst Q&A

Thank you. We will now begin the question-and-answer session. The first question is from the line of Puneet from HSBC. Please go ahead.

Yes. Hi. Good afternoon. My first question is, if you can comment a bit more on the pricing front in the current market. What kind of growth are you seeing? You talked about a 2% like - for-like here, a re you likely to see similar growth as last year? Or do you think the pricing trajectory has changed a bit?

Hi. Puneet. We shared our outlook for price growth at the end of the last fiscal, and we continue to maintain that our price growth will be in that range of 5% to 6%, which is somewhat higher than last year.

Understood. And secondly, on the land sales pipeline, do you have a decent pipeline for you to ensure that land sales continue on a year-on-year basis? Or you think it can be very, very one- off kind?

Puneet, we think that the land that we are selling for specific users, including data centers as well as industrial, is a recurring and predictable part of our business. The land which is acquired by the government sometimes for infrastructure projects, that obviously is unpredictable and one-off. But what we are doing for data centers, industrial use or such uses is something which we see good pipeline of, and we see that as a predictable part of our business.

That’s it, sir. Thank you so much. And all the best.

Thank you. The next question is from the line of Abhinav Sinha from Jefferies India. Please go ahead.

Hi. Thanks for taking my questions. A couple of them. So one on the sales growth, I understand that second half is going to be much stronger. So , which are the markets where you see this contributing, because we think Bangalore already off to a very strong start? So that's one. And second question is on Bangalore. Within that, how you are differentiating on product because we already see a lot of strong developers out there?

Abhinav, thank you for your question. So across the different micro markets within Mumbai, Pune and Bangalore that we operate in, we believe that the sales growth is spread quite well across the board. There is not any one particular launch or one particular project that we are dependent on delivering our overall growth to about Rs. 210 billion, and that's how we like it. We see good demand as well as the availability of our supply in South Central Mumbai. We see, as we have discussed earlier in this call, a significant scale up in Bangalore. And we see continuation of the positive momentum in Pune. Our townships business is trending well because of the overall infrastructure benefit we have as well as the pickup in mid -income demand aided by the factors that we discussed. This full year will not see too much benefit on the infrastructure side because the Palava-Airoli-Mulund freeway will only be operational towards the end of this fiscal year. But even in spite of that, there is a good momentum there. So it's quite broad-based in our view, with no one particular outlier.

Okay. And sir, second question on the Bangalore side, if you can help. So my question is that how you are differentiating on the product itself? I mean, are you looking to have more of smaller ticket size, larger ticket size? Anything between that?

Abhinav, I do not think that we are needing to differentiate in a way which is driven by some size of unit. I think our differentiation lies in our product detailing, our design of the pro duct, both inside the unit and outside , and our overall package of product as well as service, which together is what people see in our brand. Bangalore obviously has some very good developers, and they continue to do well. But I think there is a space above them for the quality of product that we do. As we have shown in the pilot phase that the market is willing to pay the premium for it, and there is good velocity associated with it. We tend to focus on homes between Rs. 1 crores to Rs. 5 crores with a particular emphasis on homes between Rs. 1 crores to Rs. 3 crores, but with higher per square feet price. As Joshi ji was mentioning, we are now in the process of launching one of our larger developments in Bangalore, which will be spread over 70 acres and offer products in an upmarket manner with a very convenient location close to the airport as well as a lot of good social infrastructure. So that, I think, will really augment what North Bangalore has seen in terms of quality of development. So really, our focus, and that's not a Bangalore thing, across the board is on doing sort of the best quality product and marrying that with our high service standards to deliver a superior living experience to our consumers.

Sir, just one last question, if I can quickly ask. Slide 57 of the presentation where you have the cost inflation. So, I believe this number was higher in the March quarter , so basically you are saying costs have come down on a Q-o-Q basis?

Sushil, would you like to comment on that?

Yes, Abhinav, that's right. In the composition , i t's a function of numerous items in the composition, right? So while there are a few items which end up seeing a hike, but there are equally offsetting numerous items which end up offsetting. So on the whole, if you see, it has slightly come down. This is the composition of the total overall construction cost.

Okay. And this seems to be holding as a trend or you will see some change here?

Frankly, obviously, commodities, we all know that commodities goes up and down, numerous nuances are always there . If the U.S. exports on the steel side gets restricted with the duties on board, but there lies a potential that perhaps domestically prices may go down further. But nonetheless, the important point is, on the whole we continue to see, without really specifically talking about a single composition or a constituent of the cost , that on a CAGR basis the cost continues to be reaso nably controlled in terms of the inflation. The impact is generally on a CAGR basis end up in being less than 3%.

Okay, sir. Great. Thank you.

Thank you. The next question is from the line of Akash Gupta from Nomura. Please go ahead.

Hi, sir. Thank you for taking my question. Sir, my first question was in respect with your strategy in Delhi. So, could you give us some understanding as to what kind of business developments are you planning to do there? And are you planning to do any launch there?

The Delhi NCR is an important market for us to get into. We obviously, as we have done in Pune and Bangalore, will only enter in a gradual manner. We will be starting off with a pilot phase with a moderate number of projects and a moderate level of investment with a view to understand better how the market operates and how we build out the supply chain for operations as well as sales. Our focus in this period is, first and foremost, on building our local operating team. We expect that we will conclude one or more land transactions either on a joint development basis or otherwise in the course of this financial year and hope to launch in the next financial year. But obviously, at this stage, the details are limited . We will provide a more detailed update once the first land transaction is concluded.

Got it, sir. Sir, my next question was with respect to your Bangalore strategy. So , there are some news with respect to IT slowdown. Obviously, you have done very well in Bangalore. But do you think this IT slowdown story playing out and then impacting your Bangalore sales? So like how are we trying to hedge ourselves against that?

I would like to use this question to emphasize that an economy is a sum of various different sectors performing in different ways. When IT was growing at 20%, 25%, 30% did not mean that real estate sales were growing at the same level because obviously, there is a composition effect. And vice versa, if some particula r sector, for example, IT is going to have a slowdown for whatever reason, we are not experts in that field. It does not really take away from the fact that India is a broad-based granular economy. As a company, we have set ourselves not to be over-focused or over-exposed to any one sector or for that matter, any city or location. And that broad-based strategy, we believe, allows us to have the predictable growth that we have been talking about. So obviously, we watch all of this with focus and try to understand better. But as I was mentioning in my initial remarks, the fact is that in the month of July we are averaging, for non- launch sales, about Rs. 275 crores a week. Now that really gives you a sense, if you take th at Rs. 275 crores number moving towards Rs. 300 crores in the course of the next six months, you are talking about Rs. 15,000-plus crores of sales coming just from our non -launch on a steady week-on-week basis. And that really is the differentiation and strength of our business. And we believe that the Indian economy overall is quite resilient. The GCC numbers continue to add up. While you are seeing some slowdown in the IT companies, the GCCs are now probably employing 2 million or more people and that's only growing. So something goes up, something goes down. But if we are the most sought-after brand, if we have the operating breadth as well as the locational breadth, we think we are able to capture more and more of the demand. Ultimately, you have to no te that we are selling 7,000 homes a year, which is just in unit terms a little over 1% of overall volume in the country, and in value terms probably 2%, 2.5% of overall value of residential sales in the country. So there's a long, long way to go before we penetrate in any significant manner. And that allows us to deal with these sort of ups and downs of some parts of the economy quite reasonably. I think the big picture is that real estate in India is at the start of a very long terms up cycle as India moves from low income to mid -income. There may be some days or some months or some quarters which are weaker. But that's the broad direction. And as our investors who we generally see as long term, we hope that as long as we are performing on the ground, the se aberrations are not really coloring their perception of the big opportunity that housing in India, particularly from the top three to five brands offer.

Got it, sir. And sir, one final question from my side. So basically, this quarter we ha d launches of roughly Rs. 83 billion, which is quite strong in the sense that we had Rs. 30 billion of launches in the 1st Quarter of last financial year. But our presales growth rate was just 10%. So , should we think that the sell-through was not strong enough or the reason was mainly because of the geopolitical tensions in the first two weeks of the quarter?

Obviously, we have not seen anything outside our projections panning out on the ground. And as I mentioned, July also continues to remain quite solid. So we are not seeing anything which we would not have otherwise seen. If you take those two weeks and you multiply it by the weekly non-launch rate, that's about Rs. 400 crores, Rs. 500 crores of lost sales. We will make it up in the course of the year. But if you were to just look at it at a quarterly basis, that's a difference between 10% and 20% growth for the quarter.

Got it. Very clear, sir. Thank you so much and best of luck.

Thank you. The next question is from the line of Kunal from Bank of America. Please go ahead.

Hi. Thank you. Abhishek, I wanted to follow up or better understand a couple of your opening comments. The first one was, you were talking about revival in urban growth being led by real estate as we look forward into next year. So, is this sort of more predicated on your view that supply was facing bottlenecks and that should sort of normalize from here? Or was it more to do with the fact that as the benefits of lower rates and inflation start to percolate down, that would boost sales?

Kunal, I think that environmental bottleneck which we are seeing is highly likely to get resolved this quarter. So obviously, wha tever negative drag that has had on supply will get addressed. But I think the broader point is that we had a slowdown last year, the factors you all understand better than we do. And we are coming out of that slowdown through , we have had improvement in fiscal spend, we are getting more supportive monetary policy. And in this kind of rate reduction environment, typically real estate demand picks up, and that's what we are starting to see initial signs of in the mid-income segment. And hopefully, in the second half of the year, we will see some good meaningful numbers coming out of it. But when you multiply or sort of add that on to the fact that real estate has such a strong multiplier to the economy, both in terms of direct employment, supply chain employment and equity wealth creation plus homeowner wealth creation, it's understandable; and I would say, something which one can foresee that as real estate picks up, it will have a positive impact and therefore, raise overall economic growth.

Got it. Understand. And then the other one was this interesting metric which you gave us weekly non-launch sales. Abhishek, that trending up. Does it apply just at a company level? Or if you were to isolate just for the Mumbai trend maybe, do you think it would hold for the city as well? I am wondering if this reflects your market share gains in cities outside of Mumbai or improving demand within the city itself.

Kunal, we have not broken it up that way. Since you mentioned it, we will also look at it that way, but we only look at it at the company level. But I can tell you that sales within Mumbai are performing quite well. So if your question was that our sales from Pune and Bangalore making good for some fall in Mumbai, the answer is no. Mumbai is also performing quite well.

Right, very clear. All right, thank you.

Thank you. The next question is from the line of Parvez Qazi from Nuvama Group. Please go ahead.

Hi. Good afternoon. And thanks for taking my question. So my question is regarding your comment about you seeing an improvement in demand in the mid -income segment. It would be great if you could provide some color. I mean, by what do you measure in terms of improving demand, is it in terms of improving footfalls or conversion rate, et c.? And the second part of the question is, I mean, let's say, over the next one to two years as we see more rate cuts, do we see the proportion of mid-income segment in our overall presales increasing? And will there be any impact on our profitability margins because of this, either on the upside or downside?

Hi, Parvez. Thank you for your questions. What I mentioned was that we are seeing the initial signs of a pickup in mid-income demand, obviously, it's very early and it will more be in H2 that we will get more real data. But what we are seeing so far is that we have seen higher conversion rates, particularly in June and July, starting to come through as the mortgage rates have settled down. Still very early days , so I cannot give you a huge amount of color beyond that, but we are starting to see that. In terms of what it does to our margins, I think our margins overall across the company tend to be around th at early mid -30s number. There is not a significant variation by segment. Obviously, the cash margin in Palava and Upper Thane, the extended Eastern suburbs is higher because of the fact that the land is all bought historically, so we may see some benefit in cash margins. And I think over a medium term, over a two, three-year term, we will also see some uptrend in overall margins because obviously, Palava margins are, as the mix is changing, also moving higher. So, generally on the margin side, as we have spoken even earlier, we see some upside each year going forward, partly driven by operational efficiency, partly driven by the up cycle out of the infrastructure and other factors in Palava.

Sure. Thanks and all the best.

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

Thanks for the opportunity. Firstly, on the BD . S o we have almost completed our full year target, it obviously shows some confidence on the mark et. What's driving your confidence on demand? Is it market itself growing? Because since last one year we have seen volumes at the industry level mostly flattening out, so are you hoping that this will now grow? Or as you said, because of supply constraint its ability of top five, 10 brands to create enough supply and take a share of that demand that is driving confidence, yes?

So, I think there are a few questions within your question. Do we remain confident about the overall nature of the demand? The answer is yes. As you can see from the performance of the key developers last year, it's a very strong year. If you look at the numbers for this quarter, very strong. So there is no reason why there should be any concerns about demand, especial ly for the top five developers. I will reemphasize this point that the sales of the top five developers are supply constrained, not demand constrained due to various factors, including the fact that consumers really want to upgrade their quality of life in a low-risk manner, and that's what the top five developers offer. So that's one. Second, I think in terms of a lot of reporting around the fact that volumes have been flat last year. Let's be clear that you cannot look across the entire real estate spectrum and treat it with one aggregate number of overall volume. Obviously, there is a shift within the segments, and we have seen that the affordable housing segment has degrown and there has been growth in the other segments. So the affordable housing segment, which tends to offer the higher volume of units, because that has degrown, ther e's been a fall in the number of units there . But the rest of the segments have actually made good, which has been why there unit growth has been flat, but value growth has been significant. So it's really telling you where the growth is coming from. And I think it's important to do the analysis in value terms rather than just in unit terms because that's what you would do in most other categories. In terms of how we see things going forward, we continue to see strength in the premium and luxury segments o ver the next 12 months. And we, as I mentioned earlier, we expect that in H2 there will be a pickup in the mid -income segment. We really do not operate in the affordable housing segment. So I have no comment on that specific segment.

Sure. That's helpful. And on Bangalore, the large project that we signed this quarter, 70 acre. Firstly, I wanted to know whether it's a JDA or an outright. If JDA, I mean, there are a lot of incumbent developers eying for that market. Where is the preference for Lodha coming in, in terms of what our brand brings to the table? If you can highlight on that, yes.

The project is in two parts, about one-fourth of it is an outright purchase and the balance three- fourth is a joint development. The reason for the Lodha preference, we believe, is the same as it is in the other cities. It is about the brand execution capability, the pricing and the velocity at which we can sell, and the transparency at which we operate with our landowner partners and their confidence that we will generate the highest NPV and it will actually get delivered to them. It's really about an operating style, which gives a lot of confidence to landowners. And as Joshi ji was mentioning, as we have over the last two to three years scaled up in Bangalore, what was known in Mumbai and is getting more known in Pune is also now starting to get recognized in Bangalore that working with Lodha is a good experience for the landowner and working with Lodha leads to a fairly good economic value creation for the landowner.

Sure. And just last, North Bangalore is also prominent for plotted development. Will we be doing plotted developments in this land parcel or it's more of group housing and high -rise towers that we are looking at?

No, this is a very prominent location. Plotted development obviously happens quite in Bangalore, but that's happening further away. Plotted development is a category which also we might consider going forward. But this is not a location for plotted development. It's a very attractive location and very well located, proximity to the airport, proximity to the various tech hubs and a lot of good social infrastructure.

Sure. Thank you. That’s it from my side and all the best.

Thank you. The next question is from the line of Ashish Mendhekar from JPMorgan. Please go ahead.

Partly, the question is answered regarding Delhi NCR market, but have you zeroed down on the micro market which you see opportunity in ? And any particular ticket sizes that you are targeting?

Ashish, no, we do not have that level of detail right now. I think we are looking across the Delhi NCR to make sure that locations which fit with our brand's premium positioning . And at the same time, have attractive dynamics when it comes to supply -demand and also profitability for us. So , we are looking across the board, and we will be able to provide a little bit more specific detail once the first land transaction is concluded. I think at this stage it's just a directional thing that, yes, we expect to be entering in the NCR in the next 12 months.

Okay. Understood. Thank you.

Thank you. The next question is from the line of Parikshit Kandpal from HDFC Securities. Please go ahead.

Yes, hi Abhishek. My first question is on the launch pipeline for the rest of the year. So if I see total Rs. 13,300 crores is there on the new launches. And out of this, Rs. 10,000 crores is from MMR and Pune. So , in terms of NGT issue, so how will this get impacted if there is a delay in the judgment from the courts?

Yes. Pune is unaffected by the environmental clearance. Pimpri -Chinchwad and Pune were affected, but that has already been clarified and those approvals are now progressing without any hitch since the last, I think, about six to eight weeks. In Mumbai, I think the total value, which is affected potentially by these environmental constraints is at about Rs. 3,000 crores to Rs. 4,000 crores of launches for the year. So that's the value which we expect will get unlocked for being open to launch in the second half of the year, but that's the one which is currently impacted by these.

Okay. The second question is on the total presales for the quarter of Rs. 4,450 crores. So out of that, how much was the contribution from the new launches of Rs. 8,300 crores?

Sushil or Sanjay, can you assist with that response, please?

Yes, around Rs. 1,500-odd crores was coming from the new launches.

I mean, so the impact was largely on account of the May issue or because it seems to be a very slow conversion of sales in presales?

No, we do not see it as being slow. Our business model is not this heavy launch, let's sell everything in one go model, which puts a lot of pressure on profitability. Our business model tends to be to sell about 40% of what we launch in the first 12 months. And therefo re, if we have launched Rs. 8,000 crores, we would expect to sell about Rs. 3,000-odd crores in the first 12 months from launches. This has been an average of 45 days from launch, so we find that it's very much in line. I think you will have to appreciate that our business model to that extent is quite different from some of the other developers who tend to benefit or want bigger launches. We like selling our product over time. We like making sure that consumers are fully appreciative of our product. And we like to make sure that we are pricing ourselves for strong profitability. So this is very much in line with our standard expectations around launch.

Sure. Thank you.

Thank you. As there are no further questions from the participants, I now hand the conference over to Mr. Ayush Raghuvanshi for closing comments.

Thank you, everyone, for joining the call today. I hope we have been able to answer all your questions. If you have any further questions or need any information, you may connect with the investor relations team. Once again, thank you all for joining the call today.

Thank you. On behalf of Lodha Developers Limited, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.