Mahindra Lifespace Developers Limited (532313) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Mahindra Lifespace Developers Limited Q2 FY '21 Conference Call. We have with us today from the management, Mr. Arvind Subramanian, Managing Director and CEO; Mr. Vimal Agarwal, Chief Financial Officer; Mr. Sumit Kasat, Head, Investor Relations. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Arvind Subramanian, Managing Director and CEO. Thank you, and over to you, sir.

Thank you, Inda. Good morning to everyone, and welcome to our Q2 FY '21 earnings call. Firstly, I'd like to thank all the investors and analysts who are participating in this call. As you would all know, many of our key operating entities from the residential business like Mahindra Home, the Mahindra Happinest as well as our IC & IC business like Mahindra World City in Chennai and Jaipur as well as the Origins, are not consolidated on a line-by-line basis. And therefore, the financials do not fully reflect the organizational throughput. I'll start with a few comments on the context of the economy and the sector and then talk about our performance over the second quarter. As you are all aware, COVID-19 is still a big drag on the economy. Overall, for the year, the economy is expected to contract by as much as about 10% as per various analysts. And the first quarter, for which we have numbers, we know that the GDP contraction was just under 24%. Coming to indicators for the second quarter. Credit growth from 3.9% in August 2019 has been only 0.5% in August '20. Partial loan growth, which grew at 13.3% in August '19, grew at only 8.6% in August '20. IIP, we have numbers for July, was at 125.2 in July '20 versus 140.1 in July '19. And India's retail inflation measured by the CPI, the Consumer Price Index, grew by 6.69% in August '20 versus 3.39% in August '19. So each of the macro indicators is unfavorable compared to similar periods last year. The real estate sector, as we've all been seeing and based on statistics that have been -- data that has been released by the Maharashtra government, Mumbai, in particular, has seen a very strong rebound with the number of properties sold growing by as much as 112% in September compared to the previous month. The Maharashtra government's move to cut stamp duty on property registrations for a limited period has certainly provided strong tailwinds, and we are seeing interest from homebuyers to conclude their transactions and registrations before December. From a decline of 70% to 80% year-on-year sales for the broader market in Q1, Jefferies estimates that sales would likely be down by 40% to 50% year-on-year in Q2. New launches in Q2 from a sector perspective has been at just under 80%, 79% of pre-COVID levels. And the affordable and mid segments, which is the segment that we operate in from a residential perspective, comprised 72% of new supply. Construction activity is also picking up pace as much as -- I think we are tracking to about 65% to 70% of the labor strength from pre-COVID levels. Coming to our business. In Q2, we achieved net sales of INR 115 crores, about 1.6 lakh square feet. Mid-premium contributed to 80% of that and affordable to 20%. We're very happy to see a broad-based recovery in sales across our entire portfolio. Luminare has been a bright spot in NCR, where we saw INR 51 crores of net sales. Finished goods inventory has also been moving well, and the average price realization for the quarter stood at 7,150 per square foot. Collections and handovers has also picked up pace. We've had quarterly collections of INR 134 crores, which was 86% more than the previous quarter. And we've handed over 60 units, more than -- which is more than double of what we handed over in Q1. As I've mentioned, construction activity is picking up pace. We are at about 75% of our labor strength from pre-COVID levels, and this is gradually increasing. In the first half, we've had very limited completions and that reflects in the P&L. During Q2, we completed one phase at our Bloomdale project. In terms of new launches, towards the end of the quarter, in the last week of September, we had launched our second project in Palghar, which is in the affordable housing segment. And we launched 485 units, about 1.8 lakh square feet. We're very happy to share that response has been tremendous. This entire launch was done digitally with no face-to-face customer meetings. All meetings were done virtually. There were no site visits, no experience center, no show [ planned ]. All meetings were done through video calls, and we've received a very good response. These sales will be recognized in Q3 since the launch was done towards the end of September. In the foreseeable future, in the second half of this year, we are expecting to do at least 4 residential launches: 2 in the Mumbai region, 1 in Pune and 1 in Chennai. Our land pipeline continues to be quite strong. I had in the last call mentioned to you that we are targeting to build up about INR 2,000 crores worth of sales revenue in terms of new land deals by the end of this financial year, and I'm happy to share that we are on track to do that. We will be announcing land transactions only when we sign definitive documents, so I expect some of these to be announced by early in the fourth quarter. In the IC & IC segment, we've done sales of 8.1 acres for a total value of about INR 21 crores -- INR 21.34 crores during the quarter. With that, let me request Vimal to share the financial highlights for the quarter.

Thank you, Arvind. Moving on to the financial performance for Q2 F '21. The consolidated total income stood at INR 37 crores as against INR 22 crores in Q1 F '21. The consolidated EBITDA stood at negative INR 8 crores versus negative INR 19 crores in Q1 F '21. The consolidated PAT post minority interest was minus INR 13 crores as against minus INR 20 crores in Q1 F '21. While operational performance has shown considerable improvement, which Arvind talked about, as you know, the revenue is recognized post completion of projects, and in H1 and more specifically Q2, the completion of project was at a lower pace. And therefore, that's impact you're seeing in our financial numbers for Q2. Moving on to debt number. We continue to do well so far as debt and cash position is concerned. Company has about [ INR 307 crores ] of debt on India's consol level, while the cash in hand was about INR 150 crores. On a consolidated basis, the cost of debt stood at 7.35% versus 8.7% in March '20. While on a stand-alone basis, cost of borrowing in MLDL, [ which is underlying ] basis, is now at [ 36.5% ], which is the lowest ever we have seen for last many years. We expect the cost of borrowing to further improve in quarter 3 as well as in quarter 4. These are the key numbers, and we can move to the Q&A.

[Operator Instructions] Our first question is from the line of Adhidev Chattopadhyay from ICICI Securities.

So firstly, just wanted to see, one, what is the sort of sales guidance or sales target we are looking to achieve for this year-end, foreseeing next year, especially there are large pipeline in the business, that [ urban ] pipeline which you said at the beginning of your speech?

So look, I think given that the first quarter was extremely difficult for the industry and for us in almost a complete washout, I think we'll be very well served if we get to a similar level of sales as we had last year at the end of the year.

Okay. Sure. Sure. And sir, anything for next year, like FY '22 means -- you have mentioned 4 launches in second half and whatever land transactions you are expected to announce. So any target you're looking to see for the next year?

Yes, we would like to be in 4 digits next year certainly from a residential sales perspective. But of course, this all depends on how the pandemic plays out. But if I would look at it from where we are today, we would certainly target a 4-digit sales number next year.

Okay. Sir, just on the business development pipeline, so the transaction, so our fourth quarter announcement you said in the early Q4, so when do you see the earliest possible launch for these projects? When would they get off the ground, you expect that?

So I expect at least a couple of those to be launched by the Diwali season next year. So that's what we are gearing up for.

Our next question is from the line of Mahavir Mehta, an individual investor.

Sir, I would like to ask you a few questions. Like in residential business, till date, how many MOU we have signed with landowners? And what is size of it? How many projects we will launch until March 2021? Second, in IC & IC, how is demand there? And any big land parcel inquiry from buyers?

Yes. So Mahavirji, on both your questions. Firstly, on the residential side, we are expecting, as I said, 4 new launches in the second half of this year: 2 in Mumbai, 1 in Pune and 1 in Chennai.

And what about Bangalore one...

The Bangalore one is going to take a little bit longer. There are still some CPs we are working through with the landowners, so it might push out a little bit. And from a land pipeline, as I said, we are on track to do the -- I had given you an indication that we will do 3 to 4 land transactions, bringing on board about INR 2,000 crores worth of sales potential. So we're on track to do that. And you will see announcements starting early Q4.

Okay. And in IC & IC?

IC & IC, actually, the pipeline has been building up very well. There are some very large leads in the pipeline. The challenge we are having there is with the international travel being restricted. Most of these transactions which require -- these are MNCs and their teams need to visit the land site to do their physical assessments and -- before they sign on the dotted line. So there is a very good buildup. I'm expecting once international travel starts, we should have sign-ups happening in quick succession.

Any big land parcel inquiries from buyers?

Yes. Yes, there are some very large transactions in the pipeline. Fingers crossed, pray for us.

Our next question is from the line of Prem Khurana from Anand Rathi.

Sir, just to begin with, I mean, recently done this digital -- only-digital launch in Palghar [ leverage ] area, thoughts on the same. I mean how are the response? How are people taking this? And is it possible to have the similar kind of launch strategy for some of these new launches that you spoke about? Because I mean, as I see it, in terms of ticket size, Palghar is significantly lower, so the risk that you're taking I mean as a buyer is lower where in [ people ] ideally could be ready to commit. But when it comes to lesser launches like Chandivali or -- and the [indiscernible] would be to get the difference possible to have similar kind of launch strategy there? Is it that -- I mean the strategy would differ from project to project? That's my first question. I'll take further questions separately.

Yes. So thanks for the question. So firstly, Palghar was an experiment which we tried. We wanted to push ourselves to see whether it would be possible to sell apartments to genuine end users without a face-to-face meeting. And we wanted to use the opportunity to push our capabilities from a technology perspective as well as a sales and marketing perspective. So I'm very happy with what we have achieved, but more importantly, what we have learned through that launch. We've understood how customers engage on the digital platform, how to keep their attention, because in a face-to-face meeting when a family is sitting with you in a site office, they're okay spending 2 hours in a conversation. But in an online meeting, a video meeting, one has to run the sales conversation very differently. So there's been tremendous learning. The fact that it has been a successful launch, and we've got great response is only the icing on the cake. Going forward, I don't expect that we will do purely digital launches. As I said, this was an experiment that we tried to test both the feasibility as well as to push our capability set. Going forward, I expect it will always be a mix of physical and digital, and that is the way it should be. But now with this experience under our belt, we know how to play that mix much better than we had in the past. You had also alluded to the fact that this may be a low-risk opportunity because it's a lower ticket size, right? I must highlight that for the audience and for the buyers who bought in Palghar, this is a very high ticket size. So the audience we were tapping here, many of them are going for loans. They are -- this is the first home they are buying. So for them, that 10 lakhs or 15 lakhs or 20 lakhs is actually a very significant outlay. And they took it with as much seriousness and that was, again, very revealing for us, as somebody who would buy a 2.5-crore apartment in our mid-premium business would.

Sure. And sir, small clarification in this Palghar to [ significantly ] received EOIs, right? But are these EOIs kind of conditional? I mean is there a sense that, I mean, people would be given a chance to kind of visit the property before they consummate the transaction? Is it that, I mean, once they've given you a go ahead and they're fine with the price, I mean, they would have to go ahead with the transaction? Or is it -- I mean not conditionally or are they allowed to visit the site?

No. So we've actually netted a large number of those EOIs already. And as I said, those numbers will be part of our Q3 results. But we've been concurrently netting those EOIs and there's nothing conditional about them. That scheme closed on 31st of October. So whatever -- whichever customers chose not to net their bookings, they are being refunded their token amounts in the next 2 weeks.

Sure. And 2 more questions, if I may, please. I mean on Luminare, we've done seriously good this quarter. What changed there? I mean certainly over the, I mean, last year, we were seeing cancellations. Suddenly, you've had a very good quarter. I mean the single largest contributor this quarter is Luminare. So were there any concentrated efforts as an entity in sense that either you've given them some staggered payment plans or reduced prices? What has changed with Luminare this quarter?

So look, Luminare, I have deep conviction, was always a good product, and it was just about how we were taking it to market and the discipline around sales. So the Luminare success story has largely been driven by just putting in place very strong sales disciplines, expanding the distribution, following up with leads, making sure that their vigor is there in the entire conversion process, and that is what is the end result. The good thing about Luminare is it's not just about the overall number in the quarter. It's also about the consistency in both walk-ins as well as bookings. It's month-on-month, the story is getting repeated, which gives me a lot of confidence that we are doing the right thing there.

Sure. And one last, if I may, please, on [ BD ] side business, there was a -- the good share. I mean how is the construct between I mean preferred JD over an outright buyer -- or I mean, the existing pipeline that you spoke about, and which you will be able to close by, let's say, Q4 early? And how is the construct and then share qualitative thoughts there?

So we are discussing both outright as well as JD. And in fact, in one of the recent conversations, the conversation flipped from outright to JD, because we were simultaneously keeping both on the table and the landowner preferred then to switch it to a JD. So we are open to both. And we are seeing good quality of deals as well as a willingness of landowners to meet us midway in terms of our ask on both consideration as well as payment terms. Many of those deals, we are trying to work it in a manner where approvals will be done by the landowner and a significant amount of the payout for the land consideration will happen upon receipt of approvals, which also helps our IRR significantly, as you know.

Sure. And just one last, if I may, I mean, with your permission. Our net debt has gone [ up almost INR 48-odd crores ] at least during the quarter. And you said, I think construction is still not back in entirely. I mean we are still at around 75-odd percent. We've had seriously good collection, I mean, given the fact that we were facing COVID issues. Why would debt be up? Is it that I mean we made some initial payments towards some of these land transactions?

No, there's no initial payment towards land transactions in the debt. Those are more just capital reallocation essentially. So there's no land consideration in that. So there's been -- from a collections perspective, our collection has more than covered our construction costs as well as our fixed costs for the first half. So from an operating perspective, we are self-sufficient. Collections is funding our operations.

How much of the construction spend during the quarter? I think it was not there in the presentation this time.

About...

61.

Sorry?

61.

61 crores.

We'll take our next question from the line of [ Rohith Potti from Marshmallow Capital ].

My first question is on the debt side. So it's great to see the cost of debt coming down to such extremely low levels. But just curious to know, I mean, for our JVs -- and so a lot of a project -- a lot of our entities are in JVs or partnership with other entities. So will the cost of debt be the same for those entities as well like our affordable housing under IC & IC businesses?

I'll ask Vimal to answer that.

So see, the reason for overall cost or rate of interest coming down is the doing by 2 things. One is what is happening around in terms of macro. And more specifically, so far as our own entity is concerned, because of the robust balance sheet and the cash position, we are getting to the advantages. Now within our entities, what's happening is if you're looking for long-term debt position, the leverage is lesser versus the short-term borrowings which we are doing, which means that if you are borrowing for construction purposes, then the opportunities to borrow at a lower rate is significantly higher versus if you're borrowing, say, for land acquisition. The extension of that really is that if you look at NBFC side, the rate has not seen so much of softening versus, say, the banking side. Within that though, what we have experienced is that MLDL, which is the parent company for a lot of these subsidiaries and all, the advantages or the positives are significantly higher versus other entities largely because in other entities, the debt is not so much on the working capital side. It's largely on the long-term side. Is that clear?

Yes. So it was qualitatively helpful. But could you give us a range of interest rate for, let's say, the entities that we have and we do not consolidate on to our books?

Yes. See, debt which don't directly or indirectly comes to our book will be closer to maybe 8%, 8.5% versus MLDL where the rate is in the range of 6%, 6.5%, as we spoke about earlier. And I'm sure you know that so far as overall in the real estate sector is concerned, on a blended basis, it will be lower at least by 350 basis points versus industry averages or more.

Understood. So the maximum interest that we're paying in any entity that we are part of would be at around 8.5%. Is that right?

Broadly, right.

Okay, yes. That was very helpful. My next question is broadly on our land acquisition strategy. So I've been following the company for some time and for the last several years, my understanding has been -- I mean, I have friends who've visited and bought some of your products, and they rave about -- the customers are extremely happy with Mahindra brand and quality. And if I see over the last few years, one place where we have sort of lagged is the business development or land acquisition. And previously, you've always mentioned that we intend to go aggressive there, but the eventuality has not borne out our intent so far. So how are you approaching it differently this time? And what gives you the confidence that this time around, we will be able to build a really robust pipeline? And on the land acquisition that we do, could you give -- I mean, you have already given a lot there, but could we give more flavor on what is the turnaround time that you expect for each of the land that you acquired? Or do you expect to launch it within a month or 2 months? I think for 1 or 2 projects in the past, you have done that way. So do you look -- are you extremely focused on not minding paying a little higher, but having a very strong -- very quick turnaround for any land parcel you buy?

Yes. So let me answer the second part first and then the first part. So you're absolutely right. We want to buy land which we can bring to market quickly. Because we're not in the land banking business. We're not trying to buy land and hold it for a future demand. And that also is guiding what kind of land we are buying, the size of the parcels, the locations, et cetera. So we want to buy land where if I have the approvals, the market is ready to absorb that inventory tomorrow. So that's a very strong filter that we applied. And therefore, we also structure our transactions in a way where, as I mentioned earlier, a large part of the land consideration is paid closer to approvals and therefore, closer to launch. In terms of what is it that we are doing differently and what gives me confidence that we're building in the right direction, I think it's 2 things. One, the environment itself is quite different in the last 6 months compared to what it was in the last 3 years. There was a lot of froth in the market in the last 3 years, and therefore, positions from the landowner side were -- had hardened. They were wanting to extract maximum value. Today, they are, as I said, far more amenable to meeting us halfway and structuring the transaction in a way that makes sense for us as well as them. So that's -- I think there's a window of opportunity that the pandemic has created, which for strong well-funded players like us with low debt, bodes very well. Second, internally as well as a unit too, we are much sharper now in terms of what we are looking for as well as how we evaluate land than we were maybe a year or 2 back. We've gone through our own learning curve and, therefore, are able to move much quicker, assess more rigorously. We are a very IRR-focused business, and that is our main hurdle in land evaluation.

Understood. That was helpful. And a follow-up to this land acquisition strategy once more. So if I remember correctly, our broad strategy was to focus on our core markets of Bombay, Bangalore and Pune and have some exposure -- continuous exposure in NCR and in Chennai. Does that remain? Or have we changed our stance given the strong resurgence in Luminare sales?

So it remains the same. And just to clarify, Bombay, Pune, Bangalore will be the market where we will seek to buy new land for residential. Chennai, a large part of our residential strategy sits fits in Mahindra World City Chennai, where we have a large amount of land still to be developed for residential. And NCR, we are wanting to wait and watch. We want to complete Luminare well. There is still one more tower to do there, so that launch will come up early next financial year, and then we will take a call.

Understood. That was helpful. And my last question for today's -- so when I compare Mahindra to all the other real estate developers, I mean, it's interesting to note that probably you're the only builder of scale who -- which is not a promoter-driven entity. So I believe all other entities have a promoter family directing the course of the business. So I just wanted your thoughts on the advantages and possible disadvantages of this situation. Or is there anything in that at all?

Look, I don't know -- it's hard to put a simplistic frame around advantages and disadvantages. Each has their benefits. A promoter run company can be a lot more entrepreneurial. One person takes a decision. It's a very intuitive gut feel business call that a promoter can take, which as a professionally managed and Board-managed company, one has to think of decision-making a little bit differently. Whether it's better or worse, it's very hard to judge. I think broad-basing that decision-making makes it more sustainable. We're not dependent on one person's brilliance to take the business forward. But just early in your comment, you mentioned we are one of the few players of scale with professional management. Professional management, yes. Scale, I'm glad you consider us to have scale. I feel we still have some way to go to build scale. I think there's a lot of headroom for growth.

Our next question is from the line of Chintan Bari from HDFC Securities.

This is Parikshit here from HDFC. My question is, again, on the business development side. So earlier, I think we were looking at some outright deals also on the land side, but now we are again thinking of doing mix of, I think, outright and JD. So has the overall land acquisition or BD size increasing for us? I mean is it going to increase from the levels which you are thinking earlier?

Yes. But it is going to increase, as I said, in a sustainable way. Now I don't want to go out and buy 5 million square feet of land. While the opportunity is there, the market is -- the pipeline exists. We also need to buy land which we can then, as we spoke about earlier in the conversation, one we can bring to market quickly and we can launch successfully. So it's about keeping both of those in lockstep that we buy land. In the past few years, land acquisition has been a bottleneck. We want to make sure we buy land and we can sell and market it quickly as well. So both of those engines have to fire at the same time. So we want to build it in a sustainable way. This year, if we are able to do those 3 or 4 transactions, INR 2,000 crores worth of gross development value going into that, I think it sets us up well, and we will grow from there year-on-year.

Okay, sure. Okay. So the second question was more on the distribution side. So since now we are building up a pipeline on the BD side, so how are you placed in terms of distribution setup? And what are we doing there to market these projects when they come to the launch phase?

No, sir. Thanks for asking that question. In fact, that has been a very significant area of focus for us over the last 6 months. We've really strengthened our distribution. I had mentioned that in the context of the question on Luminare, but the same applies to Mumbai, Pune and Chennai as well, where in all of these markets, we are investing a lot of time and effort to build out our distribution. So just to share some numbers in Mumbai, for example, we now have almost 3,000 [ embedded ] channel partners. And in projects like in the launch of Palghar but also going back almost a year to the launch of Kalyan, what has really driven the success has been the retail distribution, the long tail of channel partners who brought 1 deal, 2 deals. And that, to me, is a very sustainable platform to build it off. In the past, there's been a few large channel partners who've done 50, 70, 100 deals. We can't rely only on that. We also need breadth of distribution. So in Mumbai, we, as I said, now [ embedded ] 3,000 channel partners. We have an app which we use to engage with them. They are finding that app very useful. We've had -- we track the usage of that app. In the last month, we had almost 600 active users on that app. And that app is used to both disseminate collateral to them, run schemes. They can submit their brokerage, request invoices on that app. So it's an end-to-end engagement platform for our channel partners.

Okay. So now since you earlier touched upon that, the organization is more professionally driven, so the risk and reward has to also flow into the key employees or management. So what are the steps you are taking there to boost them or either to go about keep selling and gain market share in the market? So any plans you worked out on that, either in terms of a ESOS scheme or something else?

Yes. So in the last AGM, we had taken an approval to enhance the mix of both the ESOS schemes of 2006 as well as 2012 schemes. And the reason that was done was to create a stronger incentive compensation mechanism with the leadership team to start with and then the rest of the organization. So that is something we are working on very actively, and we should be in a position to put something in place within this financial year.

Just lastly on the land bank again. You said, you will start announcing some of the -- these closures earlier in fourth quarter financial FY '21. So typically, what are the key locations or key regions where you're looking to add this land bank of?

So look, these -- the pipeline, as I said, is Mumbai, Pune, Bangalore. That's where we're looking to acquire new land for residential.

And this has been like -- average ticket price would be like in that 7,000 to 8,000 -- 7,000 to 14,000 kind of realization?

Yes. So I would say if we also include our affordable portfolio from 5,000 to 15,000, [indiscernible] and ticket prices from roughly 30 lakhs to 2.5 crores.

So largely, it will be like lopsided on more on the mid-income luxury side or mid-income to luxury side, not much really on the affordable side?

No, no. As I said, all the way from 30 lakhs or 25 lakhs to 2.5 crores.

Our next question is from the line of Himanshu Upadhyay from PGIM.

I had a question on -- see, Mumbai is one of the focus areas for us, okay? And in terms of launches, how are you looking at -- because the thing is the stamp duty has been reduced, and we are seeing a lot of traction, what we read in newspapers, okay, till December and then till March of this. Is there something we can really use that opportunity to do the things? And before December, all the launches? Or do you think it may take time? And again, when we are seeing this INR 2,000-crore sales value type of projects, are these majorly -- I mean is there something focused more on Mumbai? Or it remains Pune and Bangalore only because we're not seeing much happen for us in MMR in the last 2, 3 years? And whatever we had, Sakinaka, it is still pending a lot for a very long period of time. So first question around these things, especially Mumbai focused.

Yes. So Mumbai, you're absolutely right. I think the fact that this stamp duty reduction is time bound, that is a steeper reduction until December and then a lesser reduction until March, we have to plan our calendar, launch calendar accordingly. So we are trying to push for a couple of launches in that window. And honestly, look, between December and March, it's a 1% difference. So as long as we launch in the December to January kind of window, we'll be able to get those registrations done by March. And the good thing is it's in the interest of the customer to complete their registration so that they can take advantage of that. So it acts as a forcing function for the customer. So we are planning accordingly, you're absolutely right. From a land pipeline perspective, in fact, several of our deals in the pipeline are MMR deals. So you will see a strengthening portfolio within MMR as well.

And again, in [ Nagpur ], that project has been there for a very long period of time, okay? Is there some production we can see even in Nagpur Bloomdale because some amount of reduction in stamp duties is still in Nagpur? So are you seeing something can be done and we can get out of those projects that are better rates, faster, something? Or you can get no improvement you are seeing in Nagpur?

I think Nagpur has been kind of a steady ship. We are not seeing a significant uptick. Part of it is also just about the overall market and the absorption in that market. It is kind of flattish and, therefore, the opportunity to significantly increase velocity is limited. So that's the challenge with Nagpur. But it is a steady ship. It's clocking month-on-month at the same run rate. And in the next maybe 12 to 18 months, we hope to sell most of our inventory there.

And when we are talking about this INR 2,000 crores, will it be majorly premade payment? Why this question is because see if I see affordable, which has come up in last few years, the ongoing and forthcoming is something like 3 million square feet and mid-premium is something like 4.6 [ for years ] and where we have been for more than 25 years. So what we have seen is affordable, you have been able to scale up, but mid-premium has been a pain, okay? So this -- when you are saying it does depend more on mid-premium?

Yes. So it's both, as I said, I think this question came up earlier as well. The pipeline is both affordable and mid-premium, ticket size is from about 25 lakhs to 2.5 crores. I think the -- like you rightly said, there are -- there is gaps to fill on the mid-premium side, so the pipeline reflects that. You will see deals happening in that space.

A clarification, what I wanted was what happened in affordable that we could get so much of development potential or these things, and mid-premium, it was slower. What were the issues? Just to understand affordable could scale up so well and mid-premium could not. So just some thoughts on the -- of yours, but affordable, we could do better and not on mid-premium. Just to understand the item.

Yes. Look, I don't know whether -- it's too early to say better or worse. It's been a 2-year story. And our business, as you know, is a bit lumpy. So you do one transaction, it certainly looks like the weight has shifted to one part of the portfolio rather than the other. I think going forward, I expect a reasonable balance, about a 50-50 balance between the affordable and the mid-premium segments, both in terms of contribution to sales.

Okay. Okay. And in -- I was seeing the Chennai project, the affordable housing. We are giving a INR 10,000 rental guarantee type of schemes, okay? Would not -- if you be doing it guarantee type of things, it will be more investor type of people, which will come and then you can have -- again, lesser people residing in the projects and more rent seekers. How are you looking at such a schemes, what you have?

Well, it's called the rental guarantee, but in effect, it is a pricing scheme. And it's just about structuring it in different ways so that the customer sees either their EMI getting offset or some other benefit that they get back. These are just different ways to structure the pricing. I don't think they necessarily attract only investors. We have seen when we've launched this in the past that end users have also been attracted to such products. Because this uses [ MAC ] and how does it overall -- what's the out-go for me and both on an overall basis as well as a monthly EMI basis.

Okay. And then 2 last questions. See, if we look at 2015, makes one of the good years when we launched, we were able to launch 2.5 million square feet type of things, okay? Can we expect 2022 or -- things be coming back to those levels because after that, we have been only for [ 9.5 or 9 ] type of launches. Do we think that in next 2 years, we can reach back to those levels, which we were doing in 5, 6 years back? Or do you think it will still take further time from here on? And based on the pipeline, what you are seeing?

All else fails, [indiscernible]. I think that's what we are trying to gear ourselves up for. So fingers crossed, we should get there.

And one last question. In the AGM speech, I was seeing a [ hearing ] of the Chairman, sir. So there, he seemed quite optimistic on the development or the factory setup of the [ SEZ ] type of business what we have, okay.

Yes.

But -- and he seemed very confident, he [ categorially ] stated that a lot of business will move from manufacturing from one of the large countries to us, and we are seeing traction. But can you tell something on how is the inquiry level? Or let's say, it lasted, we were having some many -- at a point of time, these many inquiries and currently, we would have these many inquiries. Just to understand, because though we are seeing optimism and I think in Q1 also and even Q4, we had some amount of optimism, but in numbers, we've been not able to see, okay, just qualitative aspects, if you can tell us some idea or just to elaborate on that, because I think in AGM speech, out of 15, 20 minutes, half was on the discussion of it seemed quite optimistic. So just dig on it somewhat.

No. I think, look, one of the reasons we are upbeat about that business is because there are favorable global geopolitical trends that -- and we've been reading about many MNCs wanting to shift their manufacturing or at least expand their manufacturing beyond the traditional markets like China. And that is reflecting in the pipeline buildup that we have. We are seeing large inquiries, as I mentioned, from MNCs who are currently manufacturing in China who want to either set up a second facility or other things from a country like India. Now there are 2 or 3 factors to keep in mind with this business. One, it is a long-cycle business. An inquiry into a conversion takes anywhere from 6 to 12 months because these are very major decisions being taken by these companies, about where to set up a factory. It's a very sticky decision. It's not taken lightly. Second, as I said, more tactically and near term because international travel is restricted, while inquiries and evaluation has progressed, commercial -- negotiations have progressed, the actual signing is still held up because these clients expectedly want to visit the site before they sign on the dotted line. And the third is, look, the India story has to be viewed while -- sitting in India, we are very optimistic and upbeat about the Indian economy and what it can do. These kind of global manufacturing location choices, India is always up against other options like Thailand and Vietnam, even if you keep China out of the picture, which have also been very competitive over the last few years. So we've seen a lot of manufacturing investment moving to those countries. So while India is typically always among the top 3 choices, it will never be standout first choice, so we have to sell India. We have to then sell Mahindra World City or Origins within India to these clients.

Our next question is from the line of Biplab D. from Antique Stockbroking.

Sir, just 2 questions. One is that we had been hearing commentary and we have been seeing data from the developers, real estate developers, the residential sector has been witnessing recovery across market and surprisingly in all price points. And so in case of Mahindra Lifespace, can you give some insights? What are the -- what trends are you seeing? Like is there -- is it more skewed towards [ rate ] to move-in? Or is it skewed to some ticket size? I was just trying to understand. Also, what is the reason of this recovery? I mean it's good for us. Just trying to understand, is it because of the lower interest cost? [ 107% ] is very low. Or is it a combination of a myriad of factors? Like in Mumbai, maybe stamp duty card, low interest cost, developer giving some kind of [indiscernible] in payment, some discount, et cetera, et cetera. So just trying to understand this recovery and the certain -- this set of good numbers everybody is reporting.

Yes. Look, I think there's actually 4 factors contributing to the very sharp rebound in sales. The first is because Q1 was completely shut down, there is certainly a deferral in demand from Q1 into Q2. So people who are intending to transact in Q1 who were not able to are now buying in Q2. The second is there is clearly a set of customers, and our research is bearing this out, that because of the lockdown experience, being locked up in their homes with their families for 8 months at a stretch, not being able to move out at all, they have realized that they need to move to a better quality home, either larger or with better amenities, et cetera. So it has brought more people into the -- these may be customers who have been loosely dabbling with the idea of buying a home but have not committed to buying a home, but because of the lockdown experience, they're now committed to buying a home and have started transacting. The third, as you rightly said, is the interest rate cuts and home loans becoming far more affordable, driving overall affordability in the market. And the fourth is local factors like the stamp duty cut in Maharashtra, which has certainly provided a strong [ competence ] to close transactions, because as I mentioned earlier, there's a time-bound nature to that. If it was an open-ended stamp duty cut, the effects may have been different. The fact that it is a 3% cut up till December and then a 2% up till March actually provide some kind of a forcing function or an urgency to close the transaction. So I think all these 4 factors have contributed to the sharp rebound in sales. And this is, as you rightly pointed out, and our portfolio bears this out, it is across all price segments. We don't play in the super luxury 5 crore-plus kind of ticket size, but it is the segments we play in all the way from the 10-lakh segment in Palghar to the 4-crore product in Luminare. We've seen very, very healthy uptick in walk-ins and transactions across the portfolio.

Sir, next question is on your strategy, Mahindra lifestyle -- Lifespace stress strategy. So see, this is what I understand. Correct me if I'm wrong. The market, residential market over the past 2, 3 years has been under consolidation. It means that real estate developers like you, Godrej, everyone, they are selling, they are gaining market share whereas Tier 2, Tier 1 developers are not -- unable to sell, at the same time, not able to get funding. So post COVID, this consolidation seems to be gathering pace and expect to get a further pace. So in such scenarios, you see -- if you see the reputed developers and good corporates like Godrej, [ Bilal Estate ] Adani and you are getting into -- aggressively into real estate development and into new markets. Some players like -- some players who have been doing business in Bangalore, he is entering Mumbai, NCR similarly -- so on, so forth. So in such scenario from the point of deal sourcing, sir, if I have a plot of land parcel, I'll go to developers, Godrej, [ Bilal ], Mahindra and all. So in terms of deal sourcing as well as distribution, as well as selling, how do you -- how is Mahindra plays? I mean how does Mahindra Lifespace intend to distinguish yourself because -- so in which category you want to grow? What is your strategy? Just I initiated 5, 10 minutes, I missed your -- this thing, presentation. That's why I'm asking this question, sir. Where do I see Mahindra in the next 3 years? What is the strategy?

No. So you're absolutely right. The Mahindra brand and the credibility that we bring as a group to this business is a huge differentiator in a market where customers have burnt their fingers dealing with fly-by-night developers who have not delivered to their promises either from a time line perspective or a quality perspective. So the single biggest proof point of this is the success we had with the digital launch in Palghar, the zero touch launch. If it were not a Mahindra offering, I don't think we would have seen such a good response. The fact that customers are willing to trust us and make bookings, not just inquiries but actual bookings with us without having visited any site, without seeing a show client, without meeting our sales force in face-to-face is a strong testament to the fact that the Mahindra brand matters. This also matters not just from a sales perspective, but also from a deal -- land deals perspective. Because again, I'm seeing landowners who earlier would shop around their land with multiple developers, go for the highest price that they get, now starting to understand that there is a certain risk associated with the transaction. And I would rather deal with somebody like a Mahindra where once the deal is committed, it will happen. And there's a certain surety that the transaction will get closed, the cash flows will get realized for the landowner. So on both these sides, on the supply side as well as the demand side, there is tremendous value that the Mahindra brand brings and that more generally, like you said, the organized players will stand to gain through the shakeout.

Sir, just -- this is my final question. This is in continuation to my previous question. So sir, in the next 3 years, where do you want to be in terms of [ million ] and square feet for the, say, 4 million, 5 million or in terms of booking presales in terms of crores? How much presales do you want to be? Where do you see yourself in the next, say, 3 years, sir?

In the next 3 to 4 years, I would like to -- business should be at INR 2,500 crores of presales per year. Very clearly, that's the goal we set ourselves.

Our next question is from the line of Manan Patel from Equirus PMS.

Can you hear me, sir?

Yes.

Okay. [indiscernible]

Sorry to interrupt. If you're in a hands-free mode, please switch it to a handset.

Can you hear me now better?

Yes, I can hear you.

Sir, my first question is, so regarding our capital. So as you said, there are land deals in the pipeline and the cost of debt we enjoy is like among the best in the industry. So do you see this debt rates or interest rates available at much higher amounts of debt? And will you be inclined to raise debt at these levels if and when you get these land deals done?

Yes. So Manan, fundamentally, I think the priority for us to get a robust land pipeline and then go ahead with the transaction. So far as funding, borrowing or availability of taking any loan is concerned, that I believe is not a challenge as such. And we have tied up lines with significant sums, which we can deploy as and when required.

And these rates are applicable to the additional debt that you may raise in the future as well?

I'm not referring to any specific rate. What I can certainly tell you is the lines which we have tied up right now are the most competitive rates which are available across industry, across markets, across players in the industry.

Understood. And as the land deals get done, do we see the debt amount going up substantially?

What's your belief, Manan?

So I understand that you might not be inclined to raise equity, so I think that might be a good option for you.

So Manan, the way it really operates is that you will always optimize between the money you have in your bank, borrowings which you want to do from financial institutions and also the risk appetite you have in the sense that do you want to do joint ventures or do you want to go so low. So it's a combination of all these 3. It really depends on which transition are we talking, which micro market we are talking about. And based on that, we decide on such acquisitions and investments.

And look, I mean, just overall guidance on that would be, we will not go berserk with debt. We are -- one of our strengths so far has been that we've been a low-debt company, strong balance sheet. We will protect that.

Understood. Understood. Sir, my next question is on the strategy of the business as whole. So there are 2 businesses largely, IC & IC and residential. So they have completely different dynamics. So are there any plans or thought process of separating these 2 business lines in medium or short term?

So we keep evaluating that. And at the right stage, we will do that. Right now, I don't think either of those businesses is large enough to warrant that. We -- the complementarity of the 2 businesses, one being B2B, one being B2C, does add some advantage to our portfolio as a consolidated business. But when they achieve scale, we will try and unlock value. Because as you rightly said, the dynamics of these 2 businesses are very different. The capabilities are different. Investor appetite will be different. So we will do that at the right stage.

Understood. And sir, my last question is, in your presentation, you have mentioned that real estate is one of the key sectors of the group. But from the numbers or scale perspective, the other group entities are really larger than the real estate entity. So when you make that statement, so what are your parameters that you are looking at? And does that consider your aspirations to reach a much higher scale in the future?

Yes, certainly. It is about our aspiration and also the group's expectation from us. They do see this business having the potential to scale. They've given us that reassuring support all along, but even more so in recent times. And particularly thinking of it contextually, there is a very clear understanding that the time has come now. This is a window of opportunity coming out of the COVID situation where, like many before you have commented and questioned, that there will be a shakeout in the industry. There will be consolidation of market shares, and players like us should make our moves at this time.

Ladies and gentlemen, we would like to inform you that we are extending the call for 10 minutes to accommodate a few more questions from the participants in the queue. We'll take a next question from the line of [ Rohith Potti from Marshmallow Capital ].

I have just one more question. Going -- I mean, so you have detailed very much on how you intend to allocate capital to the residential business. Is there any intent to do more deals on the IC & IC business as well? Because as one of the previous participants mentioned, the Chairman did mention a lot about that sector and about the warehousing opportunities in that sector. So do you see us doing more deals in more locations in that segment? Or for now we focus on residential?

From a capital allocation perspective, the focus will be residential. I think I see there are opportunities within our portfolio itself to monetize existing assets and there is a pipeline there. So I don't expect significant capital deployment in the IC & IC business over the next couple of years at least.

We'll take our next question from the line of Vipul Sanghvi from Systematix Shares.

My question is in follow up to the 4 factors that you highlighted which is driving the recovery. So I just wanted to ask that do you see pricing correction also kind of triggering the amount of increased interest that we have seen? Or have you seen any material pricing correction in different micro markets that you operate? That's my first question.

That's interesting and my answer will be counterintuitive. In some of our most successful projects, so if I were to take Palghar, for example, as well as Kalyan, which was launched last year, we've actually increased prices by 8% to 10% in this period and are still seeing good velocity. So pricing is a very local, project-specific decision. I know many journalists in particular, not analysts like yourselves who are investors, who are deep into the business, but the casual commentators will talk about across-the-board price cuts. I don't think that's the way this industry operates. Even within the same micro market, you will find assets trading at very different realizations. It depends on the capital locked in and what the priorities of that developer are at the point of time. In our portfolio, we are fortunate that we've had some strong launches, which has allowed us to move prices up, and that will continue to be our strategy going forward. That we will offer value at the time of the launch and then move prices up quickly after that.

Sure. That helps, sir. My second question is, agree that there is increased momentum due to several factors, as you highlighted, be it in general, plus some local factors. Do you see equal amount of aggression from the banks and mortgage funding, NBFCs, to take up this increased business? Or do you see equal amount of aggression from their side as well?

So you're referring to how are banks and NBFCs looking at real estate industry? That's your question?

Yes. I'm wanting to understand that are they willing to participate equally aggressively to pick up the increased volume that we are seeing in last some time?

See, again, so far as Mahindra Lifespace business is concerned, we are seeing very strong support from the financial institutions, and there is absolutely no sort of reduction in intensity. However, at an overall industry level, whatever feelers we are getting, I think the financing is not easy per se, in the sense that the NBFCs and banks are being cautious and so doing -- and as, in a way, evaluating their strategy, is what I would say. So it could be -- I'd not say very, very optimistic scenario right now. They will be cautious in their next systems.

Yes. I would think -- I mean if I were to add to what Vimal said, 6 months later is we want to analyze has capital allocation from the banking sector increased towards real estate as a sector, I don't think that will happen. If anything, it will be flat or declining because of various issues around their loan portfolios. But within that, and I'm a strong believer in this, whenever there's a challenge at the sectorial level, the stronger players will get disproportionate advantage. Because within that, the redistribution of funding will happen towards the stronger players.

Our next question is from the line of V.P. Rajesh from Banyan Capital.

I have 2 questions. First one on the [ division ] side. You referenced your IRR as one of the key priorities on whether you go for land parcels or not. So if you can just share what kind of IRR are you targeting these projects. And does it differ from the affordable housing projects, let's say, or mid-market projects?

No. So we have the same hurdles across affordable housing and mid-premium. And I'd say our IRR hurdle -- at a project IRR level, unlevered is in the high teens. Any deal below that, we don't look at. And therefore, equity IRRs will be significantly higher than that.

Okay. And then secondly, on your industrial parks, given the announcements from the government regarding [ CLI, ] are you seeing an increase in inquiry across the industry segments, like, for example, we are seeing folks like [ Bitrum ] expanding on the electronic side? Textile companies also looking at it and obviously, pharma companies looking at the [ CLI ] schemes. So I'm just curious if you're seeing demand in your industrial estates because of this.

We are. And there are some industries that have suddenly almost mushroomed in terms of demand. Renewable energy is one where the dependency on -- for example, solar panel manufacturing in China dominated the world's global supply chains. As many of those players are looking to set up manufacturing in India now both because India is a large buyer with the amount of solar energy that is coming on, but also ourselves as a competitive base for manufacturing for exports.

So therefore, the prognosis on the industrial side is pretty robust. Is that the fair way to understand your comments, given all these new industries coming up to look for manufacturing sites?

I would be more measured in my prognosis right now just simply because there's a very high dependency on economic policy and India competitiveness as much as it is on individual parks' competitiveness. So we are very coupled with how the India policy framework evolves and what happens in terms of incentives for local manufacturing, import substitution, et cetera.

Thank you. Ladies and gentlemen, that was the last question. I would now like to hand over the call to Mr. Arvind Subramanian, Managing Director and CEO, for closing comments.

Thank you, Inda. So thank you once again, everyone. As we had discussed, Q2 has clearly -- the industry teams have turned the corner from a abysmal Q1, and the company has also done very well in the second quarter on a sequential basis. Trends going into the third quarter are also strong, but we will have to keep watching this space. It is very hard to think too far ahead in the kind of environment we are now operating in, and we will have to keep navigating and deftly maneuvering as trends are called in the market. Construction activity as well as footfalls have increased across the portfolio, and we're working towards some impactful residential launches in the second half of the year. And on the BD side, which was -- many questions on that, we continue to be focused on that target of getting to 3 or 4 land deals contributing to INR 2,000 crores of gross development value by the end of this fiscal. And just picking up on the last question on the industrial side, again, strong buildup in pipeline. We'll have to keep pushing and with some luck, once international travel opens up, we should see some signings in that space as well. So thank you again.

Thank you, members of the management. Ladies and gentlemen, on behalf of Mahindra Lifespace Developers Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.