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

Ladies and gentlemen, good day and welcome to Mahindra Lifespace Developers Limited Q3 FY '22 Earnings Conference Call. We have with us on the call Mr. Arvind Subramanian, Managing Director and Chief Executive Officer; Mr. Vimal Agarwal, Chief Financial Officer; and Mr. Sumit Kasat, Head, 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 that this conference is being recorded. I now hand the conference over to Mr. Arvind Subramanian, Managing Director and Chief Executive Officer. Thank you. And over to you, sir.

Thank you. Thank you very much, and good morning to everyone. Welcome to our quarter 3 FY 2022 earnings call. Firstly, I'd like to thank everyone for taking time to participate in this conference call. As you all know, many of our key operating entities in the residential business, like Mahindra Homes, Mahindra Happinest; and all the entities in our industrial business, which is Mahindra World City Developers, Mahindra World City Jaipur, Mahindra industrial parks private limited and Mahindra industrial parks Chennai limited -- all of these are not consolidated on a line-by-line basis. I want to start my opening remarks by drawing out 6 things I noticed in the recent budget, which I think has an important bearing for us as a -- both as a category [ as well as a ] company. First, the continued commitment and focus on PMAY and affordable housing, I think that is a strong statement of intent. These are multiyear programs; and the fact that the government continues to support it aggressively, yes, is a good sign. Second, a strong investment focus. I think it is very clear the theme of this budget was around supply side focused on manufacturing, focused on infrastructure. So particularly the focus around the manufacturing sector, yes, was very notable; the expansion of the PLI schemes; the focus on solar panel, solar module manufacturing; [ infrastructure status ] for data centers. These all bode well for our IC & IC business. Third, the promise of new legislation on the SEZs, which again is something that has been discussed for a few years now. And we are hoping that the new legislation creates a [ localized ] SEZ environment. As you are aware, we have a significant presence in the SEZ space, particularly now in Mahindra World City Jaipur. And depending on how this legislation shapes up, I think, again it could be a big positive for us as a company. Fourth, the entire budget was -- there were repeated references and commitments to sustainability and green, which again I think is -- it's important for the nation. It's important for the category. And certainly it's an area that we like to think of ourselves as leaders in -- within the real estate peer group and therefore again plays to our strengths. Fifth, there was a lot of talk about in -- different aspects about building transparency with the National Generic Document Registration System, the digitization of land titles, et cetera but also the easing of approvals and single-window expedited clearances around the environmental clearance, et cetera, et cetera. And the last one I will call out is the focus on infrastructure, particularly roads and highways. And that -- to my mind, while it is of course very good for the nation and creates a strong economy, it does have some risks for us from an input cost perspective. As more and more investment happens in roads, cement, steel demand, et cetera goes up. So these are 6 things I would like you to bear in mind as we -- as you look at the category as well as the companies. The sector overall has been doing very well. Many analysts, some of you on the call have been writing about the signs that this may be the start of a multiyear bull run for the sector. And I do believe that, that view does merit consideration. The pandemic has had a change impact which is almost counterintuitive. When the pandemic started, we wouldn't have thought of it that way, but looking back, we are seeing that paradoxically it has reignited the need for better personal spaces, homes, offices, et cetera in the homebuyer's mind. And despite the recent spread, almost viral spread, of the Omicron variant, we are seeing a steady improvement in both consumer sentiment as well as business confidence. I think this is backed by the strong vaccination drive and the fact that many states are now starting to gradually open up some of the restrictions [ that were left ]. The historically low interest rates; greater affordability; high savings rates; and as I said, a resurgent interest in home buying are all good tailwinds for the sector. Price levels are recording a perceptible uptick both on a quarter-by-quarter but also on a year-on-year basis, and I expect this trend to continue in the coming quarters. This is driven by both demand strength and also the input cost inflation. Let me take a cue from 2 aspects that I highlighted in the budget, the focus on manufacturing and the SEZ legislation, to actually start my comments about our performance with the IC & IC business rather than the residential business which I traditionally do. And the reason I pick the IC & IC business to talk about first is, to my mind, that has been the standout highlight of the Q3 performance. I have been talking for the last few quarters about the fact that we've seen a good pipeline, a good buildup of inquiries, but we've been struggling with convergence primarily because international travel has been restricted. As some of those restrictions were eased in Q3, we have seen a strong conversion and done 51.1 acres of leasing in Jaipur totaling about [ 143 crores ]. And the good thing about this -- I mean 2 positives I would -- or 2 or 3 positives I will take from this. You would recall I had set an aspiration that, by 2025, we need to be at 500 crores per annum of industrial leasing, so doing [ 140 crores ] in a quarter sets us very well on that run rate. The other aspect is this is a long-sales-cycle business, so I have confidence that, that performance will be sustained in the current quarter as well. And the third is again going back to a more general observation. I think the resurgence of manufacturing investment bodes well for the overall economy and for the country. So for all these 3 reasons, I'm very heartened by it. It's also a testament to what Rajaram and his team have been able to achieve over the last 6 months. You would recall Rajaram joined us as Chief Business Officer, Industrial earlier this year. And his focus along with his team has been to build a discipline in our sales process so that we have predictable business. This tends to be a very lumpy business, but he and his team have been building the foundation to make this into a more predictable quarter-on-quarter business in the quarters to come, so kudos to Rajaram and the team. Turning our attention to the residential business. We had again a very strong quarter, about INR 250 crores of presales largely driven by -- in fact entirely driven by sustenance sales. And that's again been an important focus that [ Vimalendra has gotten ], where we don't want to be only running from launch to launch. Of course, launches are important, and I will cover that in a minute, but it's important to build capabilities to continue to chug along with sales even in periods when we have fewer launches. So that does wonders for our economics. So INR 250 crores of presales in the quarter. Our 9-month sales comes to about INR 700 crores, which is higher than the entire previous year, what we achieved in FY '21. The major contributors from a value perspective were Luminare in NCR, in Gurgaon; and Vicino in Mumbai. Both projects have done extremely well. Luminare has again been a very heartening story. We've seen over a 20% price appreciation over the past 18 months. From a volume perspective, Mahindra Happinest, Mahindra World City Chennai were the standout performer. We launched about 348 units in Q2. This was, I think, in August, September when we had launched it. As we stand today, we've sold 97% of that, which again is a great testament to the capabilities because we are now able to demonstrate this project after project, which is fantastic. During the quarter, premium -- our mid-premium business or our mid-market business contributed 72% to our sales value, and the affordable business contributed to 28%. And the average price realization stood at just under INR 7,900 per square foot. That's driven largely by the mix of mid-market versus value homes. Coming to launches. In the third quarter, we launched a new phase at Alcove, which is our project in Saki Naka at Mumbai; as well as the last block of Happinest Avadi. And yes, we've also relaunched and with a significant upgrade our villa project in Alibaug. We now call it Mahindra Meridian. And the initial response has been very heartening to that product as well. Looking ahead, we are -- sorry. We just -- 2 days back, just this weekend, we launched our second project in Kalyan. This is a land parcel we had acquired in March of 2021, so it's been about 10 months that we've taken to get to launch. And the first weekend walk-ins have been quite encouraging. Looking ahead, we are looking to launch additional phases in Happinest Tathawade in Pune, the last phase of Alcove in Saki Naka as well as Vicino in Andheri East. We are also in advanced stages of RERA registration of the [ large ] tower in Luminare, which is [ tower 3 ]. Our projects in Kanakapura; as well as the new land parcels that we acquired in Pune, in Pimpri, will both be launched likely in the first half of next year. We are also looking to launch a plotted development project in Mahindra World City Chennai, where again we expect approvals and to be able to launch it within the first half of next year. The overall inventory that we expect to launch in the next 3 quarters, which is Q4 of this year and Q1 and Q2 of next financial year, will be in the range of about 1,700 crores. Land acquisition is an important area of focus for the management team. This year, so far, we have announced 2 land transactions with a total GDV of 1,300 crores roughly, 1 in Pimpri, as I mentioned; and 1 in Dahisar in Mumbai. Both of these are progressing well from a design, development and approvals perspective. We are in advanced stages of negotiations on a few other important land parcels and should be able to make announcements in the next 2 to 3 months on -- totaling a GDV of about 2,000 crores. That will take us well above the target I had shared with you of doing 2,000 crores worth of GDV addition every year, so I'm very confident we will exceed that. If I look further ahead: Our overall pipeline from a business development perspective, land acquisition perspective is almost 8,000 crores worth of GDV. And this covers many different deal types. We are now actively pursuing transactions which are outright, outright with approvals, joint developments, society redevelopments as well as distressed assets. So if we look at that 8,000 crore pipeline, these are in various stages of negotiation. Even if we hit a 25% to 30% strike rate, we are [indiscernible] for next year's land acquisition as well. We would like to exceed that, but I'd like to give you confidence that we are in a good space, as far as planned acquisition is concerned. Collections and cash, another important aspect of our business. In Q3, we achieved INR 469 crores of collections, which has led to an overall year-to-date collections up to end of Q3 of INR 844 crores, which again is well above what we achieved in the full FY '21. So we have a very good, strong cash position; and a low leverage in our balance sheet, which sets us up well for growth going forward. We completed about 2 lakhs square feet during the quarter, primarily in Bloomdale in Nagpur and Happinest Palghar. And the overall 9-month completion is about 7 lakh square feet. We are expecting a few more important completions in Q4 at Centralis, at Palghar, at Bloomdale and at Lakewoods in Chennai. Overall we are seeing construction activity picking up pace. The first 2 quarters, we were lagging from our desired pace, but Q3, we've caught up. And Q4, we expect to end the year quite strong. With that, let me request Vimal to update you on the financial performance during the quarter.

Thank you, Arvind. And good morning, everyone. Moving on to the financial performance for Q3 F '22 as per Ind AS basis of accounting, for another 4 or 5 key points. The consolidated total income stood at INR 33.3 crore, as against INR 65.7 crores in Q2 F '22 and as against INR 70.23 crores in Q3 F '21. The consolidated EBITDA, including other income and share of profit from JVs, stood at 21.4 crore, as against 27.4 crores in Q2 F '22. This number was a loss of 2.9 crores in Q3 F '21. The consolidated PAT after noncontrolling interest stood at INR 25 crores, as against INR 6.5 crores in Q2 F '22 and as against loss of INR 11.2 crores in Q3 F '21. Your company has consolidated gross debt of INR 199 crores, while cash in hand and bank balance stood at INR 156 crores. The cost of debt is 7.2% on a consolidated basis, while MLDL's stand-alone debt is at 6.4%. With this, I'll request to move to the questions [indiscernible].

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

Yes. Arvind, as you alluded in your opening remarks, on the business development pipeline, so just to clarify: So you think, out of the 8,000 crores of pipeline deals, maybe around 2,000 crores is something you'll close in March of this year. Or it may spill over to next year. I just wanted some clarity there.

Yes. So I think we are trying to close it as quickly as possible. I will say 2 to 3 months. I would like to close it before March, but we are going concerns. If it slips into April, I do believe -- I mean, look. As long as we get [ the right deals ] within March and April -- obviously [ I'm ] not too fast. We'll try and close by March [ itself ]. Unlike Cinderella's chariot, I'm hoping we won't turn into a pumpkin on 31st March.

Okay, okay, okay. And sir, just considering now obviously wherein Mumbai, Pune have been a focus areas, as you have said, for acquisition now, considering there is now a lot of, well, listed peers, right, even unlisted [ by who are still there the larger ones ], there seems to be a lot of competition for the land, right? People are aggressively chasing a lot of land bank, so what does this mean for land prices? And how are you working around ensuring that margins are protected in a rising cost environment?

Yes, that's a great question. Yes, there is certainly a lot more interest and activity. And as we all, I'm part of it, all of you are part of it, talk up the bull run in the real estate, more people start getting interested. And there is [indiscernible] that gets created from a land acquisition perspective, so we are starting to see more activity from a competitive perspective, but that being said, I think landowners over the last several years have learned their lessons; and do definitely favor the larger, more well-established corporate developers because they believe there is a greater surety that the transaction will actually be consummated. We have seen over the last years several rebound transactions that have come to us where landowners have signed up with somebody. That deal has not been consummated and then they are back in the market 2 years later. So I think that lesson is in the minds of landowners, so they do deal with people like us differently from the others. I'm hoping that will continue to stand us in good stead. The combination of, though, as you rightly pointed out, heightened interest in land and input cost inflation is putting pressure on margins. We are countering that in 3 or 4 different ways. One is clearly looking at sharper designs, so more efficient plans, trying to get better area efficiencies, et cetera, value engineering. The second is around contracting and procurement. How do we consolidate? How do we group kind of commodities that we buy but also finishing materials we buy across projects so that we get better prices? The third is value -- is pricing. As I mentioned, there has been a perceptible hardening in pricing across the market, but within our portfolio certainly we have a discipline of taking price up every quarter by at least 1.5% in each project. And many projects have done much better than that. They've gone up by about 8% to 10% over the last year. And the last one, which I think is particularly important for players like us, is how do we bring our advantage on costs of debt to bear. This is a capital-intensive industry. As Vimal pointed out, our consolidated cost of debt is 7.2%. Most of the peers are at 10%, 11% plus. There's got -- that has got to account for something. So as we look at how to leverage that from an economic perspective, I think these 4 levers are what we are working on.

Okay. That is pretty helpful. And if you can just help us understand: Cumulatively, let's say 9 months of this year, what will be the total input cost sort of inflation? And what has been corresponding price hikes you have taken across products on broader sense?

Generally the input costs would have gone up if I look at it as a percentage of price. So the impact on margin would be about 300 basis points. Our average price increase would be well above 5%.

So is it like costs would have gone up by 8% and price hikes [ of ] 5%? Is that a correct understanding? Or...

No, no. I'm saying -- so input cost as a -- if I take costs as a percentage of sales value, the impact on margin is about 300 basis points [ actually ]. So 3% of margin impact because of cost inflation. And we've countered that by just the single lever of price increase, which on an average has been about 5%.

Okay, so there has been no hit on margins, so no -- net basis. That is...

Yes.

Yes. [ Fine, fine ]. I'll come -- I have move questions. I'll come back in the queue.

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

Arvind, congratulations on a good quarter. So my first question, just to clarify [ and all that ]. You said 2,000 crores or so GDV before March. And after that, beyond that, you have another 8,000 crores of potential prospects pipeline which you will close with a 25%, 30% strike rate for the next year. So it should be like well above your 2,000 crores target for next year. Is that right?

Yes. So advanced pipeline of 2,000 crores. We'll -- as I said, we'll try and close it by March, but even if it spills into April, that's -- it's not the end of the work. But we will try and close it by March. The pipeline beyond that, the 25% I was saying was [ more of back-working to say ], even if the strike rate was 25%, we'll be in excess. I'm hoping our strike rate will be much higher than that.

That's for the next year. So maybe this year, 2,000 crores may be spilling over to April, but after that, next year, another 2,500 crores -- I mean 2,000 crores-plus maybe next year from the pipeline which you have. Okay.

Yes.

Second question is on -- so we've been booking very strong sustenance sales of -- averaging about 250 crore a quarter, [ with -- also with ] launches in place. So now this is a launch-heavy quarter. So if you can highlight in this quarter what are the expected launches; I mean, in terms of GDV value, what these launches will be. And will this be -- maybe historically we have done highest about [ 400 crores, 407 crores ]. Will there be a quarter where we will cross 500 crores of sales?

Yes. So if I -- as I said, this quarter, we just launched Mahindra Happinest Kalyan - 2, which is our second project in Kalyan, which literally this weekend we've launched it. We are, yes, expecting to launch the last phase of Alcove; the next phase of Lakewoods in Chennai; as well as Luminare tower 3, which is the third tower in Luminare. Luminare will be about 300 crore -- 350 crore -- sorry, 400 crore GDV which we will bring to market. Happinest Kalyan, the first -- Happinest Kalyan - 2, the first phase, is about 350 crores again. Lakewoods, Sumit, Vimal, was -- it's about 100 crores in Lakewoods, again about 100 crores in Alcove. So those are roughly the numbers that we will bring to market.

So about 700 crores, 750 crores, 800 crores. So do we look at crossing 500 crores this quarter in terms of [ presales ]?

Inshallah.

Okay. Sir, earlier, in the opening commentary, you did mention about bullish up cycle which is there and like you believe that will be there for another few years, so I just wanted to pick your brains on how are you positioning this cycle to the group M&M. And do you think like [indiscernible] to come through on the [ M&M family land ] over the next 12 months? And have you already considered a part of that while giving that 8,000 crores prospect pipeline?

So, I mean, no further update from what I have given you in the last couple of quarters. We are in constant dialogue. As and when that opens up, we will certainly be in the running. Whatever is done will be done on a "arm's length related-party compliant" kind of methodology. And so at this stage, that's all that I can share in terms of update [ with you ].

Okay. Just lastly, on the industrial business, we did touch upon that international travel [indiscernible]. So if you can build on how is the industrial prospects pipeline looking. And do you think that the momentum which you have seen in third quarter can continue? Or it was just more of a pent-up demand which we have seen covering up big numbers [indiscernible]. Or so if you can mention a little bit on the industrial pipeline and then like of targets -- like targets you are looking at [ in certain stages in the next year ].

So as I mentioned in my opening comments, it's not a one-off. We are seeing continuing strength in that business. So this quarter also looks good from a. -- look. That's a long-tail-cycle business, so often what you sign up as MOUs in 1 quarter gets translated into these deals in the next quarter. So we are looking at -- we already are sitting on MOUs which give us confidence that this quarter will also be strong. I don't want to share a number, but you'll be happy with the numbers is all I'll say.

Just last one, on the Ghodbunder launch, if you can touch upon what's the progress there. And what are the time lines now we are looking to launch the first phase of this project? Is it like FY '23 or early FY '24? Some sense on in terms of preparedness both from the design and -- design and approval stage and likely go-to-market and launch time lines [indiscernible].

We've had -- thanks for raising that, Parikshit. We've had very good progress on [ the Thane and ] approvals are progressing well. We are targeting to do a first phase launch end of next financial year or first quarter of the following year, so Q4 of F '23 or Q1 of F '24.

Our next question is from the line of [ Jenom Shah ] from Equirus Securities.

Sir, my first question is related to the land costs. So sir, in presentation, we are showing that some INR 2,600 crore of cash flow is expected from [ the -- all the projects ] pipeline from the residential business. So how much land cost to be -- yet to be paid, including FSI costs and all other related costs, as on date, like new land purchases [ and -- or some ] payment expanding. So in the number, what is the land cost to be paid yet?

So that's not a significant number. Having said that, I'm referring to the core land cost. What happens is, so far as FSI, TDR or incremental part is concerned, that gets spent as and when you are constructing and as and when you are launching the phases, but majority of the land cost is sort of paid for. Maybe we are short by about 40 crores or so in all these numbers. [indiscernible].

Okay, okay. And sir, this -- the calculation of INR 2,600 crore that cash flow is showing for the residential business, does it -- just the MLDL share in all the JVs? Or it is in total that we are expecting, including the partners' -- JV partners' share.

This includes the JV partners' share, so -- in the top line as well as in the costs and therefore in the net number as well.

Okay. And this -- the TDR and FSI cost, is it part of construction cost, or is it over and above that? And is it also include admin and [ employee ] costs, or it is just a pure construction cost?

You're right. You're right.

It is a gross margin level, [ Jenom ]. So all the TDR costs or land-related payments and all the [ COCs ] and approvals and all is part of construction cost. What it does not include is the "below the gross margin" [indiscernible], which will be, let's say, the sales and marketing costs and admin costs and all.

Okay, okay, okay, sir. I understood. The launch pipeline of like 5.92 million square feet, including all the current phases: so how we are targeting this launch pipeline to be launched like within next 3 to 4 years. Or any guidance -- like you have given like, 4Q and 1H, there will be around 1,700 crore of launch. So how this launch pipeline will be entirely consumed in next 2 to 3 years.

I think all of this should certainly be brought to market in the next 2 to 3 years. There's nothing that -- our business model and our approach to the residential business is to kind of monetize land as quickly as possible, so we don't buy land to hold it. So it's only a question of absorption in the market, which will help us open subsequent phases in existing projects.

Okay. And sir, may I know the million square feet launched in the recent project of Kalyan? Like it is -- overall project is 1.1 million square feet, but I guess some phases have been launched. So what has been launched? Then how much is still pending?

What we have launched is -- see, the overall project has about 1,500-odd units, of which we have opened 900 units which is RERA registered...

But that's on [indiscernible].

So on area basis, of 1.2 million square foot, 0.7 million square foot approximately is opened up as phase 1. And this is [ the response of ] phase 1. Phase 2 will be opened up maybe next fiscal.

Okay, okay. Sir, just a last question. Like if we see the completion during these 9 months -- so it has been a lower size, so -- and the completion that you are talking about in the next quarter. So is it safe to assume that it will be crossing, over the total 9 months, [ say, 1 million square feet ] or in overall value terms? Like [indiscernible] like start coming in this particular quarter.

So during Q4, we are expecting completions in the phases of Bloomdale; Centralis, a few phases; Lakewoods, a couple of towers. And Roots is also in a touch-and-go situation. So I think we are talking about multiple completions. And in Palghar, [ of course, as you know ], the Palghar which was Palghar 1 which was launched, [ balance completions ] are expected in Q4. So we are probably talking about more than 0.5 million square foot of completions across all these projects during Q4.

[Operator Instructions] Our next question is from the line of [ Puneet ] from HSBC.

My first question is on your industrial [ clusters ]. Can you give more color on what kind of inquiries are you seeing there? Are they more for multinationals, domestics? And what is the run rate of inquiry versus pre-COVID levels?

Yes. So it's actually a good mix of both multinational and domestic clients. As we had discussed, the strong focus around promoting manufacturing investment in the country through either PLI schemes or other state-level schemes is bearing fruit. So particularly in Jaipur, we've had a good mix of Scandinavian clients, [indiscernible] clients, largely so far heavily skewed towards our domestic tariff area. At the SEZ, there has been 1 or 2 sign-ups, but that has been a smaller part of the volume.

Okay. And the run rate is significantly better than pre COVID now.

Yes. I mean -- so the last quarter, Q3, was higher than the entire previous year and the year before that as well, so I think -- and as I said, Q4 is going to be strong as well. So we are certainly seeing a bounce back in manufacturing investment. There was a period of about 4, 5 years when as a country we were not attracting enough manufacturing investment. We are seeing that story turn around quite dramatically.

Okay, excellent. That's very useful. Secondly, on the residential demand, can you give some color on what is the quality [ of this one ]? Is it more end user based? Or are you seeing investors coming back in the market?

I think for many years now, at least 2, 3 years, we are seeing a more end user-based demand now. End users, one has to qualify the term. It is for self use. Sometimes it is also for something that they buy to [ liquid to children ] and et cetera. So yes. So it's not always self occupied, but the earlier behavior of buying just to flip property as soon as it's ready, that has gone away almost completely from the market. I don't see that kind of demand in the market.

Okay. And in terms of price increases, do you see room to take further price increase?

I -- see, as I said, our discipline and our business model, yes, is very clear that we will have a steady price increase quarter-on-quarter. This is not just important for our economics. It is also important from a consumer signaling perspective because, otherwise, why would -- yes. As we just discussed, if it's an end user, why would he buy during a construction cycle if the price is not going to go up successively until possession? He might as well wait till possession to buy it. So we are -- therefore, our pricing strategy is very clear. We will price [ it at an ] attractive level at launch. We will steadily take price up so that, by the time you reach [ OC ], there is a very [ perceptible ] price increase. So customers who bought with us in under construction [ and at launch and et cetera and sustenance ] do feel that they've actually done a good thing by buying with us [ at the end ].

So what kind of prices increase do you plan for launch to [ OCC ]?

Our thumb rule, as I said, is 1.5% per quarter. We try and do more than that, but the default is 1.5%. And there has to be a strong reason to be below that in any project.

Right, right. So basically, by the end of the project completion, it's nothing more -- at least 20%-plus price increase [ will have definitely happened ].

Yes, yes. That is the intention.

Our next question is from the line of Prakash Kapadia from Anived Portfolio Managers.

Yes, yes. Most of the questions are answered. I just had one question. Bombay and Pune seems to be our focus area on residential. So have we identified some newer micro markets where we were not there? Or is this cluster approach enough for us to grow in the near term in Bombay and Pune?

Yes. So Prakash, within Bombay and Pune, we've identified certain priority micro markets that we want to double down on. Some of that is kind of self-selection because of the segments that we want to work in. As we've talked about in the past, we want to be, yes, bringing products between about 30 lakhs to 3 crores, 2.5 crores, 3 crores. And that self-select market, particularly Mumbai, well, the price distribution is quite linear from South to North. So in Mumbai we will -- we are looking at markets in the Western suburbs like Kandivali, Borivali, Dahisar, Andheri East, et cetera. On the central side, it will be Chembur, Mulund, Thane; and in Navi Mumbai, certainly Vashi, Sanpada, Nerul. These are all important markets for us. In Pune, it is a bit more geographically distributed. We like Pimpri, where we've done 3 or 4 very successful projects. We're looking at [ Marunji ]. We are looking at Mundhwa. We are looking at Hinjawadi. These are the key markets that we are looking at.

Our next question is from Prem Khurana from Anand Rathi.

Congratulations on good quarter. Sir, was wondering, I mean, if you could share your thoughts on the supply chain and not from the company's perspective but more from industry perspective because, I mean, I think there was a media article yesterday wherein it seemed [indiscernible] approved more than 2,500 or 2,400-odd projects, with 15 crores square feet kind of additional build-up area. And what we've seen in the past is eventually some of these real estate cycles tend to go bad because -- or not because the demand goes down substantially but because of an oversupply situation wherein [ they end with ] some pricing pressure and people start cutting prices. So do you -- would you believe that, I mean, this entire 15 crores square feet will hit the market and there could be an issue with pricing action going forward? Or do you think, I mean, [indiscernible] probably would not come to the market? Only -- this is only approvals and then some [ of these people ] won't be able to benefit the market.

Prem, your voice is a little bit muffled. So you are asking about the...

Sir, I was asking -- I mean if -- so we generally, I mean, tend to focus more on the demand side of the business, right, but when I look at supply, I mean, supply again is an integral part of the real estate value chain or real estate cycles that we tend to have, right? And there was a media article yesterday wherein it seemed that [ PMC ] last year, FY -- I mean seems to have approved 2,400-odd projects, with 15 crores square feet of additional build-up area. And assuming this entire thing will hit the market, I mean, could there be a situation, I mean, we would get to have the repeat of the last cycles wherein oversupply came to kind of the real estate cycle and not any significant slowdown in the demand?

I think that's a great point. Look. I think there are several things happening in the industry. One, there is a very clear formalization of the sector, particularly in the residential real estate market where customers are preferring to buy with -- particularly for new launches and under construction with credible developers who have a track record of delivery, who've not kind of walked away from projects that they are facing financial distress, et cetera. I think that has become a very marked trend in the under construction, so predelivery sales. Post delivery, of course, there is a bit more confidence that the customers have. As long as the product is standing and it's good and its quality is okay, then they are willing to take the risk with local developers. So I -- yes, there's been lots of approvals given. How many of these actually get built and launched and delivered remain the question that we will have to watch. As I've commented in response to one of the early questions which was on land acquisition, unfortunately, our market is -- our category is very sentiment-driven. So when there's an upswing, everybody wants to enter. When there is a down cycle, everybody wants to stay away. And because now there is a belief that real estate is on an upswing, you do have the fringe developers who were sitting by the sidelines wanting to throw their hat into the ring and because of -- I mean some of them might succeed. Some of them might fail. Very early to say, but the market has learned its lesson over the last cycle of ups and downs, so I'm -- I expect those lessons will be remembered.

Sure, sure. And in our notes to accounts, we seem to be planning to kind of amalgamate some of these subsidiary companies MITL, MRDL with MWCDL. So any change in thought process for MITL? Because I thought, I mean, it's largely meant for social infra, which is where, I mean, you'd get that entity separate because you want to, I mean, distinguish between IC & IC and residential or social infra, which is why the land was transferred to MITL. So why are we kind of planning to merge it back with MWCDL? MRDL is not [ a problem ] because there is hardly anything left, so yes, MITL especially, if you could clarify, please?

Prem, you are absolutely right. When we had called out the [ MITL about 10, 12 years back ], there were [indiscernible] requirements of, for example, having a codeveloper [indiscernible] entity in case of [ leading in ] an investor or a [indiscernible] platform. Subsequent to that, [ there are developments ] [indiscernible]. Guidelines [ have changed ]. And today, when we file for this merger, we believe that there is opportunity to optimize on cash [ upstreaming ], tax optimization and leveraging or expecting value once we merge it. And based on these considerations, we have gone ahead and done the filing. The thought process continues to remain. Whatever is a residential area will be developed as residential. Whatever is commercial will be leveraged as commercial area, so no loss in value. We believe that it will lead to higher value creation when the merger is [indiscernible] over the next 6 to 8 months.

Sure, but if you were to do that, I mean, [ it won't come ] as a part of -- I mean you won't be able to consolidate on a line-by-line basis, right? I mean because MWCDL -- I mean you're not allowed to consolidate because you don't have the full management control there, although we own more than 70%, right, [indiscernible] 89%, yes.

[ Well, if it arise, the choice of ] between top line and the bottom line, we select the bottom line.

Sure, no problem. And just one bookkeeping, Vimal. So I think our net debt consolidated that you report, I understand, I mean, it is -- it doesn't reflect the true picture but seems to have gone up by some INR 20 crore, INR 30-odd crore during the quarter. And in this quarter, I think we received [ almost ] INR 50 crores, INR 55-odd crores from Luminare entity [ as, I mean ], there was a buyback. Why does -- would this -- why this -- I mean essentially net debt would go up. And if we could manage to have INR 50 crore, INR 60 crore come to us from Luminare -- and we have done good in terms of cash flows even otherwise. So was there any land payment during the quarter which would explain this slight rise in our net debt number?

Yes. So look at it from 2 perspectives. One is that look at a little longer time horizon starting 1st [indiscernible] to, say, 31st December. You will see that all entities [ put to that is a ] debt reduction. That's coming on the back of huge operational cash flow which is coming. The operational cash flow positive for 9 months is upwards of 500 crores actually. Part of that has been paid back to the stakeholders and the shareholders, and part of that [ is helping pay back as -- debt ]. On 3 months basis, you'll never be able to make out as to how the numbers are moving positive or negative because there are intercompany loans and stuff like that which moves. Having said that, obviously one is building up cash in anticipation of adding GDV in the next few months, as Arvind mentioned in the opening remarks. So that continues to be a key priority for us.

Next question is from [ Shayanj ] from Equirus Securities.

Yes. Sir, my question pertains to the questions which were asked by the earlier participants. So if I just do a rough math in terms of the cash flows which we are expecting. So of this INR 2,600-odd crores, if I remove the admin cost and share of JV, I'm coming at a number of, say, roughly around INR 2,200 crores to INR 2,100-odd crores. And if I discount it at the current rate, it's coming at around INR 1,600-odd crores. Is my understanding right?

Yes, yes. I think overall admin costs over next 3 years should be about 500 -- 400 crores to 500 crores. And share of JV should be [ around 250 crores ] in that number. If you [ subtract ] [indiscernible] [ taxation ], at least there is difference [indiscernible] because we have some accumulated losses and all. We'll have to see how that really pans out. We are not expecting too much of tax outflow. So I think, net number, you -- what you're suggesting, 1,500 crores, seems to be on the conservative side but right.

Got it, got it. And sir, what would be the price hike assumption which we've taken for -- coming to this number?

0.

0, okay, okay...

[indiscernible] prices, what Arvind mentioned, rhythm of price increase is something that will definitely improve the overall top line. So the estimated sales value should increase. Even the construction cost is also something that we have estimated as of today, so we'll have to really see how that equation plays out, but we expect to do better...

Got it, got it, sure. Sir, my second question pertains to the IC & IC business. Here again, in terms of the cash flows or the numbers which we are expecting, it suggests the ballpark that we are expecting, roughly around 8% to 10% increase in terms of realization to around 30 million on an average and whereas, if you see our 9 months performance, it's more or less at that 25 million, 27 million number. So is it fair -- or probably -- is it -- I mean, do we think that we can read through that number?

There are -- so a couple of points here. You are directing to the blended numbers, right?

Right, right.

Of the sheer fact that it's blended, it will mean that your number may move because of the mix impact. The overall portfolio which we are holding actually moves anywhere between 1 crore to about 4 crores [indiscernible] if the mix is different, then the realization will be different. Apart from it, we are usually experiencing price escalations and better price realization on the IC side of business [indiscernible].

Okay, okay, got it. Got it, sure. And last question from my side: Got any updates on the SEZ, I mean, contingent liability which we have?

Are you referring to [indiscernible]?

Sorry...

Which [ SEZ ] you are referring to, [ Shayanj ]?

For the IC & IC business, that we have -- in that IC & IC business, we have a contingent liability, I guess, if I'm not mistaken, in the Chennai...

So absolutely no change in the status on the contingent liabilities of Chennai.

Okay. And sir, if I may add: Post this [ budget announcement ] for the SEZ benefits, will things change for this contingent liability? Or it will be status quo.

No, no. I -- the two are not connected.

Yes.

Next question is from Manish Agrawal from JM Financial.

My questions are pertaining to the industrial business. Firstly, we are seeing substantial traction in Jaipur DTAs especially, so any sense on going forward how will the SEZ area pan out in terms of leasing traction?

Yes. So look. I think, SEZ, because of the sunset on the SEZ clauses and the fact that SEZ units, so far, don't have the flexibility to serve domestic markets, SEZs in general have seen lower demand. And with the proposed changes in the legislation -- and the early signals we're getting is one of the key changes is going to be allowing SEZ units to serve domestic markets. And I think that will be a game changer for the SEZs because then actually SEZ becomes more attractive than DTAs because it gives you the benefits of an export-oriented unit, plus using the same facility for a domestic market. It creates manufacturing efficiencies and optionality to serve both markets. So that's something that we are eagerly anticipating. Depending on the timing of when that legislation is introduced and approved, I believe that could be a significant upside in Jaipur.

So till then, the DTA business will -- is likely to grow.

Yes. We are seeing stronger demand in DTA.

Okay, understood. Secondly, Chennai saw cancellation of around 3 acres, so anything to read into it? What type of customer was it? Any further cancellations expected anywhere?

No. This was a one-off. So that particular customer was in financial distress and had to cancel the deal. And if you look at kind of the last several quarters, it's very rare that this happens [indiscernible].

Sure. And lastly, Ahmedabad, are you able to finalize the anchor tenant? Or what sort of demand are you seeing right now?

Not yet. Again, active discussions underway, but we still don't have wet ink on paper. So continuing to work towards that.

The next question is from Pritesh Sheth from Motilal Oswal.

So 2 questions on your 8,000 crores GDV pipeline that you indicated. Firstly, how is the mix across Mumbai, Pune and across the projects that you are targeting in terms of outright land acquisitions, [ JV, GDAs ]; where it is more inclined towards?

I will say about 50% of that is outright between either clean outright where we do the approvals or outright whether landowner does the approvals and then we buy it. So some combination of that will be 50% of the pipeline. And about 25% is society redevelopment, which is becoming very active and very attractive, particularly in the city of Mumbai and Navi Mumbai. And the rest will be a combination of [ GDA ] and distressed.

Sure. That's helpful. And Mumbai, Pune, equally poised. Or is it still heavy in Mumbai?

I will say it's currently about 60-40 just because, in Mumbai, values tend to be higher. The prices are higher, et cetera. Not from an acreage perspective, but certainly from a GDP perspective it's 60% Mumbai, 40% Pune.

Sure. And how much will you be spending on acquiring this 8,000 crore pipeline over the next 2, 3 years? What's the estimation from the mix that you are right now still looking at?

Yes. Look. Firstly, it's highly unlikely we will acquire 8,000 crores. As I said, that's the pipeline. There will be a certain strike rate on that. I hope for a good strike rate so that we can choose, pick and choose, the ones that we really want to pursue, but thumb rule, I would say blending across Mumbai and Pune is about -- between 15% and 20% of top line is the costs of land.

Got it, got it, got it. And are you seeing any increase in terms of your land prices or JV partners asking for a higher share, anything of that? Because now, if you see from the organized space perspective as well, most of the developers are looking at strong business development over the next 3, 4 years. So looking at the competition and looking at the choices you have, are you seeing any increase in terms of price or share for the partners?

As I mentioned earlier, there is certainly hardening of prices and stronger negotiations happening from the landowners' perspective. A year back or 1.5 years back, there was more desperation on the part of landowners. Today, they are holding out for their expected price, even willing to wait till they get the price that they expect. So to that extent, yes, there has been some hardening in price on the land side, but look. One should see this in perspective. If land cost is between 15% and 20% of the top line, even if land cost hardens, it will harden by another 10%, let's say. That's about, let's say, 1.5% to 2% of the top line -- of margin impact. And one should be able to cover that in between price and cost efficiencies. One should be able to cover that, so I'm not -- yes, it is happening, but I'm not unduly worried about it is the summary message I wanted to give you.

The next question is from V.P. Rajesh from Banyan Capital.

Congratulations, Arvind. Most of my questions have been answered, except this one: if you can comment about your distribution network. Because I know, last year, you were quite focused on building that up. And if you can talk about how it has shaped up. And what are the benefits that you are starting to see from that?

Thanks, Rajesh. So the clear visible benefit is the strong sustenance rhythm we've been able to build. Doing roughly 250 crores in the quarter, which is about 85 crores a month, purely on sustenance sales, with no new launches, is testament for the strength of the distribution channels that we've built. In Mumbai we now cover -- I think we have something like 3,000-plus active channel partners in our network. We've also built a lot of strength around our presales and digital capabilities as well as corporate and loyalty. These are the 3 main sources of leads and walk-ins that we have. So all 3 are firing quite well and moving in the right direction. In markets like Pune as well, our launch in Tathawade last year, in February last year, was -- a large part of the success was attributable to the strength of the distribution. We had over 1,000 channel partners working on that project and that's what helped us sell about 80% of the inventory at launch. Even in a market which is less distribution heavy, like Chennai, Mahindra Happinest in Mahindra World City Chennai which we launched in August, we had almost 60% of sales being done by channel partners, which in a Chennai market is unheard of. That tends to be a market where it's about a 30%, 40% share of distribution; and the rest is direct. So this has been, as you rightly pointed out, an area that we've systematically built depth. We continue to engage with our channel partners. We have developed a channel partner app to keep them engaged. And as we put more products into the [ kit ] for them, we will become even more relevant to them. So that's the reason for our geographical focus in Mumbai and Pune. One of the strong reasons is so that we have more relevance and more salience with our business partners which is our channel partners.

That's wonderful. Just a quick follow-on on that: Are you seeing a skew towards digital platforms like 99acres or Housing.com? Are they becoming more important to our business? Or it's a little more mom-and-pop real estate agents.

So digital in general is extremely important. So even our channel partners are now sourcing leads primarily through digital outreach. The [ large], channel partners all have sophisticated search and other capabilities to generate [ retail leads ]. Our direct contributions from platforms like 99acres, Magicbricks, housing, et cetera is not much because they tend to focus not on developer sales but on direct sales [ of ] their own secondary market transactions, et cetera, so we don't have a significant dependence on those portals.

We'll be taking our last question. That is from the line of Parikshit Kandpal from HDFC Securities.

Sir, my question was on the preparedness and readiness for the [ Dahisar ] launch, what kind of time line we are looking at.

Probably Q3 or Q4 of next financial year. We are very advanced on design, and so we expect Q3 or Q4 next year [ too ].

Okay. And just last thing, on the redevelopment front. So how does the process of bidding work on a redevelopment? Do you enter into MOUs, first, and then you wait for clearing of the societies and then you announce it? So what kind of -- how different is that bidding process followed in redevelopment versus traditional buying or the planned or partnering with the landowner for an existing land?

Yes. So the redevelopment projects [indiscernible] redevelopments are much longer lead time than the traditional land purchase, but in a city like Mumbai in particular, the 2 sources of land going forward are going to be, one, societies which are wanting to redevelop; and two, industrial land which is getting converted [indiscernible]. So these are important [ to focus in ] and that's why we are building our capability around society redevelopment. The process tends to be -- look. Very often, a society will appoint a [ PMC ] who will run a tendering kind of process. They will shortlist a developer. In that case, the developer needs to present a proposal to them. You end up negotiating on how much additional area you'll [ be able to leave ] in current inhabitants. What is the phasing? When will they be displaced? What is the rental that you will provide to them in that time period? So it's a complex set of negotiations with multiple members of the society. It's not just negotiating with a managing committee, et cetera. It eventually gets presented at a special general meeting. When they approve it, then your agreement gets registered. It -- so it's multi-step, at least a 9- to 12-month process before you can get to something which is definitive which we can announce. We prefer not announcing things which are just at a term sheet or MOU level. We want something definitive before we announce it.

And lastly, what will be the redevelopment [indiscernible] right now wherein you are negotiating; or you are discussing, in discussions with the tenants now; and maybe 9 months [indiscernible] what time lines are getting announced?

Sorry. Your question was what is the redevelopment value, the...

Yes. So I was asking you what is total MOU you have entered into with societies for redevelopment which may get certified and get announced over the next 9 months as of now.

Look. As I said to -- answering an earlier question, out of the 8,000 crores that I indicated in our pipeline, about 25% is between -- in society redevelopment. So you can look at kind of...

That's -- so that's when we have already signed with these societies.

Those are advanced discussions. They're not necessarily MOUs we've signed yet.

Okay, is there any number of MOUs which we you have signed, [ in MOUs ]?

No, I'm -- difficult to share that at this stage.

Thank you. Ladies and gentlemen, that will be our last question for today. I now hand the conference over to Mr. Arvind Subramanian for closing comments. Thank you. And over to you, sir.

Thank you. So thank you, everyone, again for joining the call. I think, just to summarize, we are seeing strong tailwinds in the sector. And both the segments that we are exposed to, which is residential housing in the value segment and the mid-market segment but also the industrial parks business, are seeing strengthening of demand from a structural perspective, so I do expect the next few quarters to continue to be strong. The focus of the management team is to build capabilities and strength steadily so that quarter-on-quarter we can start -- we can keep showing strength and improvement. So I would request and kind of -- request you to indulge us with your patience. You will see visible results, but yes, stay with us because I think we are on a good [indiscernible] good trajectory. Thank you again.

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