Lodha Developers Limited analyst Q&A

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. We take the first question from the line of Akash Gupta from Nomura.

Congratulations on a great performance. Sir, my question is primarily related to your thoughts around the demand in Mumbai. How are you seeing the footfalls and conversions right now? And has that view changed from the beginning of the year when we were thinking about footfalls and conversions? That's my first question.

Akash, thanks for your question. In terms of where we see the demand environment in Mumbai and in terms of footfalls and conversions, let me sort of split demand into its 2 component portions, because I think your question is related to both, which is supp ly as well as demand. On the demand side, we see footfalls and conversions remaining steady through the course of the last few quarters and in line with what we would have expected at the start of the year. On the reasoning for it, because one hears about the fact that there is, in pockets of Mumbai, lots of redevelopment happening and therefore, the fact that oversupply could be happening in pockets. I think it really is underlining the fact that our sales performance as well as these walk-ins and conversions are all driven by the strength of the brand and the execution capability to deliver good quality product on time. We believe that while there are pockets of oversupply in Mumbai, the demand for the kind of product that we do and the lifestyle standards that we offer is really strong. And we expect that this consolidation in the marketplace of the better-quality product and the best brands winning out is likely to continue.

Okay. So, my second question was on the growth expectation for the next 2 years. We have done very strong BD of roughly INR 600 billion along with an inventory of roughly INR 450 billion. Is it reasonable to expect a similar level of growth rate or roughly 20% CAGR over the next 2 years, similar to the past year?

Ryan, can you hear the question? At our end, we are seeing the voice breaking.

Akash, I would request you to please join back the queue as your audio is not clear to the management.

Understood. Thank you.

We take the next question from the line of Puneet Gulati from HSBC.

My first question is, if you can talk a bit about how are you thinking about potential construction -related issues given that everybody is ramping up construction and there is noise around slowness in construction activity. What are you doing in terms of t echnology or any new construction methodologies that you're looking to employ?

Puneet, that's an important question and one which we are very much focused on. While technologies, the use of not just construction technologies, but also digital technologies as well as also use of AI are all kinds of things that one does, it really fund amentally goes down to having a base of vendors and contractors who are aligned to support your growth plans, because you have good strong relationships with them, and their willingness and ability to pay the labour force the fair wages. These are the 2 areas where most of our focus is on and that enables us to make sure that we are delivering our projects within the time lines as we have specified in our agreement, sometimes with delay of a few months, but always very close to the time line stated in the agreement. So, we measure our success in terms of the percentage of units which are delivered within 6 months of our agreement stated time line, and we are able to do a very, very high percentage in that time line, which really is the end proof of the construction capabilities.

Okay. That's helpful. And secondly, in your opening comments, you talked about increase in collections into the next few quarters. Can you talk a bit about what's really changing, which will allow you to increase the pace of collections?

Yes. I think the sales momentum for this year, as you know, has been sort of more concentrated in the second half. And as a consequence, the overall collections for the full year will be lower than our initial estimate, because obviously, the collections follow a cycle from when the sales is done. I think the combination of the sales step-up this year, but more importantly, the significant focus that we put on construction starting from on improving our construction efficiency will drive the pickup in sales. In the last 9 to 12 months, we had a sign ificant impact from the environmental clearance issues, which held up the construction, affecting our collections. With that issue now having been closed and resolved, we are quite focused on making sure that we make up for some of that lost time and therefore, also the collections step up as the construction speeds up.

Okay. That's very helpful. And lastly, on your Palava and Upper Thane, you talked about potential 4,000 acres, of which you now want to allocate 400 acres for data center. Would it be fair to assume the rest is now for residential? Or do you also have plans for warehouses and office space there?

So Puneet, we have land which is zoned for multiple uses therefore, we allocate basis the market's demand and the best value use. Currently, the 2 best value use are residential, including ancillaries. So residential includes things like retail or health care or even office space, which we all sort of see as urbanization, which is residential led. And the second significant use case is data center. So those are the 2 that we are most focused on. Other than the warehousing part, which is already under development, we don't expect to do more warehousing at this location, just given the underlying land values are not supportive of warehousing at this location.

We take the next question from the line of Kunal Tayal from Bank of America.

A couple of questions from me. First one, Abhishek, an often-asked question these days has been that as you're looking at some cool off in the pace of price increase in the sector, but the land values have probably stayed stubborn...

Kunal, are you there?

Am I audible now?

Yes, please go ahead.

Okay. Great. So just to repeat my first question, Abhishek, and this has been an often-asked question, we have seen that as the pricing trajectory in the sector has faded some bit and land prices have arguably stayed stubborn, could the next set of project s that are being signed up have lower profitability versus the last 3 years? So, do you see any growth in that sort of an assumption? And second associated question is, is it comfortable to assume that your intended pricing strategy of 4 to 5 years should continue into the next few years as well?

Kunal, very important questions regarding the industry's economics. As we've often stated, our focus has been on having modest price growth below wage growth. And therefore, this 5%, 6%, 7% price growth level, that is a deceleration for many other of our p eers, is really the price growth that we've targeted and have delivered over the last few years. In terms of the value and the profitability of land, we, on the contrary, believe that given the land business development that we've already done and the very disciplined model of underwriting for land that we follow, which is driven by our target return metrics, not driven by trying to aggregate GDV or anything like that, we actually believe that going forward, the land market will turn more favourable to us given our scale, our balance sheet as well as our ability to command a premium in the marketplace. So obviously, as the market was getting sort of good for everybody in '23 and '24 and part of '25, you had a lot more competition for land. We maintained our discipline. We did what we had to do, but always at the margins that we target. And now as some o f this froth sort of is let off, we'll probably get more opportunity in land. Having said that, our focus will remain on generating higher cash flow and even further strengthening our balance sheet, because we, as I mentioned in my remarks, are sitting on very significant available supply, almost INR 2 lakh crores of GDV available for us to sell in the next 5 years.

We take the next question from the line of Abhinav Sinha.

Abhishek, first question on business development. We have seen a big spurt this year. So how do you plan next year? Or are you looking to moderate the pace?

Abhinav, as I alluded in some of my earlier responses, we have front -loaded business development, and that will give us the opportunity to be more profit focused when we do newer business development. And hopefully, that is margin enhancing. The other side of the same coin is, we probably are not going to spend as much money on business development in the next 24 months as we've done in the last 24 months. And therefore, hopefully, we are further strengthening our balance sheet over this period.

Okay. Secondly, a question to Shaishav. Shaishav, on the data center side, so when you're talking about power shell or turnkey, will you wait for a client signing before you start work here, or we are looking to start work immediately? And what is the costing going to look like?

Yes. I think we would basically be looking at discussion with clients because ultimately, the specifications are quite specific to a client. So , we would be pursuing that route before we start the build-to-suits. Second is on the costing, again, it's very client dependent. But what's, I think, important is, India in general is competitive on the capital side, but with the MoU signed and the benefits, the ability is to ensure that the overall cost reduction comes down by 15%. So, as I said, our turnkey today with the benefits can come down to maybe $6 million per megawatt, which is much lower than what used to be our global standards of $8 million to $12 million per megawatt.

Our model is focused on building the power shells on a BTS basis, and the cost for the power shell will approximately be at about INR 3 million per megawatt, including the land value.

Okay. That's very helpful. And maybe...

Abhinav, I would request you to please join back the queue for follow -up questions. We take the next question from the line of Murtuza Arsiwala from Kotak Mahindra.

Just 2 questions on my side. The base year, which is FY '25, had a lot of land sales that also bumped up the collections. We've not seen the same kind of traction at least in the 9 months on land sales. Is there anything that could be in the offing in the fourth quarter, or maybe this is not the year which you have the bumper land sales? Also on the collections, the drop, is it largely attributable to the base quarter having a lot of land sales? Or is there some moderation in execution this quarter, because of which maybe milestones were not reached? Anything to read on that in that direction? Or it is just we are comparing the year -on-year where there was a lot of land collections and this year, there's just not?

Murtuza, in terms of whether we'll have significant land sales in this quarter or not, very difficult for us to forecast that. There are ongoing transactions and discussions in relation to land sales. But when they will fructify, we'll only know when it happens. So maybe this quarter, maybe next quarter, unknown. In terms of the causes why the Q3 collections are 17% lower on a Y-o-Y basis, the land sales component is one significant component of that. And the second is what I had mentioned earlier that the environmental clearances for the stalled locations only started coming through towards mid -November and onwards. So, restarting construction, remobilizing labour and then getting the construction done and raising the demand, that all is a cycle ; So, we lost on a few locations on account of that. But that's behind us now, so it's fine.

Just as a follow -up, there is a remark in your presentation on the OCF guidance. Is there still a chance that you could meet it? Or you think you'd probably be more around the INR 70 billion mark as opposed to the INR 77 billion previously? Could you play catch up in fourth quarter or...

Murtuza, at this time, we think that it is the INR 70 billion that we are looking to. Like I mentioned, some of the delays on account of the environmental clearance and some other factors have pushed things out by 4 to 6 months. So that has some impact on the OCF generation. So we will probably be at the INR 70 billion plus/minus 5% number, not the INR 77 billion.

We take the next question from the line of Pritesh Sheth from Axis Capital.

Yes, a couple of questions. So first one on how do you read this quarter's performance, because most of the sales came from, I would say, a couple of projects concentrated in one market, which is not generally how we obviously operate. It's more driven by sustenance and regular sales across markets. So first one on that. And second, on the business development side, while we had a good year, but again, most of the projects are concentrated in South Central. Was it just a conscious effort to build that pipeline? Or we are probably looking directionally towards where demand is stronger and hence, focusing on those markets. So, your thoughts on that, yes?

Pritesh, in terms of our sales mix, as I've mentioned in previous calls, we look at 2 metrics, the sales coming from our non -launch weekly sales and then, of course, those coming from launches. Our non -launch weekly sales at about INR 3 billion per week were quite consistent throughout the quarter, except for the last 10 days, where because of Christmas, things slowed down. And that was distributed, of course, widely. The launches that we did in this quarter were more focused in South Central Mumbai, and therefore, the residual value beyond that INR 36 billion, INR 37 billion came largely from the launches in South Central Mumbai. In terms of your question on business development, obviously, we look closely at where we find the pockets of demand combined with the margins that we target. And that combination influences the transactions that happened. Obviously, there is some element of what closes in a given quarter in these numbers. So , I won't read too much into it. But yes, we are sort of widely distributed in terms of our available supply of land and product to construct across a large swath of the market.

Sure. And just one last, if you can elaborate this large project that we have signed up this quarter, almost INR 20,000 crores, 2 million square feet, INR1 lakh per square feet kind of a rate on the saleable area. So just you can put some thoughts on what the project is about?

Yes. So Pritesh, I think there is some misunderstanding in terms of your assessment of the value being INR 1 lakh a square foot on saleable. It is over the life cycle, INR 1 lakh a square foot on carpet area, not on saleable. And the location of that project is at Worli next to 360 and Beaumonde.

Sure. In presentation, it was mentioned 2 million square feet saleable area and INR 21,000 crores. No worries, I'll get that clarification separately.

We take the next question from the line of Parikshit Kandpal from HDFC Securities.

Congratulations on a decent quarter. So , my question is, are you seeing any signs of elongation in the sales cycle? I mean you did mention that footfalls continue to remain consistent. So, any colour on the clients taking some more time to decide closure, or the pace continues to remain same?

Parikshit, the answer, I think the same similar question was asked in a different mode. So, so far, we've seen that conversion rates, which is really a different way of measuring the duration to convert, have remained pretty steady. So , we haven't yet seen that there is any downward pressure on that.

Okay. And second one is on the embedded margin. So , we have seen a substantial jump in commodity prices of late. So , any colour on your historical embedded margins? Do you see any pressure on cost side, which may result in margin contraction as these projects come for revenue recognition?

So far, the increase in commodity prices, and we publish the data pretty regularly about the overall construction cost base that we have, the increases primarily around copper and silver have very little impact. We have very little sensitivity to those 2 categories in our overall construction costs. Probably less than 1% of our construction cost is exposed to both of those elements. So, while the key commodities that sort of our costs are driven by, including steel and cement, have been quite reasonable. So , we haven't yet seen any reason to worry that our construction cost estimates will overshoot what we budgeted. We, in fact, have significant contingencies in our budget and more often than not end up having some of that contingency left over, which is margin positive. But at this stage, no, nothing that is causing us to worry about a pressure on our budgeted costs.

We take the next question from the line of Parvez Qazi from Nuvama.

So, 2 questions from my side. First is, what was the contribution of launches to pre-sales this quarter? And secondly, while we are obviously doing well, we are on track to meet our sales guidance and delivering healthy sales growth, at the industry level, we have seen weakness in volumes over the last year. So just wanted to get your thoughts on it and what is the way around it?

So, thank you for that question. Our contribution from new launches for 9 months is at about 1/3, about 33%. We tend to be in that range of about 30% to 35%. This quarter was higher. But for the 9 -month period, it is at around 33%.

And your thoughts on the volume weakness in the industry?

Sorry, Parvez, I'm not able to follow the question. May I request you to please repeat it?

Over the last year, we have seen weakness in sales volume at the industry level, I mean, whether we look in terms of number of houses sold or volumes in terms of million square feet getting sold. I mean, while we are obviously continuing to do well, but I mean, in our main markets of Mumbai and Pune, now volumes have been declining for last 2 -odd years. So just wanted to get your views on it. I mean as an industry, what is the way around it?

Very difficult for me to sort of have a response in terms of what is happening and what are the lead causes … I have not studied what the causes of the decline in volume at the industry level. For us, volumes are up about 24% in square feet terms for the first 9 months. Hence, my sense is that it's the 2 forces, which I think have been often talked about. One very clearly is that the market is moving towards the best placed players, because consumers who are buying want the assurance of getting a high - quality product and from the best brands. I think the other side is that at the very bottom end of the mark et, homes below INR 75 lakhs, I think there has been a decline in both supply as well as in sales in that sort of entry -level affordable housing segment. That segment used to be a big driver of volumes, not of value, which is the reason why you're seeing that value is continuing to move up, but volumes have moderated at an industry level. Because we have consciously sort of moved away from that segment over the last 2, 3 years, we haven't seen the impact of that, but there is definitely moderation in that segment.

We take the next question from the line of Gaurav Khandelwal from JP Morgan.

I just wanted to understand the expenditures on construction this quarter. So , we are at INR 8.6 billion of construction spend, which is the lowest in the last 7 quarters, if I'm not wrong. And my understanding was that some quarters of last calendar year, we were stuck with environmental issues, which is behind us now. So ideally, construction ex penses should have moved up in quarter ending December, whereas the number actually came down. So , can I just understand this better?

Gaurav, I would more look at the 9 -month number, because when things are built and when they are paid out, a quarter is too short a period to judge that. We definitely are looking at just under INR 30 billion of spend on construction for the 9 months, which is below our desired level. And we do expect to push that up, as I mentioned in my earlier remarks, over the next few quarters, both the quarterly run rate as well as an equivalent 9 - month period, which in turn will have a significant improvement for us also in terms of collections. For the current quarter, we expect that number to be about INR 12 billion or thereabouts.

Got it. But is it fair to assume that the construction momentum has increased since last quarter, as in third quarter onwards?

The construction momentum has started moving up from November end onwards as these environmental issues got debottlenecked.

Ladies and gentlemen, with that, we conclude the question -and-answer session. I now hand the conference over to Mr. Aayush Raghuvanshi, Co - Head of Investor Relations, for closing comments.

Thank you, everyone, for joining the call. I hope we've 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, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.