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

Ladies and gentlemen, good day, and welcome to the Mahindra Lifespaces (sic) [ Lifespace ] Developers Limited Q3 FY '21 Investors Conference Call. We have with us today from the management, Mr. Arvind Subramanian, Managing Director and CEO; Mr. Vimal Agarwal, Chief Financial Officer; and Mr. Sumit Kasat, Head of Investor Relations. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note, 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 very much, and good morning to everyone, and welcome to our Q3 FY '21 earnings call. Firstly, I'd like to thank everyone for participating in this conference call. As you all know, many of our operating entities from the residential business as well as our IC & IC business are not consolidated on a line-by-line basis. So I would request you to view our financials with that lens. Let me start with a market update and then talk about some of the highlights of our performance in Q3. From a market side, again, I'll speak first about Residential, I think there's been 4 factors playing in to the strong resurgence of demand on the Residential side. First, of course, Q1, as you all know, was a complete washout. There was almost no sales happening across the sector, and much of that demand has been released into Q2 and Q3 and has manifested in sales. Second, there's clear evidence that we are seeing from our customers and the research that we're doing that families through the lockdown have now -- many of the families who were on the fence thinking about whether to buy a new home or not, the lockdown experience has prompted them to take that decision because they've realized they are living with some compromises, either in terms of not having enough space or poor amenities in the development. So they are committing now to buy a home, and we are seeing demand coming through from that underlying need as well. The third is the mortgage rates. As we all know, mortgage rates are at a all-time low, and that has boosted affordability, particularly for mid-income and affordable housing consumers who are reliant on home loans to make their purchase. And the fourth is local government interventions which have been very helpful. In Maharashtra, we had a stamp duty cut of up to 3% till December 31, and that has certainly added more tailwinds to deal closures. So if I were to step back, I think we are witnessing almost a perfect storm. Customers, landowners and banks and NBFCs are all now wanting to do business with the more organized players, and we are seeing the industry gravitate, therefore, to the organized sector a lot more. If I were to spend a minute on the IC & IC business, 2 major factors playing in there. One, the geopolitical shifts and in some way, the isolation of China, which is leading to companies rethinking their global and regional supply chains, and India is emerging as a strong choice. And the central government has also announced a slew of policy measures, Atmanirbhar Bharat, the production-linked incentive schemes, which are aiding the demand strengthening as well. So there too, we are seeing very positive signals for the coming quarters. Turning our attention to the company's performance. Before getting into the operating metrics, I would like to, firstly, welcome a new member to our leadership team. KR Sudarshan joined us at the end of December as our Chief Projects Officer. He comes with over 20 years of experience with Sobha, which is a company that we all hold in high regard for the quality of their construction, the timeliness of delivery and the -- and just the method that they have -- and discipline that they have deployed. Sudarshan has spent a lot of time in both the contracting business of Sobha as well as the real estate business. So he brings that entire experience to us. Turning to some of the key operation -- operating highlights. From a sales perspective, we achieved quarterly sales of INR 195 crores, which was a very broad-based performance. Every one of our projects across geographies and across price segments has contributed strongly to that. Within that, I think some of the heartening news is we've sold out Tower A at Luminare, which has been a project that has been a marquee project for us but was facing demand challenges in preceding years. We've also completely sold out Antheia in Pune and Aqualily in MWC, Chennai. We saw a clear trend towards -- a preference towards ready inventory, which accounted for about 61% of our total sales. Collections has also been very robust. We collected INR 297 crores in the last quarter, which is 122% more than the previous quarter. Completions, we're again seeing labor coming back to sites. So most of our sites are operating at between 70% to 80% of the target labor strength, which is a strong rebound from the first and second quarter. In Q3, we completed and received OC for about 3 lakh square feet -- 3.2 lakh square feet, and this is primarily across 3 projects, Antheia in Pune, the first phase of Happinest Palghar and Eminente. Looking ahead, we are gearing up to -- for 2 very strong launches and very important launches in the coming month. In the month of February, we will be bringing to market our project in Tathawade in Pune as well as our Saki Naka project, which had been stuck in with -- stuck for approvals reasons for a few years. We've now received all approvals, and we'll be launching it in the month of February. In the month of March, we expect to also bring further phases of Roots, our project in Kandivali as well as the next tower at Vicino in Andheri East to the market. As you would recall, Roots was -- the first phase was completely sold out at launch and Vicino has also done very well with almost 2/3 of the first phase being sold. So both these projects, in addition to the 2 new launches, we expect will receive good reception from consumers. Maharashtra government announced the unified DCR rules at the end of December for all the cities other than the BMC jurisdiction, and that has given us some positive upsides, particularly on our Tathawade project, where we have additional sellable area potential. Land is a question that many of you have been asking and keen to understand. I had committed or indicated in the last 2 earnings calls that we are gearing ourselves up to do about 3 to 4 land deals this year with overall sales potential of about INR 2,000 crores, and I want to reassure you and state very unequivocally that we are well on track to achieve that. We will share specifics of the land deals as we get into definitive documents, which we expect will happen over February and March. But at a high level, I can share that the 3 most advanced deals that we are pursuing, which we expect to close in this quarter, we have 2 in the Western suburbs in Mumbai and 1 in the central suburbs, overall area of about 1.5 million square feet, and this is RERA area I'm talking about, and I'll seek your indulgence over the next few calls to switch our metric to RERA area rather than sellable area since that's what's important. So 1.5 million square feet of RERA net area and a revenue potential of just over INR 2,000 crores across these 3 projects. So stay tuned, and we expect to be announcing these deals, as I said, within this quarter. In the IC & IC segment, we've done about 17 acres -- 17.2 acres of sales for about INR 33 crores. And as I said, we are starting to see a very strong buildup in the lead pipeline. The 2 factors to keep in mind as you view the IC & IC business, these are long sales cycles. So lead to closure takes anywhere from 6 to 12 months. So I expect many of the leads that we are now seeing will fructify in the second and third quarter of the next financial year. And the second is a more tactical challenge. Most of these -- when a company buys factory land, the operations team or the manufacturing team does like to visit the land. And given international travel is still restricted, we do have -- we have to watch how international travel opens up for these delegations to be able to visit the land and close the deal. We're also seeing a strong demand within that sector for build-to-suit factories, warehouses and data centers, and that's the space that we are actively tracking and we'll make some moves in that space in the coming quarters based on our assessment of the financial attractiveness. With that, let me request Vimal to take you through the financial performance for the quarter.

Thank you, Arvind. The numbers that we state are the Ind AS numbers, and I just want you to just take that into consideration while I mention the key numbers. The consolidated total income stood at INR 70 crores as against INR 37 crores in Q2 F '21. The consolidated EBITDA, including other income and share of profit from JVs is at negative INR 3 crores as against negative INR 8 crores in Q2 F '21. The consolidated PAT post minority interest is at negative INR 11 crores as against INR 13 crores in -- as against negative INR 13 crores in Q2 F '21. So far as debt of the company is concerned, we are right now at about INR 168 crores of debt on consolidated level while the cash in hand is about INR 95 crores. On a consolidated basis, the cost of debt stood at 7.5% versus 8.7% in March '20 while on a standalone basis cost of borrowing has dramatically reduced to about 4.9% for this quarter versus 8.2% in March '20. That's it from my side, and we can open the floor for questions, please.

[Operator Instructions] We have our first question from the line of Prithvi Raj from Unifi Capital.

Sir, given that you are going to close 3 to 4 land deals in this quarter, so how much time can we assume to launch the projects in these areas?

Prithvi, so I'd say at least 1 or 2 of those we expect to launch in the next financial year, and that's the way we are setting up our land deals. We are trying to do deals which have a short time to market. So out of those -- the 3 advanced deals that I spoke about, we expect definitely 1, maybe 2 to be launched in the next financial year, and the third to be launched early in the following financial year.

And sir, for next year, FY '22, sir, what kind of sales target that company is looking at? So because till FY -- I mean, FY '19 was the peak year where you have done INR 1,000 crores. Can we expect a better year?

Yes, that's certainly what we are setting ourselves up for. So from here on, we are seeing a strong growth year-on-year that we are gearing ourselves up for.

And, sir, what kind of launches that you're looking for next year? I mean, on the 1 million square feet side? Sir, for the whole financial year, how much you are planning for?

Look, let me talk about, as I said, there's 4 launches expected in this quarter, 2 new land parcels in 2 additional phases of existing successful projects. Next year, we are definitely going to be launching our next Bangalore project in the first half of the year and also a new residential project in Mahindra World City, Chennai. So those are the ones that are definitely on the calendar, which work is already underway. Beyond that, we'll have to look at it on a rolling basis quarter-on-quarter.

And sir, all these projects put together, what kind of square feet that we are looking at?

So the 4 projects that -- new projects, if I were to take Saki Naka, Tathawade, Chennai and Bangalore, the total project area will be about close to 2.8 million square feet. We will, of course, launch them in phases. So not all the 2.8 million square feet will come to the market together.

Okay. Are you also currently evaluating any JV projects, I mean, in any of the cities?

Yes, we are. So in fact, 1 of those 3 advanced deals I spoke about, is a JV. And we continue to be very open and seeing a lot of interest from landowners. As I mentioned in my opening remarks, I think there is a very clear gravitation towards the more organized players. Landowners are seeing better line of sight that their projects, particularly on joint venture deals, they have seen that it's not just about getting the best revenue share or value in terms of a term sheet, they also want predictability that this project will actually go-to-market and will be seen through to completion without any hitches. And that is something that, I think, they feel a lot more confidence dealing with the Mahindra than many of the other local developers.

We have next question from the line of [ Rohith Potti from Marshmallow Capital ].

It was very nice to see a great set of numbers. So my first question is with regard to something that you've mentioned in the last couple of con-calls in a couple of interviews as well. So you've mentioned that the company is gearing up to do around INR 2,000 crores INR 2,500 crores sales 3 years out. And assuming roughly current run rate of our sales per square foot of around, let's say, 7,000 to 8,000, we're talking about anywhere between 2.5 million to 3 million square feet 3 years out. So -- and that is sort of roughly tripling our current run rate. And so I just want to get a sense from you. I mean, does this not mean that we need to significantly ramp up our land acquisition? I mean, because a lot of work needs to be done before that to achieve that number, right? So how are we positioned to meet that target? And what do you think we need to do there?

Yes, [ Rohith ], great question. And look, I think you're absolutely right that one needs to build up the pipeline of land. But even before that, one needs to build the organizational capacity. So as you would have seen over this year, we have strengthened the team considerably, also restructured the organization to give a lot more focus and heft to our operations. On the land side, as I said, this year, we're looking at about 3 to 4 deals with INR 2,000 crores sales potential. If we are able to do that consistently over the next 2, 3 years, the INR 2,000-plus crore of sales target is a natural corollary or outcome of that.

Okay. Understood. That was helpful. I mean, second question is sort of what you mentioned in your previous remark itself. So I find it very interesting that of the top management names that you've shared in the presentation over the last couple of quarters, I think, majority, if not all, are relatively new people over the last couple of years, and many of them have come from larger organizations to Mahindra. So I just was wondering if you could talk a little more about that and then how are you incentivizing people to come from larger organizations to Mahindra and -- yes, so more on those lines, that would be helpful to hear.

Yes. Look, I think the leadership team has been in the making for about 2 to 3 years now. We've kind of brought in, as you rightly pointed out, some very distinguished and successful professionals from different backgrounds. The approach that we've been taking is to have a mix of people from real estate and outside real estate because we do believe that there is great talent available outside real estate which can be put to productive use here. And our pitch has been about the story that we want to create together. So it's really a bunch of individuals who come together with a shared vision and a shared purpose around creating something which is not just significant in size but also very distinctive in terms of its impact on consumers.

Sure. That was helpful. And then on the land deals, you mentioned that one of them is a JV. So what are the structure for the others? And how have -- how are we financing these?

Yes. Look, I was just referring to the 3 most advanced deals. 2 are outright, 1 is a JV transaction. Even within the outright, 1 has got the approvals in the landowner scope, 1 is deal where we will seek the approvals. So we have a full spectrum there. If I look at the next tranche of deals beyond these top 3, we also have a couple of deals which are distressed asset deals that we are looking at very actively. So it's a good representative mix of the different opportunity spaces that exist. From a financing perspective, look, we expect on these 3 most advanced deals, the overall outlay to be in the tune of about INR 400 crores, but not all of it is paid upfront. The way we are structuring our deals, much of the land consideration is paid over time as the approvals come in. So we are quite comfortable on that. As you would have seen on our balance sheet, we have significant potential to raise further money. Our debt -- net debt is quite low. So we, for the time being, have no concerns on that front.

Understood. And I mean, debt for this particular -- I mean, if it is land related financing debt, the interest rate is still around 8%, 9%, that was mentioned in the call by Vimal?

Yes, in that range.

Understood. So it's sub-10%, for sure, is what you're referring to, right?

Yes. Yes, yes.

Okay. Great. So -- but the last question from my end is broadly on the assessment of -- I mean of the position of Mahindra Lifespace in the context of the Mahindra & Mahindra Group, I mean, the group entity, the promoter entity has been quite decisive in how they are looking at investments across different verticals with very clear targets of 18% ROE businesses or businesses with that potential to be existing and others to be sort of divested. So within that context of the changing strategy at the group level, I was just curious on how Mahindra Lifespace is seen in that context?

No. So look, this had come up in our AGM as well as subsequent investor calls. I think the capital allocation discipline at the group level is a good thing for us. I don't see it as a negative because it prompts us to focus very sharply on the business cases and returns. Now in our business, given the way accounting works with the completed contracts method Ind AS 115, you would appreciate that the reported financials are a lag indicator. So therefore, what we have taken is that 18% ROE hurdle, we are translating into an IRR metric, which we are tracking at an individual project level and making sure our entire portfolio is well above that hurdle from an IRR perspective because if the IRRs are tracking well, the ROE is only a matter of course that the ROE will show up. That being said, also, as a growing business, one will have to look at how the reported ROEs play out because growth will depress ROEs for the period of growth when -- once the top line stabilizes, then the ROEs will start showing up in the reported financials. So the group is well aware of this, and we are completely aligned. We have frequent conversations on this topic. There is no there misalignment at all. And the best signal of this is that Anish sits on our Board, and so it's a very strong sign of commitment.

Okay, great. That was helpful. And then by -- so all the new projects that are coming out will be meeting this IRR, ROE threshold that you're talking about, the ones we are launching, even the ones which are historic purchases, land parcels?

Yes, yes.

[Operator Instructions] We have next question from the line of Devesh Kayal from Carnelian Capital.

Yes. Sir, just wanted to know the status of Mahindra & Mahindra's land in Kandivali. So is there any possibility of it moving to, like, say, Nashik or so and have an opportunity for us over the next 2 to 3 years? What is the status on that?

There's no specific update to provide on that. It is a conversation that we have on an ongoing basis with M&M. So as and when that land becomes available, we would -- we have expressed our keenness to certainly look at that, and we will be in the fray for that is all I can say at this stage.

[Operator Instructions] We have next question from the line of Gautam Gupta from Nine Rivers Capital.

Before I ask my question, I just wanted to say that I was dropped out of the call earlier. So please forgive me if this is a repeat. My question is on the IC IC (sic) [ IC & IC ] business. Last quarter, we had some interesting conversations around the increased inquiry pipeline, thanks to the China + 1 factor. I just wanted to know if we could get some update in terms of the status of the pipeline there, in terms of the business pipeline there?

Yes. So as I had mentioned, and maybe you were drop off at that time. We've done about INR 17 crores of sales in the last quarter. The pipeline is building up very nicely. There are some very large deals in the pipeline which -- any one of those, if they close over the coming quarters would be -- would make it a bumper quarter and a bumper year. These are transactions in excess of 40 or 50 acres each. And as in my opening remarks, I mentioned that there's 2 factors playing into this. One is the China + 1, as you rightly pointed out. The second is, I think, the Indian government, both at a central level as well as the respective states, are also now very proactive about attracting manufacturing investment to the country. So Atmanirbhar Bharat, the production-linked incentive schemes at the central level but also a lot of state incentives. The states are putting together their trade promotion activities in a much more cogent and forceful manner, and we are partnering with them in the 3 states that we are currently present in.

We have next question from the line of Himanshu Upadhyay from PGIM Mutual Fund.

So I had a few questions on especially Bombay and Puna market. We have seen state governments the reduce some of the payments or the -- for land and land development payments, okay. How those impact us in the projects we are yet to launch or in the phases which we are going to launch? So have we paid all those dues and will it -- or we are yet to pay something, okay? And so for the new 3 lands also which you are saying that we will buy or, let's say, do a JD in this year, how feasible is that that we are able to get benefits of those structures which the government has given, which is till December '21 end? So can you throw some light on that? And how will it impact the overall market and how it is -- how does it impact our strategy also? And do you think you will like to share some of the benefits with the customers and hence, you will have be in a better positioning now? So some of those thoughts or your strategy going ahead, especially in the Bombay and the Puna markets.

Sure. Thanks, Himanshu. So the premium reduction that was announced towards the end of December is certainly a very welcome move. It significantly addresses the cost of construction issue or a cost of development issue that has been trending the industry for a while. I see the impact more prospective than retrospective. So new land parcels, new projects that we are yet to launch is where the impact will be most significant. Also, bear in mind that as a strategy, we are a player that does not seek to maximize squeezing off FSR on every -- FSI on every plot. So we do our trade-offs about how much FSI it will consume. So while a particular plot may offer you a 4 FSI or even a 3 FSI, we don't necessarily always consume the full FSI because going taller has significant cost implications and time implications. So our IRR trade-offs, as I mentioned earlier, we are very sharply focused on IRR. We want to complete each project in anywhere between 3.5 to 4.5 years, and that guides us around how much FSI consumption to do. Of course, we will not leave value on the table. But in most cases, we are finding that sweating FSI is not necessarily the best strategy.

Okay. And by -- at what stage will all the payments get done? Means, so for the land -- so before the project getting approved from the government, we have to pay everything or it is a stage-by-stage payments happen?

No. In most of our land transactions, we have structured our consideration to be paid over the course of the approval. So it's very rare that we will pay everything upfront and then go into a long approval cycle.

So in the existing project itself, let's say, Vicino, the new phase which you will develop, for that the payment has to be done now. So the new phases will get some benefit of the government initiatives. That would be the right understanding?

Yes. Yes, that's right the understanding.

Okay. Okay. And any thoughts on Bangalore market, can you also give? Means, what are you doing and what is happening in that market and process you are going forward?

Sure. So Bangalore, as you might be aware, we have a very successful project on Bannerghatta Road, it's called Windchimes, which is now almost 100% sold out. It's fully delivered. We have just the last, probably 10 or 12 units to sell there. And we are very keen to expand our presence in Bangalore. It's a market that, I believe, will teach us a lot. It's a disciplined market from a developer perspective. End-user demand is robust. The attention to quality from a customer perspective is high. So it's a market that I would like us to build our presence in, and we are actively looking at deals in that market.

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

Arvind, congratulations on a decent set of numbers. So I'd also like to congratulate you for the new hirees which you announced in the call. So now getting into the questions, I wanted to know, you said that there are 3 land deals which are in advanced stages and largely in Mumbai MMR. So beyond MMR, I mean, you said that in the next 2 years you're looking to have some continuity of INR 2,000 crores -- INR 500 crores of land acquisition and INR 2,000 crores of sales potential. So what are these geographies which you are looking at? And in what stages is the current land pipeline for the next year? So how does it look? If you can throw some light on that.

Thanks, Parikshit. So we are focused on 3 markets from a residential perspective going forward, Mumbai, Pune and Bangalore. So all our land acquisitions will happen here, and that's where we want to build depth in these 3 markets before we spread ourselves out. The 3 most advanced deals just happened to be in Mumbai right now. It's not by design. It's just that those have progressed faster, our diligence has progressed well. The next set of deals we are looking at, there are a couple of deals in Pune and Bangalore which are at that next year of our pipeline. So these 3 markets, we will -- we have stand ourselves out within those -- these 3 markets to make sure we get good momentum and good depth in these markets.

What is the land -- so how many deals will you be working now? So 3 you said is in advanced stages. So totally how many deals you'd be looking at as of now working or the deals which are in advanced stages besides these 3 ones?

Around 10 deals, I would say, are in very serious negotiation stage, either commercial negotiations or other terms of acquisition.

Okay. And these 10 will be like combined acquisition value of about INR 1,500-odd crores or like INR 500 crores, INR 500 crores and -- so you said 3 are about INR 500 crores, so balance 7 will be like what value?

Yes. I think roughly, that number would be right about 3x. So about INR 1,500 crores.

Okay. So now coming to the launches where you said this quarter is going to be quite a busy quarter. So I know Viral has joined you as a Chief Marketing Officer. So how do you plan to do -- go about marketing these projects? So have you started off? Have you kicked the ground there in terms of marketing for the Pune and the Mumbai project? If you can throw some light on that.

Yes. Yes. I mean, there's significant work that's done. As you know, Parikshit, the marketing and sales preparation work happens 3 months before a launch. So on both fronts, we are very advanced. We are ready to hit the ground. In fact, on both these projects, the new land parcels, Saki Naka and Tathawade, we are at the stage of applying for RERA and getting the approval. So you will see the launch happening very soon, in the next few weeks.

Okay. Coming to NCR, so the Luminare project. So when is the like second phase coming up for that project?

So we have 2 towers there already under construction. One is fully delivered, OCs received, Tower A, which, as I had mentioned, is now fully sold out. We've had a very good year at Luminare. Tower C, which is the next tower, which is now civil structure completed, we are expecting OC to be received by March or April is where our focus is now on selling. And we have the third tower, which is Tower B, which we expect to launch by about July next year.

Okay. So now coming to MMR, your one of the large land parcel is the Ghodbunder Road land. So about 60 acres. So when do we expect -- when can we see the launch there? So realistically, I mean, what are the plans? How are you working on those plans? And when do you expect to see the launch on the ground in that project?

Yes. So Thane, I expect to see somewhere in FY '23. It is, as you said, a very sizable and attractive land parcels. We are in the stage of figuring out the master plan and the right end users for that because it won't be a single end use. It will likely be a couple of different asset classes that we do there. So we expect FY '23 to be the year we bring it to market.

So a couple of -- as you said a couple of asset classes. So are we looking to build out commercial and own also or like it's more of like strata sales which we plan to do there?

Too early to discuss that in detail. We are evaluating multiple things with that land.

But we are open to do more like asset kind of developments as well with the assets?

Yes, yes.

We have next question from the line of V.P. Rajesh from Banyan Capital Advisors.

[Technical Difficulty]

Sir, I'm sorry to interrupt. We're not able to hear you.

Is it better now?

Yes, Mr. Rajesh.

Hello? Is it better now?

If you can speak a little closer to the mic, sir? Yes, I can hear you. Please go ahead.

Yes. Okay. My question is around the sentiment in the MMR region. Now that the stamp duty, majority of the stamp duty related incentives have expired last month, so what's your sense of the demand side, especially as we get ready to launch this project you described in Saki Naka?

Yes, actually, the stamp duty benefits have not expired. It was a step-wise reduction that had happened. It's a 3% reduction till December and then 2% till March. So there is still a significant benefit on the table for customers, which we expect will play into closures before 31st March this year.

I see. Okay. And so your plan is to launch it next month and hopefully have good outcome partly because of this incentive?

Yes, yes. I mean, I would like to think the good outcomes will be because it's a good product and not only because of stamp duty, but yes, stamp duty will tweak.

Sure, sure. Yes. And I think the other question on the IC side. So when we spoke last, we were waiting for some of the overseas clients to come into India and close the deal. And obviously, that seems to be pushed out a little bit given all delays around COVID in different countries. So what's your sense on getting good news? You talked about a couple of large deals in the pipeline. But have those deals pushed out again for another quarter or 2? What's -- if you can just give a little more color on that?

You're absolutely right. Look, it is a practical challenge that, that business faces. The final signing will happen only after the respective teams are able to physically visit the site. We've shared photographs, videos, drone images, all of that and therefore, have a handshake on commercials and other terms. But as you would appreciate, these are significant decisions where to locate a factory and how to build it out is a very, very important decision for every company. So we'll have to be patient and see how international travel opens up. There are a couple of countries where air bubbles have been created. But even with that, the confidence to undertake international travel, so while physically it may be feasible, whether emotionally and psychologically people are ready to do that is a separate question altogether. So hopefully, in the coming quarters, as the vaccination spreads out and there's more confidence around the public health scenario, I am expecting these deals to fructify.

Right. And lastly, with respect to fiscal year '22, when do you think you will be in a position to give some guidance, whether it is next quarter or thereafter, in terms of as you ramp up to this 3-year trajectory that you have talked about? If you can give us some sense of what will fiscal year '22 look like?

Yes. Look, we don't provide guidance from a financial perspective. I will continue to paint a 3-year picture and kind of what we are tracking -- whether we are tracking well towards that or not. But we will not be providing quarterly or annual guidance.

Well, what I meant was that in terms of the million square foot that you are likely to sell in fiscal year '22 on the residential side.

Let's pick this up in the next quarterly call with our annual results and we will see how specific we can be in that quarter.

Okay. That will be very helpful. That's all.

We have next question from the line of [ Manan Patel ], an investor.

Sir, my first question is on the IC side. So at the group level, we are talking about 18% ROE. So how does the IC & IC business split in that framework? And I -- and the second question on that part is we mentioned that Pune is still in acquisition -- land acquisition phase. So do we expect substantial cash outflows in there?

No. So look, overall, in the IC & IC business, we -- the -- most of the investment is behind us. There is only incremental investment ahead of us. And this is -- over the next 2, 3 years is the time when a lot of that historical investment will get monetized and value will get created. From an ROE hurdle perspective or an IRR hurdle perspective, it's no different from the residential business. It's the same hurdle that we apply, after all capital is fungible. So whether we put it into IC or put it into residential, it should earn the same returns. I see significant upside potential in the IC business. It's a wildcard that -- for the last few years because of macro headwinds, there seems to be a bit of a somber move towards that. But if India gets its story right, the next 3 to 5 years are going to be a golden period for that business not just in terms of the vanilla land lease or land sale but also the new opportunities that I pointed to in terms of build-to-suit factories, data centers, warehousing. We are seeing a very, very strong growth in demand in these kinds of asset classes.

Understood, sir. Sir, my next question is we mentioned that we have been in a journey of transitioning the senior management team since last 2.5, 3 years. So is that journey nearing over or that will still continue for next year or 2?

Is that a question you want me to answer at an investor call? No but it is largely over. I think we have the key pieces of the puzzle in place. I think we have -- let me be -- let me not be too humble about it. I think we have among the best leadership teams in the sector.

And sir, just my perspective was that you mentioned that we have to build an organization strength to deliver the INR 2,000 crore, INR 2,500 crore sales mark. So my question was from that perspective.

No, no. So as I said, I think the key pillars of that are in place. We are now -- now it's about execution.

Understood, sir. And sir, my -- so with the prices of commodities going up sharply, especially steel, so do you see the cost of construction increase substantially and that affecting the margin over next few quarters?

Yes. So there is a stress as even Mr. Gadkari has been saying quite publicly. Steel prices have risen substantially over the last quarter. So there is a commodity cycle that we are having to deal with. But that's inherent to the business. And I don't think our midterm to long-term plans are necessarily affected by that. It's a short-term shock that we will have to absorb. We are looking at various levers to mitigate that impact, and we will be able to partially offset that through other savings and value engineering. These are also commodity cycles, right? It goes up, it also comes down. So there have been quarters when we've gotten benefit of a lower-than-budgeted steel price. The last quarter and this quarter, we have a higher-than-budgeted steel prices.

And sir, in that context, do we see the realization moving upwards?

I think realization moving upwards is independent of the input costs. Realization is a factor of the market. We are seeing actually -- and a lot of journalists and analysts keep asking me this question saying, do you expect price correction? And I find that strange because on the one hand, we are saying there is strong demand, but then people are saying will there be a price correction. It doesn't make economic sense to me. If I look at our own portfolio, the projects that have done well, we've actually been able to increase price by as much as 8% to 10% over the last 9 months. And in almost no project have we had to cut price.

Understood, sir. That's great to hear. And sir, my last question is on the land side. So we have read in the newspapers that government has put up e-portal for selling their surplus land. So are we participating because I understand there are surplus land significant in Pune and Bangalore the market area that we are looking at. So are we participating in there?

We are looking at that space. Too early to see how -- to kind of predict how that will play out. But certainly, we will be actively watching that.

We have next question from the line of [ Vaibhav Kacholia from VK Capital ].

Sir, my question was, after this stamp duty -- the registration stamp duty incentive going off in march, do we see some mild downtick in sales in the next 2 quarters, maybe April, June and then July to September?

Look, and this is my observation across markets and not just in India but also internationally. When there is a regulatory sunset of such an important rate, there is a short-term impact on demand. So if indeed, that 2% is completely taken away on 1st of April, I do expect April and May will be very soft months for the sector overall in Maharashtra. I'm hoping that it is done more gradually. Let's see how the government plays this out because it's not in the government's interest also to abruptly bottle up all the demand. So we will see an accelerated desire from customers to close their registrations and deals by 31st of March. In the absence of any announcement that this continues in some form, I expect the month of April and May to be soft, if there is no extension of this benefit.

Right. That's very helpful. And Arvind, if we -- if any construction company claims benefit of this reduction in the FSI premium, do they have to bear the 5% stamp duty later? Is that the understanding?

Yes, yes. That is the understanding.

So then projects which are launched with that reduced FSI, there again the stamp duty benefit will come to the customer, is it?

The reduced FSI cost -- you're saying the reduced premium cost?

No. So if we -- if any project claims that FSI benefit, then the builder will be paying the 5% registration stamp duty, right?

Yes, that's right. So...

So again, then in that case, that benefit will continue to pass to the customer for those projects where that FSI benefit is being claimed?

Yes, that's true.

Okay. But in our case, we don't have too many of such projects, is it?

Now we will be evaluating, as I said, all future phases of existing projects as well as new land deals. On a case-by-case basis, we are evaluating where to avail of this premium benefit and where not to and how does it make sense. So we will likely have some projects going into next year where we would have availed the premium benefit, and therefore, we'll be absorbing the stamp duty for the customers.

Okay. Got that. Got that. And Arvind, one hears that finished product inventory in the MMR region is on the down swing. Is that actually correct in markets which you see around you?

Sorry, could you repeat that question? I didn't...

One hears that finished apartment inventory is pretty low in the MMR region, especially in some micro markets. So do we see that or is that more hearsay and market rumors?

Well, low is a relative term. So I think there is absorption of finished goods. As we pointed out in our own patterns of sales last quarter, we saw about 60% of our sales being contributed by finished goods. And if that is representative of the market, which, I think, it is, we will see a gradual reduction in finished goods inventory over several quarters now.

But then there will be new supply and new finished products also coming. So is the inventory overall in the market reducing or not? Too early to call that yet?

Too early to call that. But I do think the monetization of finished goods, at least in the near-term, is proceeding faster than the creation of more finished goods. So you will see the over -- inventory overhang from a finished goods perspective coming down for a couple of quarters, if I can say.

Okay. Got that. And 1 final question was do you see investor interest coming up into investing into apartments and then flipping it, Arvind, as yet?

No. I don't think that game exists anymore. That used to be the case 4, 5 years back when it was almost an implicit assumption that real estate prices will go up by 10%, 15% every year. The apartment charges is no longer available. So I don't think -- I don't see too much of that behavior.

We have next question from the line of [ Rohith Potti from Marshmallow Capital ].

I just want a clarity. The Thane land parcel we have is 40 acres or is it 60 acres?

It's around 60 acres.

60. Okay. And coming back to the IC & IC business. So as you mentioned in your opening remarks that you are planning to do warehousing and build-to-suit factories and something in data center. So -- and so this is just sort of a follow-up to that in connection to what you said in a couple of previous conference calls where you said the incremental capital allocation to IC & IC might not be that high. So is there a change in that particular strategy going forward?

Not yet. What I said is we are going to watch that space quite actively because we are seeing that space maturing. Look, incidentally, we already have a lot of build-to-suit and warehousing facilities in our existing Mahindra World Cities and origins. It's just that we've not invested in it ourselves. There are investors who have taken up the land and built those facilities and are now leasing it out to their clients. So the installed base exists. And historically, we've felt that, that demand has not been mature enough and predictable enough for us to invest in it ourselves. So we will be quite cautious. We don't intend to put large swaths of capital behind a speculative investment. So until we see signs of stability and maturity in that segment, we will not be putting significant investment behind it. But I do see that, that's a space that is finding its feet. So it's something we need to track actively.

Fair enough. That was clear. And so one more clarification on the Pune parcel when you -- my understanding was that we have a 500-odd acre land parcel in the outskirts of Pune. So what is this land acquisition that we are doing for this Origin?

Yes. So it's well underway, and we expect the first phase of that project to get fully aggregated by -- sometime in the next financial year. And therefore, we should be able to bring it to market about 18 months thereafter. It's a very attractive location, very close to Pune. And our strategy in the IC business has been to be on these growth corridors. So it fits very nicely into that strategy.

So this is sort of aggregation of all -- I mean, it will be using our existing land parcel that is there already and then we are aggregating that. We're not buying new parcels. Is that right?

No. So it's kind of tuck-in small parcels to complete the contiguity, et cetera, just like every aggregation plays. But again, most of the land cost is already paid out there. We don't see this as a major outlay of capital in the coming year.

Perfect. And then we don't intend to, outside of what we already have in Pune, Ahmedabad and Chennai, we don't expect to do any more acquisitions for this -- land parcel acquisitions for this particular business as of now, right?

Not for the foreseeable 2 or 3 years, at least.

We have next question from the line of Anish Jobalia from Banyan Capital Advisors.

Yes. So my question is on the Slide #36 of the presentation. Obviously, you talked about the sustainable cash flow in the Residential business. So if I were to look at it from Q2 to Q3, this number has moved from around INR 1,800 crores to INR 2,300-odd crores. So could you give some color on or at least provide some explanation of what led to this significant increase of that division?

Let me request Vimal to take this question.

Yes. Can you just mention which data point you referred to INR 1,800 crores?

In Q2 presentation, the last quarter, the sustainable future cash flows on the Residential business were given at around INR 1,800 crores the last one.

So that's largely depended on the updates we would have done because the number of projects that are coming to the market have gone up. And for example, say Tathawade, as mentioned will come up for launch and those kind of cases would have got added largely. Similarly, the other development which would have happened is our Luminare projects in South has done...

Hello?

Yes. So let me add, Vimal. So Anish, I think on that slide, if you see, there are 2, 3 changes. The cash that has been collected has already gone out of that number, but there is a new cash line item we've added from the new projects, which is the new project that we are nearing launches, like what Arvind said, Tathawade or Saki Naka and couple of projects which we have not estimated in past quarter in the investor presentation. Now it has been estimated now, given that we are very close to the launch.

Okay.

If you subtract that INR 700 crore that is mentioned on this slide, then you will come back to broadly INR 1,600 crores, which is a reduction from last number because you have selected the cash.

Right. So basically you've been able to estimate a bit better about the new projects and that's why you have put that...

Yes, yes. As we come close to launching, obviously, we have a better understanding about the project and launch pricing and blah, blah, blah, construction cost. So basis that we are able to estimate what will be the estimated cash surplus that we expect to generate from such projects.

See, the cash estimates here are not very optimistic. These are very, very realistic or actually bottled towards being pessimistic. And therefore, whatever land banks you see on the previous slide are not straightaway getting converted into cash availabilities. And this falling out only those launches where we are extremely confident, and that's the number you're seeing there.

Okay. And my second question is on the network of the industrial IC business. So even between the 2 quarters, that moved up from INR 600 crores to INR 892 crores. So what is it that now increased by such a significant amount?

There is no significant change which should have logically happened. I just need to get into some more details. But overall network movement would have been closer to [indiscernible].

Anish, we can clarify you this question off-line from the call.

Sure. Sure. Okay.

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

Thank you. Thank you very much, and thank you, everyone, for your active participation. As we've seen through our conversation, we are seeing a very steady and sustained buildup in the business, both from sectorial perspective as well as our company's performance. And construction activity has picked up, sales has picked up, collection has picked up, which are the 3 most important metrics from the Residential perspective. This quarter is going to be very important for us with 2 very significant new launches. I'm very excited about what we have in store on the products as well as the propositions there as well as additional phases of 2 successful projects of ours in our portfolio. From a BD perspective or land acquisition perspective, as I have reiterated, again, this time and maintaining consistent messaging from earlier communications, we are wanting to build a very sustained land pipeline, 3 to 4 deals, INR 2,000 crores of sales potential, around INR 400 crores to INR 500 crores of land outlay year-on-year. It's important that we don't do this in a yo-yo fashion where we suddenly have lots of deals in one year and then have nothing the following year. That pipeline is very important, and that's the way we are approaching this and building our team as well as our pipeline towards that. And finally, on the industrial side, the next 6 to 9 months, I'm hoping once international travel opens up much of our pipeline that we've built up will start fructifying into actual leases and sales. So fingers crossed for that. With that, I'd like to, again, thank all of you for your participation and look forward to staying in touch.

Thank you very much, sir. Ladies and gentlemen, on behalf of Mahindra Lifespaces (sic) [ Lifespace ] Developers Limited, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.