Lodha Developers Limited analyst Q&A

The first question comes from the line of Ajay Nandanwar from Blue Argon Capital.

I have a couple of questions. One is your EBITDA margins, how are the margins in Mumbai South and Central versus rest of your business? Can you give a qualitative comparison of the 2?

Sorry, we couldn’t hear you, can repeat the question, please?

Absolutely. So, I just wanted to get a qualitative comparison of your EBITDA margins in South and Central Mumbai versus the rest of the portfolio.

So, see, our margins generally that we work across segments, be it the mid-income, premium or luxury and, to that extent, kind of across Mumbai, generally ten d to be hovering around 30% handle. Obviously, from project to individual project to project, it can always vary some bit here and there. But generally, we work for 30% handle across.

Yes, sir. Got it. One more question, sir. You obviously had very strong presales growth as well this year, and congratulations on that. If you could help understand what's the mix of presales, if you could break it down to launch, under construction, completed projects, what's the mix of the presales? And perhaps if you look at it differently, then that will be fine too, but just if you could give a breakup of that?

Sure. So, I think Abhishek in his remarks did cover that. Our business is more and more granular in terms of delivering on a predictabl e basis. And thereby, we less and less rely on launches. New launches contributed to our sales to the extent of 25% to 30%, the rest was more sustained sales across the portfolio. In terms of ready and under construction, I think the ready RTMI inventory sales contributed around 20%.

Got it. Fantastic. Sir, another question on your -- this is the last question, I promise. On your presales growth versus your net cash collection growth, and the presales growth over the last 3 years has been almost 100% from INR90 billion to INR176 billion, but your net cash collection has gone up from INR77 billion to INR130 billion. So, when would you see net cash collection catch up with your presale’s growth?

So generally, our collection typically lags by a year in terms of presales that we achieve. So, you will typically see this correlation working, where the current year collection was around INR144 billion. And as you know that our last year sales was around INR145 billion. So effectively, with a lag of 1 year, generally it will fall in place. And that is the strength of our business, that our presales converts into hard cash and which is what enables us to deliver a strong operating cash flow and which is w hat then enables us to keep our capital structure pretty conservative and which is where, as you noted, that our net debt to equity stands at 0.2.

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

Abhishek, first up, I wanted to follow up on the comment you had around pricing. Could you elaborate on what is it that you saw in the market on account of which it came in at 4%? And also, I think the assumption has it going back to 6%. So, it seems like whatever those force s were seem to have normalized for now.

I think the reality of last year was that there was slower economic growth in the country than what we expected at the start of the year. And therefore, we decided to be conservative when it comes to our price growth strategy because ultimately, we aren't focused specifically on a price growth outcome. We are specifically focused on a profitability outcome and, obviously, the overall level of presales. So just taking into account the slowdown in the economy that one saw on the back of the capex slowdown plus the certain banking and regulatory slowdown, we just decided to take a more conservative approach to price growth. We do feel that in the Indian economy, the capex cycle has restarted back up. The government spending has started. And as I mentioned in my call, we are also getting more supportive policy from the Central Bank. And as a consequence, our medium-term strategy of price growth at about 2% below wage growth, we believe this is quite reasonable, and we should be able to deliver around that number for the full year.

Got that. And then the second question is on the launch value that you have planned for FY '26, which is a very healthy number. Just that on an absolute basis, this is still lower than the bookings you are expecting for the year. So, is that part of a conscious decision because the absolute inventory you have in the system is still quite large, so that sort of helps you optimize the return matrices? Or would you say that over a period of time, the launch pipeline has to match up to your bookings plan for the coming year?

No, I don't think there is any correlation between the launch pipeline and the bookings plan. On the contrary, we look at the total supply in the system, which is what is unsold, which is ready and unsold or under construction and unsold as well as, of course, what you know, launch and is unsold. As Sushil mentioned in response to the previous query, for us, last year, the mix wa s about 30% from the launches, about 50% from under construction and about 20% from what was ready. And I think that's really the, I would say, the differentiator of our organization that we can consistently sell week after week across all our projects and, therefore, deliver much more robust margin and also de -risking because if there is any external shock, it gives us more ability to adjust pricing as we saw in the aftermath of the Ukraine crisis when inflation went higher. So, we don't really see any need to have launches equivalent to sales. On the contrary, the total supply in the system should be about 3x of the sales that we are targeting, and that's how we look at it, 2.5 to 3x of the sales that we are targeting.

The next question comes from the line of Puneet from HSBC.

Abhishek, can you also talk a bit about the breakup of your sales from Palava, how much of it is now coming from premium segment and how much is it still mid-income segment? And what are the pricing points at which you categorize those?

Sure. So, for this year, for the full year, about 20% of our sales came in from the upper mid - income and higher segments. So, the price points for these are units which are trading at over INR1.5 crores; and then, of course, the segment below INR1.5 crores. So that's kind of the cut- off that we are following when it comes to determining what is upper mid -income and above and what's below that, low and mid-income.

And is there a delibe rate effort to increase that proportion from next year, both for Palava and Thane?

For Palava and Upper Thane, yes, we believe it will first be led by Palava because the infrastructure in Palava is quite getting robust quite quickly, and Up per Thane will follow. But as we stated in an earlier discussion on our townships, we expect that by the end of the decade, about 50% of presales will be coming from this upper mid-income and premium segments. It doesn't mean that there is any reduction in the lower mid -income or entry mid -income segment. It just means that this additional category will contribute to sales, which allows these 2 locations to significantly grow in sales to about INR8,000 crores by the end of the decade.

And to move in to that segment, would you need to invest significantly on infrastructure or ecosystem development from your side? Or are you largely relying on connectivity benefits to flow through?

I think we've already done those investments. We have bu ilt a township to be one which can, over time, progress to becoming a more premium location compared to a sort of lower mid - income location. We did always have the strategic view of Palava and how it would evolve through the various phases that Gurgaon has evolved through. And therefore, our investment in infrastructure, creating the social infrastructure, the hard infrastructure, the quality of management and service has been in line with that. So, while, of course, there is a continuous improvement journey, we do not expect to make any significant incremental investments beyond what is the norm in this upgrade cycle. It's really got to now the only missing link in the upgrade cycle is connectivity. And with the airport operating this year and the Mul und-Airoli-Palava freeway also becoming operational this fiscal '26, we expect that the cycle will strengthen when it comes to higher -income buyers wanting to reside at Palava given all its other benefits.

So first, just on this 20% growth guidance, can you, I mean, just provide your thoughts on how individual micro markets will behave in next year? Like how this 20% growth is coming, is it like largely Pune, Bangalore dependent? Or we are also expecting MMR market also to grow? So, some breakup of this 20% growth?

While we don't have sort of that kind of a breakup because as Prashant was mentioning, we have projects which perform ahead of expe ctations. We have projects which perform below expectations. But at a more broader level, we are able to deliver on our growth because our model is so diversified and granular and so based on ongoing sales. Having said that, to your specific question, of the approximately INR3,500-odd crores of incremental sales that we would expect this year from the current base of INR17,500 crores to INR21,000 crores, we expect that Mumbai would contribute approximately INR1,000 crores to INR1,500 crores out of that. An d the other 2 markets would contribute in equal measure, half and half.

Got it. That's helpful. So, I mean, Pune, we don't have enough in terms of inventory. And I think launch-wise also, we are lesser in terms of what we did this year versus what we'll do next year. So, is it that some of the projects are in pipeline and hoping to get added during the course of first half and eventually we'll be able to launch in second half? That's how we think about Pune's growth next year?

Our sales projections are done with a fair amount of detailed underwriting, and we typically avoid looking at new project additions in the year. They sometimes do happen. I'm not saying they don't happen, and they will sometimes make up for something whic h doesn't work out elsewhere. But as it stands right now, we have about INR4,500-odd crores of unsold inventory in the ongoing projects in Pune and then future phases of those projects as well as new lines. We expect to add another INR7,000-odd crores of new launches, not the full INR7,000 crores being launched this year, but that's the supply available. Part of it will be launched this year. So, we feel quite good about the fact that Pune can scale up from about INR2,500 crores currently to somewhere around INR3,500 crores or so the following year.

Sure. Got it. That's clear. Second question is on Palava. So, I think if I exclude the data center land sales that we did, we are looking at INR1,800-odd crores of pure residential sales. Obviously, I don't want to like segregate it, but just from the residential perspective, do you think now we are at the inflection point and with all those premium launches or upper-middle income kind of launches that we wanted to do has been done with. Now from next year onwards, we should see a good growth trajectory? And how do you see this residential segment of Palava contributing over next 2 to 3 years?

Yes, it's a very pertinent question. And we do expect that for the current year, we expect that Palava residential sales will grow quite well. And while we don't break it up into the 2 different buckets, but of Palava residential versus others, we do think that, that will grow quite well, 20% or more. And for fiscal '27, we expect even more solid growth because by that time, we'll get the first full year benefit of the Mulund-Airoli-Palava freeway. So that will be fully felt in fiscal '27, only partly felt in fiscal '26. But yes, in spite of that time, we expect Palava Extended Eastern Suburbs presales to perform quit e solidly for this coming fiscal.

We take the next question from the line of Akash Gupta from Nomura Research.

My question is that how are you seeing the change in the real estate demand, especially for Grade A developers and taking that the stock market has also corrected a lot? So, are you seeing any negative signs of demand or any red flags, particularly related to Grade A developers?

I think the question should first be sort of seen in the context of the performan ce and data that we are seeing from what you would refer to as Grade A developers. I think you would note that most of the Grade A developers have had very strong and high -quality presales. And we think that that's really a reflection and, I would say, signpost answering your question. We think there is a trifecta of consolidation at play. It's consolidation on the consumer side, it's consolidation on the lender side and it's consolidation on the landowner side. All 3 are very clear that they only want to work with a handful of developers as purchasers or as partners or sellers or lenders or whatever it may be. And that, I think, is very clear that consolidation has a long, long way to go, and it will continue to play out for a long, long period of time. To day, we are nowhere close to the end of the consolidation cycle. And therefore, the other part is that even assuming for a moment that there is some demand slowdown in certain segments, I think it will be segmental demand slowdown, if at all, not across the board. Because last 3 years, for example, even though there was broad growth, mid-income was not doing well. So, I think that kind of cyclicality will inevitably happen. And that's the reason why, as a company, we like operating across all the segments rather than being concentrated on any one segment. But even within that slowdown, you will see that the Tier 1 developers will be least affected or not affected because the slowdown inevitably affects the weaker hands. And on a balance, actually, it benefits the bigger developers because you see more beneficial terms in the land market also. So overall, we feel that the consolidation story is a long -term one. And therefore, the Tier 1 developers have, I would say, a lot of opportunity to continue to deliver sustained growth.

I think that it's really a question of the business model and how do you build it up. Is this really a spurt? Or is it a setup of increasing the strength of the organization, increasing the depth of the distribution, increasing the width of the number of location s and number of projects? And therefore, where are the sales coming from? I think it's important to note that no one location of the company contributes more than 10% of our sales. It's important to note that we have almost 40 different operating projects , each contributing to sales. So really, the model that we put together on the real estate side is quite unique in terms of its granularity and diversification, both across locations as well as across segments. We do mid-income as much as we do luxury, of course, and we do premium too. So that's the reason why we believe that this growth is an additive growth more similar to a consumer goods business that as you increase distribution, as you strengthen brand, as you increase your number of products, your growth can be sustained rather than one which has been dependent on high price growth, you would have noted on the contrary that we've taken very modest price growth, and nor is it dependent on a superstar project. So, we believe strongly in the predictabi lity of our growth and, therefore, have given the guidance we have. Of course, geopolitics, if something goes terribly wrong, the guidance may go off by a bit. But other than that factor, we feel quite good about it.

Ladies and gentlemen, that w as the end of the question -and-answer session. I now hand the conference over to Mr. Aayush Raghuvanshi for closing comments.

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

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