Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Macrotech Developers Ltd (BOM:543287, Financial) delivered its best-ever Q1 presales performance with INR4,030 crores, marking a 20% year-on-year growth.
- The company reported an embedded EBITDA margin of 33% for the quarter, higher than the full-year guidance of 31%.
- Macrotech Developers Ltd (BOM:543287) has a strong balance sheet with net debt at INR4,300 crores, which is 0.24 times equity.
- The company has been recognized as the top real estate company by Great Places to Work and ranked 64th among 2000 companies across all sectors in India.
- The company has a robust pipeline of business development opportunities and new launches planned for the second half of the year, supporting future growth.
Negative Points
- The company's cash flow from operations was lower this quarter, attributed to a significant ramp-up in construction spending and seasonal factors.
- The transition to the new long-term capital gains tax regime may cause some transitory pain for existing homeowners looking to sell.
- The opening of the Airoli-Katai tunnel, which is expected to boost sales in Palava, has been delayed to Q3 or Q4, impacting short-term growth expectations.
- The company faces high competitive intensity in the Thane market, which may affect its market share and growth potential.
- Macrotech Developers Ltd (BOM:543287) is still in the pilot phase in Bangalore, and it will take time before this market contributes significantly to overall sales.
Q & A Highlights
Q: Abhishek, my first question is on the diversification strategy, if I could ask what have been your sort of key observations from the Bangalore pilots? And does it lead you to a conclusion that geographical diversification is absolutely worth it? And what are some of the typical risks that need to be actively managed as part of the strategy?
A: Hi, Kunal, great question. Our learnings from the Bangalore pilot is that investing in building the local operating team, having a strong leadership, and inculcating the same culture that we have centrally are all very important parts of the long-term sustainability from an internal perspective. From a more market perspective, we believe that the consolidation in the industry and the desire for a higher quality of life are integral to the Indian consumer. Given Lodha's track record in creating and managing high-quality developments, our brand has a significant pull factor even in new markets. However, we believe a slow and steady strategy is the right approach, focusing on a few key markets rather than many.
Q: How are you thinking about business development for the remainder of nine months? Are you breaking out how much could land sales contribute to the annual target?
A: Hi, Kunal. In terms of business development, the pipeline is quite robust. Last year, we over-delivered on our business development goals, and we continue to maintain our guidance for this year. The pipeline is strong, so there's no reason why we shouldn't be able to meet or even exceed our guidance. We don't break out our overall sales mix by segment as it varies from quarter to quarter. Our guidance focuses on overall sales pre-sales and the embedded EBITDA of those presales.
Q: Can you talk a bit about the business development that we did in this quarter? Was it more of the nature of JV, JDAs, own land? How do you intend to approach this stepping into the rest of fiscal '25? And how are you thinking about the redevelopment opportunity in Mumbai and your role there?
A: In terms of business development, we continue to look at both joint development as well as outright opportunities. We focus on delivering our ROE targets while ensuring our leverage remains conservative. The quarterly number on the breakup between the two is not as important as the medium-term goal of having approximately 60% of our sales from owned land and 40% from joint development land. We aim to maintain this balance for this year and going forward.
Q: Can you comment on what you're seeing in terms of pricing growth in the Mumbai market? Are you seeing any signs of exhaustion, or have you been able to take those regulated price increases sequentially?
A: Our price growth for the first quarter was about 2%. We believe that steady price growth allows for compounding over time, rather than spiky growth followed by stagnation. At this price point, affordability is growing year on year, so there is no pushback on price increases. We see our ability to deliver on this price growth level, leading to mid to high single digits, continuing to remain strong.
Q: On Palava, you had given a 30% sales growth target last quarter, but now you are talking about 20% for the current year. Has something changed?
A: The opening of the Airoli-Katai tunnel looks like it will happen only in Q3 or perhaps even at the start of Q4, which we earlier expected in the first half of the year. This has a slight impact, but our overall 20% CAGR target to reach INR8,000 crores of sales by the end of the decade remains unchanged. We are pleased with the reception of our premium products in Palava, and we believe our strategy of adding premium to the mix will help deliver steady compounding growth.
Q: Can you describe where the high street retail locations are and any timeline for this?
A: The high street retail locations are under construction and will be ready in fiscal '26, with some possibly completing in fiscal '27. These locations are part of our strategy to achieve an annuity income of about INR5 billion per annum by fiscal '26, covering all our interest costs from annuity income.
Q: Can you give some details on the recent trends in footfalls and conversions at the site?
A: In Q1, we had almost 24,000 walk-ins with a conversion rate of 8.2%, up from 7.3% in the same quarter last year. This 12% swing has played a significant role in our overall growth. We analyze consumer behavior in detail, which helps us understand and cater to their needs better, leading to higher conversions.
Q: On the Palava premiumization strategy, how does moving towards premium products align with the benefits of declining interest rates and government spending on urban households?
A: Our strategy is to add premium products in addition to our mid-income segment, not replace it. We believe our entry-level mid-income products will benefit from the reintroduction of the CLSS scheme and the reduction in interest rates. The premium strategy leverages the improved infrastructure and quality of life in Palava, similar to the evolution of Gurgaon in the NCR.
Q: Your cash flow from operations was slightly lower this quarter. What were the drivers behind that, and how should we look at this number going forward?
A: The lower cash flow for the quarter is due to a significant ramp-up in construction spend and the seasonal impact of summer vacations. Historically, our operating cash flow tends to be higher in the second half of the year. We remain on track for our guidance of about INR65 billion of operating cash flow for the full year.
Q: How do you see the new long-term capital gains regime impacting the Mumbai market?
A: While the removal of the indexation benefit changes the nature of taxation, we believe the alignment of tax rates with other financial assets makes real estate an attractive investment. The total return generated from real estate is higher than other asset classes with similar risk profiles. Overall, we see the new regime as beneficial for primary sellers and expect no adverse impact on demand.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
