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

Ladies and gentlemen, good day, and welcome to Mahindra Lifespace Developers Limited Q1 FY '22 Earnings Conference Call. We have with us on the call, Mr. Arvind Subramanian, Managing Director and CEO; Mr. Vimal Agarwal, Chief Financial Officer; and 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. Thank you, and over to you, sir.

Thank you, Rayo. Good morning to everyone, and welcome to our Q1 F '22 earnings call. Firstly, I'd like to thank everyone for preregistering and participating in this conference call. All of you know this, but for the sake of record, let me reiterate that many of our key operating entities from our residential business like Mahindra Homes, Mahindra Happinest, as well as our IC & IC business like Mahindra World City Developers, Mahindra World City Jaipur and Mahindra Industrial Parks, are not consolidated on a line-by-line basis. It's customary for me to start with some views on the macro environment. I'm going to skip that since most of you track that far more closely. And I'm going to get into the business end of my opening comments so that we have more time for Q&A. So firstly, it's been, I think, overall, a good quarter for real estate in general despite the lockdown coming from the second wave of a pandemic. The lockdown, by and large, was managed far more systemic -- systematically by the local administrations. And while we lost much of -- all of April and part of May as well with sales offices being shut down, we did manage to keep -- significantly keep our shutters up and continued to clock sales within that period. So we ended the quarter with a good rhythm of sustaining sales. What we've not been able to do given the lockdown is to launch new projects in this quarter, and that has been pushed out to Q2 onwards. From a construction activity perspective, when the lockdown was first announced at the end of March, there was a bit of panic among construction labor. Many of them feared that the same thing that happened at the last lockdown, which was a year prior, would happen now, which is long-distance trains would be canceled, et cetera. Many of them immediately within a few days deciding to pack their bags and go back their villages. But I think confidence built back when they realize that the government stayed true to its promise not to cancel long-distance trains. So we did see a return of labor towards the end of the quarter and it's built up nicely back into July as well. I continue to remain very optimistic and confident about real estate. Many unless including some of you on the call have been talking about the country being called for the next up cycle in real estate over the next 7 to 10 years. But from my perspective, let me explain why I say I'm optimistic and confident, 3 factors in the demand side and 3 factors on the supply side that I think plays to this confidence and particularly confidence for players like us. On the demand side, it's very clear over the past year that homes have become more important and not less important to Indian families. The whole lockdown experience where families have been hooked up in their home 24/7 for weeks at end, months at end, has shown up the compromises that they've been living with. And we are seeing a clear trend towards purchasing a new home. I talk about what those trends are and I see IP 2 diverging trends there, but I'll come back to that. So that is the first factor on the demand side. Secondly, on our B2B business, our industrial parts business, again, India is poised to find its space as a global manufacturing hub, taking up this track from China. Now is this a done deal, are we already in that preeminent position? Clearly not. But there is a window of opportunity, given the shift in geopolitics that India must take advantage of some of the policy measures are starting to get aligned to catalyze manufacturing investment in the country, things like the production-linked incentive scheme, et cetera. And I'm hopeful that those will translate into a surge of interest in India as a manufacturing destination. And third is the formalization of the real estate sector, particularly on the residential side, I'm careful to use the word formalization and not consolidation because I do believe there will continue to be a reasonable tail of developers in each of the micro markets as we have seen in many other global markets. But market share is clearly consolidating with the larger and more formal professionally run players. And that is a segue also what I see on the supply side, which is actually precipitating this formalization. If I think of the 3 factors of production and labor capital. All of these 3 are migrating towards the formal sector in real estate. Land availability has never been better. We are seeing a good pipeline, lots of landowners approaching us every week with attractive opportunities that we are evaluating. Capital, as all of you are aware, there's a very significant delta that has emerged between the cost of borrowing and access to capital that players like us have relative to some of the smaller local developers. And that's becoming particularly given what's happening with the economics of this business with the IRR focus, the cost of capital is becoming a significant advantage that we can play up. And the third is labor, and by labor I mean talent, again, real estate historically has not been a talent magnet. But within real estate, it is clear that strong talent prefers to work with well-managed professional organizations, part of large corporate groups like our us. Let me go back to my comment around the demand and how I see kind of 2 diverging trends or almost opposite trends happen. I keep getting asked this question by journalists about are you seeing upgrade behavior. And certainly, we're seeing upgrade behavior, we are seeing families wanting to trade up to get more space, better amenities, better quality of product, better locations, as I said, coming out of their lockdown experience. But we are also equally seeing nuclearization of larger families, which is driving the demand for smaller compact homes as well. So the segment that we play in, which is the affordable and mid-market segments, I think across an entire span, we are seeing very deep and robust demand trends. Touching on some of the highlights for the last quarter in terms of our performance. We chalked quarterly sales of INR 145 crores. And as I said, bear in mind, this is all sustaining sales and effectively around 6 quarters, we started the quarter were constrained by the lockdown. So I think that -- I'm quite happy with that rhythm of sustaining sales. Within that, the mix was roughly 79% of mid-premium projects and 21% of affordable. But that makes honestly, will keep changing quarter-to-quarter depending on what inventory we have, what launches we do in a particular quarter. Mumbai, Pune, contributed more than 50% of that value, as I had mentioned in some of our earlier conversations, those are our 2 focus markets for our residential business in the years to come. You want to build [indiscernible] and depth in those 2 markets. And finished good inventory was about 12% of that same value. The average price realization was just under INR 8,200 per square foot. And we've -- again, once again, like we've shown in the last several quarters, had a very broad-based performance where the entire portfolio from the lowest ticket size at Palghar to the highest ticket size in Luminare. Every single project has slopped sales in this period. We did not do any new launches in this quarter. As I mentioned, given the lockdown, it was not an opportune time to do any new launches, but we do have a strong launch pipeline in the coming quarters, starting with next month itself. We will be launching a project in Chennai. And then following up with launches in every one of our key markets, Bangalore, Pune, Bombay as well as the third tower at Luminare in Gurgaon. Land pipeline continues to be strong. I will preempt a question that I know will come about why we've not announced any new deal in the recent weeks. We are very close to finalizing some transactions. The one learning I've had over the past several months is these legal contracts and particularly joint venture contracts have are littered with more i's and t's than the general English scrolls. So it's taking us a little bit longer to dot those i's and cross t's. But I'm very confident that we will stay true to the commitment we've made of acquiring roughly INR 2,000 crores worth of sales potential, new land opportunities, accounting for INR 2,000 crores worth of square footage year-on-year in the next several years. We're well on track and might, in fact, be slightly higher than that this year. Collections has been -- continued to be strong. We've collected INR 204 crores in the quarter despite some slowdown in construction activity at the start of the quarter. We did pick up pace and managed robust collections in service. And we handed over about 151 units to customers in this quarter. Completions, we did complete a phase at Avadi as well as Palghar during this quarter. And in the coming quarters, fingers crossed if the third wave doesn't impact us as a country very severely, we should now start seeing regular, [indiscernible] completions in quarter-on-quarter. In the IC & IC and a business, we leased 6.7 acres for about INR 14.3 crores during this quarter. Inquiries are strong, the pipeline is strong. The challenge we face there is the restrictions on international travel. Many of our clients are multinational corporations that are seeking to set up or expand their manufacturing presence in India. And for that, the international team is predicated on the international team being able to visit the site and evaluate it physically. We are also seeing a growing traction or growing demand in the IC & IC business from domestic manufacturing clients and also in the warehousing and logistics segment, which is an attractive segment going forward. Let me hand over to Vimal to update on the financial performance.

Thanks a lot, Arvind. Moving on to the financial performance for the quarter '22 versus quarter 4 F '21. The consolidated total income stood at INR 154 crores as against INR 58 crores in quarter 4 F '21. The consolidated EBITDA, including other income and share of profit from JV stood at negative INR 17 crores as against negative INR 30 crores in quarter 4 F '21. The consolidated PAT after noncontrolling interest stood at negative INR 14 crores as against negative INR 27 crores in Q4 FY '21. The company has a debt INR 255 crores at consolidated level as per IND AS, while cash in hand is about INR 162 crores. Cost of debt stood at 6.95% on consol level, while stand-alone cost of debt for MLDM stood at to 5.9%. Thank you. We can open the floor for the questions, please.

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

Firstly, I'd like to congratulating on announcing the bonus issue. I have a couple of questions. The first question is for our launch plans for the year, you mentioned will be launching in almost all our markets where we are present. So have you frozen on the area you'd like to launch for the year, cumulatively, as a whole, across these projects?

Yes, we have. I don't have the number offhand, but we can put it together and share it with you. In each of these -- so it will be -- so I would say the first phase of each of these new developments would normally be between 30%, 50% of that total salable area in those projects. And in places like Luminare, for example, it's the third tower out of third and last tower, so 1/3 of the overall salable area. But generally, between 30% to 50% of the salable areas will be brought to market together.

So at least, again, sorry to follow up on, at least it would be INR 1,000 crores, the value of the inventory, if you will look to launch for this year?

Yes. Yes. Actually in excess of that.

Okay. Okay. Okay. And second, sir, this is a question for Vimal. Where I was referring to your presentation on Slide 35 for the segmental performance. Your gross margin for the residential business seems to be low at 7% for this quarter. So I understand you're following project completion, but any specific reason why it is appearing now?

No, no, there's no absolutely no specific reason. What happens is this is sort of one of the towers, which we have completed in one of our Pune project. The total profitability of that project is upwards of 20% gross margin, okay? It's largely driven by the allocation which we keep doing. But on an overall level, this project will deliver a gross margin profit upwards of 30%.

Sorry, sir, just, it's the Pune project, you said or -- which one.

That's right.

Okay. Sir, I didn't get it. This is you are booked it for the first time. Is it that is why or you wanted to...

Sorry?

I mean why is it appearing -- So 7%, like why is it -- there is a 7%, it could not...

What happens is usually, because it's a large development, and I'm talking more specifically for Antheia project. Because it's large development, there are common infrastructure, which you end up developing and the allocation is not completely in sync at tower-by-tower level. So the project once completed, developed handed over, will give us a return of about 22%, 22.5%. This specific tower is slightly low on account of allocation.

The next question is from the line of [ Rohith Potti from Marshmallow Capital ].

My first question, so what I understand is that -- at the government level, they're looking to unlock the vast tracks of land that is available with PSUs currently and there's talk of setting up SPV, et cetera. And most of these lands are at prime locations in the metros that we are operating as well. So just curious to know, do you think the supply of land could reduce prices? And is there any risk from that end? And are we looking at these parcels aggressively also?

Thanks, Rohith, for that question. So look, as I mentioned in my opening comments, land supply is only growing. The PSU divestment is one source of that, but there's also a lot of stuck assets with the NBFCs and banks that are coming into the market. Land owners themselves are realizing that the surety of working with the larger developers that they get in transacting with us is kind of attracting them to approach us with their land rather than try and either develop it themselves or with local developers. So on multiple fronts, we are seeing a very strong supply side on the land side. So we have to pick and choose what meets our needs and what we want to focus on. And I laid out earlier our focus markets in Mumbai and Pune. For the next 3 years, we want to double down on these markets. We also wanting to pick up land which is ready to market. So we're not looking at things that our futuristic demand centers. We -- the entire operations engine, economic engine is geared towards acquire the land, bring it to market quickly, sell quickly, construct and deliver quickly. So it's a cycle -- the entire cash cycle -- accelerate the cash cycle. And therefore, we have to view these opportunities with that lens. If it's a very large land parcel, we will be more cautious. I'm not saying that we will seek out those large transactions, we are evaluating them very selectively. But it needs to make sense from a strategic perspective and fit with our economic model. Are we're not going to go berserk trying to land bank just because land is available cheap.

Sorry. So just a small follow-up. Is there a risk to price -- I mean, price correction in -- if this land supply comes, do you see a price correction in housing units because of this new land supply, which can reduce the cost of land?

Actually -- and the markets that we operate in, which is in the city of Mumbai, we operate in suburban markets in Puna all over the city, land cost is typically 15% to 25% at most of the top line. So even if land cost reduces by 20%, you're talking about a 3%, 4% difference in margin. I don't think -- I think this is a misnomer and a mix that land cost rise prices. It is much more about design speed to market and the carrying cost of the land rather than the cost of land itself. So if I buy large tracks of land, which I can't take the market for 4 or 5 years. That is where cost builds up and the pressure on pricing comes in. And today, given what's happening on the input prices, commodity prices, steel, cement, copper, plastics, et cetera, the conversion cost of land in the final product is where we need to pay far more attention than the cost of land itself. And none of this is to take away from the fact that we need a good deal on the land. But that is no longer, to my mind, the single most important swing factor that determines pricing and viability of projects.

Perfect. So my second question is, so in some mature markets like U.S., we see many of the homebuilders shifting to -- I mean they fixed the price in the beginning, they take 10% upfront and they pick the remaining, let's say, 80%, 90% towards the end of the -- I mean when the project is completed. And I think 1 or 2 developers in India, the large developers are also sort of, [ renewing ] that model. Do you -- I mean, can you speak about that? Do you see that as a risk to our IRR approach that we're taking right now? And do you see anything like that happening in India on a larger scale?

Yes. Look, I think that's a very important driver of how the economics of this segment will play out. And historically, as all of us are aware, residential real estate has been funded through customer advances, right? So -- and therefore, the construction-linked payment plan is very important how much you can construct. How quickly you can construct and demand that money from the customer, it drives your economics combined of cost with sale, you have to sold -- to be able to demand. If that changes to a lot more of the back-ended payment plans, the 20-80, 10-90, et cetera -- these brings in the question the a very economic engine of the residential real estate business in India. And we are seeing that happening particularly in the higher ticket size segments. And so in the luxury market, the INR 5 crore plus, there is a tendency for customers to demand that as well as -- other developers are setting up those kinds of payment plans. We are still not seeing that as a very prevalent trend in the segments we operate in, which is roughly INR 30 lacs to INR 3 crores. I think customers there are still willing to live with the construction-linked payment plan. They realize that, look, if we do a 20-80, it will come with a higher price. And given that mortgage rates have come down customers are making the trade-off. It's also about them splitting their cash flow over the 3 or 4 years of the construction period rather than having to cough up everything upfront. So far, we are not seeing this as a big stream. That being said, I think your point is very important. It's something we constantly evaluate, which is in the mid- to long term, this shift happens more broadly in the segments that we operate in. How do we need to renew in our economic engine to still be making good IRRs and margins in that environment.

Perfect. Sorry. My last question is, could you give us a broad breakup of the 3 major cost hedges that we have in each of the projects, which is, I believe, land, labor and material cost, labor and construction material cost.

So land is roughly between 15% and 25%. If you add approvals to that, the various premiums, et cetera, between 25% very really does it even touch 30%. Construction, again, depending on the segment, and location would vary between 30% to 40% of the top line. And the rest is in gross margin and [ overheads ].

So of the construction, what would be labor and what would be material?

Labor will be closer to 40%, I guess.

Labor is about 40%, material is 60%.

The next question is from the line of Himanshu Upadhyay from PGIM Mutual Fund.

My one question was on the land bank, the slide, what we have given, this Slide #29, okay? So we have talked about [Indiscernible] Mahindra World City, Chennai, residential zone. But anything change you are seeing on Jaipur side because you have not discussed here? And there is also a large component of residential and social on Jaipur? And how far away is that from getting launched? Or are we starting to do some residential or something on that land, in Jaipur? Can you give some light on this?

Yes. So social and residential zone and therefore, we are hoping to bring to market in the next financial year. We started some planning on that, but it will really depend on how Jaipur as a residential market plays out. It will be a new residential market for us. We've not done residential development there. So we are studying the market carefully to understand what kind of product to lead with so that we establish the location, established a certain client deal for that location because this is a suburban location from Jaipur context. So we want to create it as an attractive residential designation. We need to lead with the right product segment. So that work is underway. Hopefully, in the next financial year, we will start making the first set of launches there.

Okay. And one more thing. We were earlier saying that we want to be in Bangalore, Puna and Bombay. So in this call, what we are saying is that only Bombay and Puna is the markets where we want to focus now? Is it right means that -- you meant the quarter [ in a row ] down.

Let me clarify that [indiscernible] this is from the last call as well. Bombay, Puna are the markets where we will have portfolios of projects, multiple projects at a point of time. We do like Bangalore. We've done a very successful project there, Windchimes, which is now completed and fully sold out. We are doing another launch there in the coming months. Bangalore, we will, for the next 2 years, see that as kind of a beachhead market. It would be very likely the third market in which we would like to build a broader presence. And therefore, we don't want to [ vacate ] the market. We will continue to do perhaps 1 at most 2 projects at a time in Bangalore versus Mumbai and Pune, where our intention is to do a dozen of projects. So that's the distinction.

Okay. Okay. And just one thing, one of the competitors was being very bullish on the NCR market. Are we seeing any traction in our Luminare, which is a high ticket item and can we launch also the next phase of Luminare in this year? So anything on that Luminare project, which is there?

Yes. So as I said, we do intend to launch the next phase, which is the last phase actually the last tower -- later this year. And we are seeing good traction on sales. We last -- in the last financial year, we sold out Tower A, and we are making good progress on Tower C as well, which is the second tower that we've now applied for OC for that tower. So as soon as OC comes, we expect to convert a lot of the inquiries into actuals sales.

One last thing. The Mahindra World City, are you seeing any traction because on the manufacturing side or what we said that last year also, in the AGM, we stated that, that business we see should show a decent traction. But in terms of inquiry and all those things, what traction are you seeing? Because we see some amount of travel has also started and vaccination and all that. But on ground, are you feeling at that business, what we were expecting to do last year is now getting the traction and we can increase the sales multi-fold from here on in next [Indiscernible]?

So can we just say, yes and no. I know because I would certainly like it to be many times larger than it currently is. But I do recognize, and we must all recognize the challenges that, that business has. It's a B2B business. The sales cycles are very long. And it takes 9 to 12 months to convert an industrial client into who is trying to buy a factory location. As I mentioned, we have a reasonable pipeline of inquiries. Conversions have been constrained because of international travel being -- the domestic clients, we are still able to convert, but that's a smaller proportion of our business so far. Going forward, that too will change as we see the demand for warehousing and logistics picking up, we are seeing a lot more domestic business in the pipeline. We've also recently brought on board a new leader for that business, Rajaram Pai, as the Chief Business Officer for our industrial business. And that's the signal of our kind of intent and commitment to grow that business.

Okay. One small thing. This Ghodbunder Road, what are the pending approvals there? And do we expect that we can launch in FY '23 onwards? Just update on this land?

So FY '23 is the target to bring it to market. There are multiple tactical approvals. There is zoning change, there is NA conversion. There are -- so there's a sequence of steps we need to go through. Most of them are procedural. We don't see it as being a significant bottleneck, but they take time. They need to be done sequentially. And that's why F '23 would be our target to bring that to market.

The next question is from the line of Parikshit Kandpal from HDFC Securities.

Arvind, congratulations on a decent performance. Sir, first question is on the industrial land. So you have added this [ Pune ] land on Origins phase 2, so just wanted to understand which all other industrial lands you're looking to add or expand given that you guys see a robust pipeline there and as the travel opens up, the traction could build up.

So industrial locations are our 4 established locations, which is the 2 World Cities and the 2 Origins. And as we've mentioned in the past, we are aggregating land near Pune for another Origins off there. Beyond that, there is no other plans to create new industrial blocks at this point of time.

So within -- so, Pune is more of an urban-centric location. So do you think that potentially is the 500 acres, which is there, so part of that can be converted into residential as we see the potential and maybe will give us better yield.

Not in that location. I mean that is an industrial location. It is -- I mean there will be some small amount of affordable housing, one can do that to service the manufacturing workforce there. But I don't see that as an attractive residential location for the next few years.

In terms of rising of these industrial lands, are there significant premium to the government, the land, as the government allocates to industries? Or is it -- so how do you benchmark the pricing here? So do you think that demand -- the demand going up there's a potential for -- that our land is undervalued and maybe significantly re-rate on the pricing side?

So in fact, at the 4 existing plots, if I were to take the pricing, it is significantly higher than the government land. So whether it is SIPCOT in Chennai or GIDC in Ahmedabad -- or RIICO itself in Jaipur. But the proposition is very different. I think clients are able to see the nature of shovel-ready land with infrastructure done, Green certified. I think that's becoming very important for many of the clients that the facility is sustainable and green. And we have been pioneers in that for many years now and not just paying lip service to it. But Chennai, for example, recently got Zero Waste to Landfill certification. It's the first large development to have that in the country. Jaipur is on the C40 Cities list. So these are things that are far -- were at the time, far ahead of their time, but today are becoming almost gating criteria for clients to make their investment decisions. And I think, therefore, they are willing to pay that premium Also, look, if one were to step back and see what is the cost of land as a proportion of the overall establishment cost of a new factory or a new business in India. It is not that large. So while every client, of course, will want to negotiate to get slightly cheaper land, it doesn't swing the economics as much as many of the other things about will I get my approvals in time, is the infrastructure ready, how quickly can I go to market. I think those are bigger decision criteria.

Okay. So one question for Vimal. Vimal, you have been reporting losses for multiple quarters now. So when do we think we can come back in the black from which quarter or from this financial year, our EBITDA will turn positive or maybe the PBT available will be positive?

Frankly, [Pratik], I think, I'm sure you have seen the overall assets which we have in the balance sheet. And from that perspective, I'll take it in 2 parts. One is the do-ability, we strongly believe that, that is definitely sort of achievable in the short term. One example which we just spoke about, Arvind mentioned about this sale at Ghodbunder land. Now it has got multiple layers of approval. But the pace at which we are moving is very comforting. what it means is we are definitely getting towards better times. Now in terms of red or black, I'll say that it can be black very soon. consistency and uniformity is what we should be focusing on. That's the key point for us.

Parikshit, we've talked about this in the past and last call as well. I think it's important that we build this in a sustainable and steady manner, so that we move in 1 direction. What I don't want is a flash in the pan one quarter, we suddenly show some bumper profit then again slip into loss, et cetera. But that being said, I think in the next few quarters, we will definitely be looking to turn around the business into the black.

Just last question on the land aggregation side. So we've been hearing and now earlier today in the call, you said that we are in excess of INR 2,000 crores, we even committed to closure of the land. So have you seen, MoU is already in place for this and just because the last split -- the first payment goes out to the land owners then you announce it. So from -- in terms of time lines look like 3, 4 months away from these, and second thing, is terms of overall pipelines, have you seen the gross market value of land bank, and deals which you are pursuing. So has it been swelling up over the last few months given that you said that you are seeing a lot of land coming to the market. So beyond the INR 2000 crores, have you already started working on due diligence and initial deliberations on -- for the next year pipeline. That's last question I have.

Parikshit in my -- all our competitive exams, we had already multiple choice questions in the last choice, will always be, all of the above. So I'll say all of the above, to answer your question. So yes, certainly, we are seeing, as I said, a strong buildup in land inquiries that we are getting -- and therefore, the [ GDP ] that we are evaluating is actually far in excess of the INR 2,000 crores. What I want is to make sure that we get INR 2000 cores a very attractive, ready to market lands that meets all the parameters that we want. And therefore, we will always have a offer that is much larger than that. But as I said in my opening comments, I do expect that we will end up north of -- a little bit north of INR 2,000 crores this year. There's some very nice deals that we are in advance stages of. We do have MOUs in place and as I had mentioned in some of our earlier calls, I don't want to jump the gun and announce those until we sign definite documents, which is why it's taken a little longer.

Just on the bonus part lastly, congratulations for announcing it. But just wanted to understand your thought process because it is a maiden bonus, which we have announced. So besides behind that, what was -- what has gone behind the thinking of announcing it the first maiden for the group, for Mahindra Lifespaces. If you'd just touch upon that. So what was the thinking about it.

So I'll link it back to the earlier question you asked about our trajectory on profitability. I think the thinking is very simple. It is to signal to the market to investors, to all of you that we are confident that there will be good times coming very soon, and we are able to service, therefore, a larger equity base. Because the last few quarters, we've been reporting a loss, there's been no dividend distribution on account to that. We try it is important, and we have a very large reserves to pick up equity ratio. We felt it's important to give our investors confidence that we see a brighter future. And that's the primary driver of the bonus issue. Tactically, there was also a feedback from several investors that the liquidity in the stock was constrained, investors were not finding enough liquidity in trading. So hopefully, the bonus issue empirical evidence has shown that that should also increase the liquidity in the stock.

The next question comes from the line of V.P. Rajesh from Banyan Capital. Mr. Rajesh, we can't hear you. Your voice is not very clear. If you're on a hands-free, request you to use the...

Is it better now?

Yes, sir. Please go ahead.

Okay. Yes, okay. So, Arvind first question is on the land prices, are you seeing them moving up in comparison to, let's say, 6 to 12 months ago?

No, quite the contrary, actually, I'm seeing land prices softening because there are fewer buyers in the market, particularly on outside transaction. There aren't too many developers who are ready to put payment upfront. And therefore, for us, we are seeing more attractive deals in the market. And as I mentioned in some of our earlier calls, we are actually seeing land transactions that we had lost a year, 1.5 years, 2 years back, coming back to us. on more favorable terms today.

Wonderful. And on the selling of apartments, because the commodity prices have gone up, are you guys thinking about increasing the prices? Or how are you thinking about passing on that cost?

Yes. So look, we have putting in a discipline where we will increase prices across our portfolio. Of course, the extent of increase varies depending on the specific micro market, how our project has performed, what is the competitive intensity, et cetera. But even separate from the input cost inflation, we are in steady parts to increase prices quarter-on-quarter. And I think that's very important from our perspective of how our economics are set up. If we want customers to buy early in the project at a prelaunch or at launch, the only economic rationale for them to buy early and if the price goes up, right? So we need to be able to price it at a level where we can have a steady increase quarter-on-quarter, year-on-year. And we have demonstrated that across our portfolio even through the last year and the last 5 quarters, including this... [Technical Difficulty]

Right.

Please stay connected, we seem to have lost the line for the management. Please stay connected while I reconnect the management line. Thank you for patiently holding the lines we have the line for the management reconnected. Over to you sir.

Yes. Sorry, I don't know which part of my answer I got dropped off, so we wind back. You asked about pricing. Look, I think there's two aspects to price, and one is certainly, how do you take care of the input costs and therefore, a cost-plus approach to pricing. But there's also a market-based approach to pricing. And from a market-based approach, what we are wanting to do and we set ourselves up for is quarter-on-quarter across every project, we do want to be able to increase prices. And it may be smaller, it may be larger depending on the specifics of the micro market, how our project is performing, what the competitive intensity is. And I think it's heartening that over the last year, in the last 5 or 6 quarters, actually, we have been able to do that. So even in a tough year like last year, we were able to increase prices anywhere between 2% to 8% across our portfolio in -- not a single project as we had to cut prices. So we've been able to maintain that discipline. Now there'll be additional factor, as you mentioned about input costs. So that will also drive us to continue to steadily build up price.

Right. No, that's great. My last question is on the Gurgaon market. So after the success that we had with the current project, are we looking to vacate this market? Or are we going to build more here?

For the time being, Luminare will be our only project. We are -- as I mentioned, we're launching the third tower that will take us probably 3 years to construct and complete. So for that period, we continue to stay in that market, and then we'll taken a call. The idea is to focus on a few markets and build depth, so those are Mumbai and Pune. And as I said, we will maintain our beachhead in Bangalore. Gurgaon, we will come back to in 3 years' time once we are closer to completion of the Luminare project.

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

Sir, two questions. So first one was on the Mumbai real estate market. And if you could share your thoughts on the way the market has been behaving after the stamp duty benefits have been taken away. And if you could kind of link it to your projects, some of which we know, Alcove. I mean has the footfall been after the stamp duty waiver has been taken away. Because when I look at the registration number, it seems that the number have come off quite significantly.

Yes. So look, actually, I was also worried that once the stamp duty benefit gets withdrawn in for March that there will be a sudden drop in sales. And unfortunately, that will coincide with the lockdowns. So April may was lower from an inquiry perspective, but it has built up nicely since then. Second half of May and into June, sales have built up very nicely, which indicates that the market has moved beyond that stamp duty reduction. Also from an actual economic standpoint, if you look at it at 2% stamp duty reduction, I mean many developers who are offering those kinds of discounts across the table. So rationally, it should not make a difference to buying behavior. Of course, there is a large signaling value when the government reduces same duty, it does create impetus for customers to buy and buy quickly because there was a deadline to that. So I do understand that, but it takes -- whenever these things have happened in the past, it takes a few months to unwind itself, which we are clearly seeing. I don't think any customers have that overhang now that stamp duty used to be low. And is there an expectation that again, this will be cut. We are not seeing those conversations from customers or those expectations from customers.

So, Arvind are you happy with the kind of response that you've seen for Alcove. I mean I understand, April-May would not be the right months to look at, but given the fact that you've already spent some time, you've already had June and then you've spent some time in July as well and the way the footfalls have been, or the walk-ins have been at Alcove, which you know, are you happy with the run rate?

Look, I'm quite happy because let's take a specific example. So Alcove, we are currently sitting at about 50% sold of the phase that's launched. Now we also have to bear in mind that our portfolio will comprise different kinds of projects. Not everything will be a [Indiscernible] or Kalyan, or Palghar. There will be projects that will be very high velocity upfront. There will be projects that we have to steadily work through. Alcove is one such project, which is a similar project. We are seeing week-on-week walk-ins. We are seeing conversions happening every week. And we have to be steady in how we build those kinds of projects. But really to Alcove is a very sharply targeted kind of product. Typical, our audience is from -- largely from that pin-code. So it's a very narrow geography, which is the addressable market. We have sized the project appropriately, and therefore, have no worries, it is tracking to our investment case.

Sure. And sir, on juts -- given the fact I mean there are too many -- I mean 2 fewer buyers, this year for land parcels, which is -- I mean you're getting more transaction come your way. Has that changed? I mean, the way we approach the new projects, I mean, in the way we kind of underwrite these projects in terms of either in terms of let say, IRRs or let's say, in terms of the gross margin or project level margin that you would expect? Or it still is -- I mean still working the same and that we used to have this -- I mean earlier.

We have inched it up, to be honest. Given that we are seeing more supply of land in the recent months, we have taken our hurdles up from where they were a quarter back. But it's not a dramatic change, it's not like we doubled our IRR or profit expectation, it is a 2 percentage points increase. And we'll keep refining that. It's always a balance between what we see as supply, how we see the marketability of those projects, et cetera. But I think today, we can -- we have the confidence of setting slightly higher orders than we did 3 months back.

And just one last. I mean I just wanted to clarify that. I've been kind of grappling with this issue for a while now and what I -- so when I speak to people in market, when I look at -- let's say all of us, our peers as well, we've been talking about seriously big numbers in terms of scale, right? I mean we are later around INR 1,000-odd crores today in terms of sales, we are targeting INR 2,500 crores and some of our peers have similar kind of targets and in terms of growth prospects. And obviously, I mean, if most of us are looking at this kind of number, I mean we would be acquiring -- going to buy a land, which is where, there will be demand for more land, right? And then at the same time, you've been talking about no change in land prices or rather softening of land prices. And when I look at the CIDCO auctions, you get to feel there's still competitive intensity in a market where people are willing to pay top dollar to be able to buy a city-centric land parcel. And we are looking at a city-centric land parcels right? Because the idea is to kind of reduce land to launch time. So how do I marry these 2 things? Essentially and we're looking at higher underwriting, I mean, thresholds and at the same time there's demand for more land because most of us have been talking about seriously big numbers in terms of scale?

Interesting dilemma you've posed there, and I do understand where you're coming from. Look, I think firstly, with all humility, we are a fairly small player. So for us to grow from where we are to INR 2,500 crores, I don't think supply either or market size is the constraint. It is our internal ability and our conviction or discipline to build the business in the right way. That is going to be the determining factor of that. So whenever my team or others come to me and say, oh, but market has grown by so much shrunk so much. When you are a single-digit market share player, honestly, you're not driven by how big the market is and whether that has grown. Similarly, on the land side, all we are looking for is 3 or 4 land parcels aggregating to INR 2,000 crores. we are seeing deals which are several multiples of that. So I don't see any reason why we can't execute 4 land parcels worth INR 2,000 crores.

Just one last kind of bookkeeping question. Vimal sir, if you could help me with the revenue breakup, I mean, the project-based breakup, if you have, the top 2, 3 projects?

Yes. You're referring to the residential side of our business, right?

Yes. So the INR 150-odd crores of revenues that we booked during the quarter, the income statement number.

So about 70% is coming from our Pune project, and the balance 30% is split between 2, 3 sites, actually 2 sites, 1 is Avadi and one is Palghar, in equal proportions roughly.

Palghar, would that form a part of the top line? I thought it's a part of an associate company.

Into IND AS numbers, okay. Yes. So it's only the Avadi project, which will come there. And there were a couple of other finished goods transactions which would have happened, but that is a very very small portion of the entire number.

Next question is from the line of Anish Jobalia from Banyan Capital Advisors.

So I just wanted to continue into the last quarter when you were kind of thinking about launching spree -- to the, develop around 2 million square feet, so -- in this year, so are you on track to do this? And what's the kind of expectations of the sales that -- you have canceled out for this year? If you could provide more color that would be helpful.

Yes. So we are on track for all the launches that we have planned for this year. As I mentioned, there was a launch planned in Q1, which got pushed out to Q2. So we have a little bit of bunching between Q2 and Q3. But we will manage that and make sure that all those client projects get launched. I won't share guidance for sales for this year. As I said, I prefer to share the midterm kind of targets, which is INR 2,500 crores by FY '25. I mean you can do the interpretation compared to this.

Right, but just to think directionally, like in FY '19, our launches were like around 1.55. And this year, I mean, the launches are expected to be higher than that. So can we kind of expect to kind of cross the FY '19 sales number in this year itself? I mean how do you think about those 2?

I think good question. I will not -- as I said, we don't want to share guidance for the short term.

Okay. And second question would be, if you look at our sales per square feet, I mean, this year, this quarter it's higher, but let's say we take available last floor around INR 7,000. So how would you break this into like gross profit per square feet and, let's say, EBITDA per square feet that we realize on every new sales that we book incrementally?

Vimal, you want to take this?

So at an overall level, a couple of points. One is affordable and mid premium. In both the segments, we have seen that the gross margins are not significantly vary. And from that perspective, our target will be to the gross margins upwards of 20%. Affordable may be a bit lower, but that really depends on the geography location and your target segment or the timing of the project launch per se. But directionally, that's the number that you can keep in mind, which is the [ 20%, 22% ] [indiscernible].

And how does it further translate into, let's say, after taking off the other expenses or the common expenses also.

Our projects will be in the range of mid-teens for PBT margins and early 20s -- or higher teens for the -- to [ reach ] IRR and therefore, equity IRR is in the low 20s.

Okay. And just one question around the target of INR 2,500 crores. So I mean even today, like whatever sales we show earnings numbers. So there also, we kind of have sharing with our JDA and other partnerships. I mean, there are so many partnerships that we have, right? So going forward, incrementally out of the INR 2,500 crores, so whatever we are doing to, let's say, 50% of that would be belonging to us. So let's say, when we reach INR 2,500 crores, do you think that like the share of our ownership of the INR 2,500 crores will keep inching up on the -- given your strategy of outside purchases -- I mean how to [indiscernible].

INR 2,500 crores of our sales.

So but sir, today, whatever the number you show that is between us and our partners, right? I mean say INR 145 crores that you show in this quarter, that is -- is it just our part of the sales? Or is it along with the partners?

So the other way to look at it is to say from a financial point of view. Ultimately, we have got on top line and one bottom line to deliver. If your overall land prices are baked in into your cost of sales, which is the middle of the P&L. To that extent, your bottom line is not getting impacted. So it's like saying that the cost line we get muted to some extent. And to the extent it top line will also getting -- it's all reduced. And therefore, my size of the P&L will reduce, but the bottom line is what I'm ultimately going to deliver irrespective of whether this is JDA or a full ownership, or a greenfield project.

Okay. So I mean, sorry, I'll take it offline. But just to understand, you're saying that the bottom line that we make would be on INR 2,500 crores of our side. I mean that's what we are trying to say.

No, I'm saying the bottom line, which comes out of INR 2,500 crores, irrespective of whether it's a JDA or a full ownership, [Indiscernible] will get delivered.

The next question is from the line of Manish Agarwal from JM Financial.

So my question is related to the land inventory slide. So since the last quarterly presentation, we used to give a land inventory of 5.74 million square feet. But over here, this time around, it has been converted into acres. So is the potential same or can it go higher? This is MWC Chennai residential zone I'm talking about.

Sumit, you want to take it?

Yes. So I think given that we have not assessed the entire development building plans and building plans have not being applied to. Hence, the square foot number has been not mentioned, but broadly, it is expected to be 5 million square foot for that 114 acres (sic) [1145 acres ] that you are seeing there. We plan to convert some bit of land into industrial end use because in Mahindra World City as a location, industrial land has a higher demand. We are not able to service that demand because we don't have land to offer. So part of the land is planned to be converted as industrial end use, we have made some applications there. And in the balanced plan, we do expect about 5 million square foot and above development potential. Having said, it will also depend on the development formats. For example, if it's a plotted development, obviously, you don't use the entire FSI, right? So those formats will decide what's the overall development potential that we will eventually realize.

And any launch time line?

We are launching one affordable project there, which we have mentioned in our -- to be launch pipelines, MWC residential, that's 4 lakh square foot. That's the immediate launch that has been targeted. Beyond that, affordable is working -- sorry, plotted is a work-in-progress, expecting a launch either towards the end of this fiscal or next -- early next fiscal, [indiscernible].

Secondly, on the Ghodbunder Road land, what is the total developmental potential? And how would it break up into commercial and resi?

Too early to comment on that. It's still in planning stages and there are multiple options in terms of what is the asset mix that we are in the process of evaluating. So we'll probably in a better position to answer that towards Q3 or Q4 this year.

Okay. And lastly, the MWC outside boundary land, which is 64 acres is planned as land sales. So this will be as industrial land sale or outright land sale? And who will be the buyer in case it's outright?

So this would be outright land sales, in most cases. These are typically disparate pieces of land that when you do land aggregation, you're always -- you have a certain you end up with kind of [ disbanded ] pieces of land around the main core area that you are trying to aggregate. So these are those kind of parcels and it is typically local buyers for various kind of needs. Some people buy it local housing, some people buy it for setting up workshops and showrooms, there is retail there. So there's no one end use that one can think about.

And realization should be lower than the industrial land sales itself.

There is also no infrastructure we have developed here. These are sold as with no linkage to the main World City. And therefore, it's is an -- as is where is land sale.

The next question is from the line of Nikunj Bahety from Quest Investment Advisors.

My first question is with regard to the Origins, Pune. So how much land needs to be aggregated further. And are there any risk of delays with respect to the time line of the launch, which is into this, which might be because of the aggregation of land that can come up.

So the Pune project is going to be an Origins format. So our Origins formats are typically in the range of 400 to 600 acres. So that is what we are aggregating there. There is still some part of that for the contiguity and for master planning that still needs to be acquired, which is what we've disclosed. Around, I would say, 70%, 75% of the land is already acquired, about 25% still needs to be acquired.

Okay, got it. Sir, my follow-up on that is that will that 25% of the land be smoothly acquired? Or can there be risk of delay on that?

Look, there already have been delays, right? So -- and land aggregation is never a predictable linear process. There are several interdependencies, et cetera. But look, I think we've crossed the hump on that. And we expect that over the next 3, 4 quarters, the key parts of that land as well as the access to the land will all be sorted out. So we are on track for what we had said.

Okay. Got it, sir. So my second question on the IC & IC front, is that you mentioned that other than Origins, Pune, you are not looking to add any further land into the IC & IC segment. So we had this MoU signed with the Gujarat government for the Dholera project. So could you throw some light over there? And is there any time line within which that MoU has to be completed?

No. So we will not be proceeding, as I said, with anything beyond the 4 existing parks and Origins in Pune. These are the only 5 locations for the next several years that we'll be focusing on.

Okay, got it. Moving on to the B2C segment, which we have. So if I look at the presentation and get the data, so affordable housing from the new projects, which from the new land which we have acquired is roughly 53% and land premium can be 47%, 46% range. So going forward, what would be our strategy for the new land which we acquired with respect to the mix of affordable and mid premium. And how are the realizations likely to change after that?

Look, we don't approach this -- the residential business with a presupposition or a certain quota thing I want so much from a premium, I want so much affordable. That is an outcome of the particular land location and the understanding of the market. So we have, for example, in certain markets, which could traditionally be seen as mid-premium markets, we are planning affordable products because we feel there is a gap in that segment and vice-versa as well. So it's really -- it's led with what is the land opportunity and what is the right product there. It is not led with saying I want to build a certain amount of affordable and a certain amount of mid-premium.

Got it. Lastly, a question on the expected quantum of outflows, which are likely to happen because of this every year land acquisition. So what would be -- that quantum be and how is this likely to be funded with respect to the debt and equity ratio, which we are looking at? Is there any stringent net debt target over there, net debt by equity target over there?

Yes. So look, let me put the numbers very simply to you. We want to do INR 2,000 crores worth of sales potential in terms of land acquisitions. Land is roughly 20%, 25% of top line. So land outlay in that will be about INR 400 crores to INR 500 crores per annum. INR 400 crores to INR 500 crores does not get all paid upfront. Most of our land transactions are with staggered payments where most of the payment happens closer to approvals and to launch even in the outright case. And some proportion of that will be joint ventures in various forms, which don't require that kind of upfront capital outlay. So net-net, I think, with about INR 400 crores, INR 500 crores of land outlay year-on-year for the next few years. We will be well on course to get to the targets we've outlined, that can comfortably be funded by internal accruals and a little bit of debt. We don't want to go overboard on debt. I think getting to even 0.4%, 0.5% of debt equity where is more than enough for us to fund that kind of [ ambition ]. Now having got there, we will, of course, want to raise the bar. It's not for all time that we will want to be at INR 2,000 crores or INR 2,500 crores of sales. We will systematically keep raising the bar in terms of our growth expectations. So at that stage, we will see. I mean by then, we will also have even stronger reserve base, et cetera. So I don't expect us to be a very highly leveraged companies. We will be quite prudent on debt. But we won't be 0 debt either. We will be smart about taking debt where it makes sense.

Okay. So there is no specific debt equity ratio for the sources of funds which you are looking at, right? If I read into it?

Yes. I mean as I said, I would be comfortable with the 0.4, 0.5 debt equity ratio. I think we have enough ability to service that kind of a debt-equity ratio. Above that, I would be very cautious.

Thank you very much. We'll take that as the last question. I would now like to hand the conference back to Mr. Arvind Subramanian for closing comments.

Thank you, Rayo, and thank you, everyone, who participated on the call and for your questions. Look, I think just to sum up. It's been a good, steady quarter, neither extremely good, not extremely bad, given the circumstances of the second wave and the lockdown. I'm very happy with how the quarter has played out. And the confidence in the coming quarters and years is -- remains very strong. And if anything, the conviction has only grown deeper. In both the residential business as well as the industrial business, we expect to rev up the growth engine considerably in the quarters and years to come. I think as was asked and I answered, the bonus announcement is a signal and kind of a statement of confidence that we are making to the investors in the market saying we do expect good times ahead. With that, thank you all, and stay safe.

Thank you very much. On behalf of Mahindra Lifespace Developers, that concludes this conference. Thank you for joining us. Ladies and gentlemen. You may now disconnect your lines.