Crest Ventures Ltd Management Discussions

From April, 2023 to March, 2024, the global economy exhibited remarkable resilience despite numerous challenges, including post-pandemic supply chain disruptions, rising inflation, and geopolitical tensions, notably in Ukraine and the Gaza-Israel region. These obstacles were mitigated by robust supply-side expansions, increased labor force participation, and significant physical capital investments, which also helped resolve pandemic-era supply chain issues. Global headline inflation fell near pre-pandemic levels in late 2023, brought by synchronized monetary tightening policies that took time to impact due to accumulated household savings. Reduced energy prices, resulting from both policy effects and increased global oil supply, significantly contributed to this decline. However, continued geopolitical instability pose risks of supply shocks and elevated food, energy, and transport costs. The International Monetary Fund (IMF) projects a slowdown in global growth, influenced by high nominal interest rates, tightened fiscal policies, and increasing geoeconomic fragmentation. As inflation approaches target levels, gradual easing of monetary policies is anticipated to ensure a smooth landing for inflationary pressures.

In contrast, the indian economy is expected to grow strongly, driven by robust public investment and a strong services sector performance, supported by local and international demand for business services exports. Output growth in FY 2023-24 is forecast at 7.5%, propelled by resilient activity in services and industry, with medium-term growth projected to moderate to 6.6%, supported by strong public and private investments. The Reserve Bank of Indias neutral, data-dependent monetary policy has been effective in stabilizing prices, with the /US$ exchange rate expected to stabilize between 82-84, enhancing export attractiveness. Despite high inflation driven by volatile vegetable and foodgrain prices, softening core inflation and fuel price deflation provide some relief, with the RBI aiming for a 4% inflation target. Significant capital inflows in FY 2023-24 boosted foreign exchange reserves to an all-time high in March 2024, covering 11 months of projected imports and exceeding total external debt.

The contribution of the digital economy to GDP has significantly increased and is expected to continue growing. Healthy corporate balance sheets, financial sector support, and global supply-chain shifts are set to further bolster private investment. The Government can stimulate the investment cycle by reducing policy uncertainty, compliance costs, and ensuring a stable tax regime. While the global economy faces numerous risks, the resilience and strategic responses have facilitated a better-than-expected performance, with the Indian economy showing strong growth prospects driven by investment and structural reforms, positioning itself as a robust player in the global market.

In 2023, the size of the indian real estate market was estimated at US$ 265.18 billion, with projections indicating it could reach $1 trillion by 2030. Anarock reports that housing sales in Indias top seven cities hit a new high in 2023, totalling 4.76 lakh units, marking a 31% increase from 2022. The property market witnessed significant growth this year, with a surge in project launches, sales, and interest rates—particularly in the luxury real estate sector.

The GDP growth rate of India at 7.6% was a critical factor in propelling the real estate sector as it led to an increase in disposable income. Over the past two decades, Indias middle class has expanded, with a noticeable acceleration in the past ten years due to advancements in technology and improved access to urban infrastructure. Urbanization continues to drive demand in metropolitan areas.

There is a soaring demand for larger apartments, particularly among millennials and Generation Z consumers, who are increasingly willing to invest in high-end properties that offer more space. In addition to luxury, there is a trend towards properties that are greener and more sustainable. Buyers are emphasizing construction quality and prefer apartments with balconies to enhance the sense of open space.

The Indian real estate sector is increasingly influenced by technological integration, with advancements such as AI, IoT, and virtual tours becoming standard. Regulatory reforms, particularly The Real Estate (Regulation And Development) Act, 2016 ("RERA"), have bolstered transparency and investor confidence. Government initiatives like the Pradhan Mantri Awas Yojana ("PMAY") aim to promote affordable housing, significantly impacting the market. Additionally, easing of policies around foreign direct investment has welcomed more international stakeholders into the market.

In summary, the strong performance of the Indian economy, a robust pipeline of planned infrastructure developments, favourable government policies, and increasing urbanization are expected to drive continued growth in the real estate sector.However, the sector faces challenges such as land acquisition difficulties, delays in project approvals, and sensitivity to economic fluctuations, which could impact growth. We also think that there may be a glut in certain pockets but believe that if a good product is made - it will sell. Addressing these challenges while capitalizing on emerging trends will be crucial for the sustained growth of Indias real estate market.

The Reserve Bank of India ("RBI") adopted a cautious monetary policy to balance growth and inflation, implementing measures for financial stability and liquidity, supported by improved consumer and business confidence. Regulatory reforms enhanced governance, risk management, and consumer protection. Initially, short-term rates rose faster than long-term rates, flattening the yield curve, but later reverted to an upward slope due to an improved growth outlook. Inclusion in the JP Morgan Global Bond Index is expected to boost bond market liquidity and investor base.

Digitalization transformed the financial services sector with rapid growth in digital payments, online banking, and lending. Challenges like cybersecurity threats, regulatory compliance, and asset quality concerns persisted. Future growth is expected to be driven by demographic trends, technological advancements, and policy reforms, focusing on emerging risks and opportunities.

In 2023, the private market investment landscape was volatile with a significant decline in PE/VC investments—33% fewer deals and an 11% drop in investment value year-on-year. The startup sector faced a funding winter with a 42% decline in deals. Infrastructure, real estate, and healthcare investments grew, while technology, financial services, and e-commerce slumped.

Conversely, PE/VC exits hit a record high, growing by 36% in deal value. Open market exits led, followed by secondary exits, with financial services seeing the highest growth. Fundraising dropped by 8% from 2022 but remained the second-highest at US$15.9 billion, with a record 102 fundraising rounds. Buyouts rose by 14%, led by real estate, financial services, and healthcare, indicating market maturation and improved investor confidence.

The indian capital market surged nearly 30% to hit multiple record highs in FY 2023-24, propelled by improved macroeconomic indicators, declining inflation rates, and anticipation of interest rate cuts. Foreign portfolio investments surged to 1,50,000 crore amidst market volatility. IPO activity heightened, supported by a growing investor base and increased risk appetite. Indian capital market indices outperformed several global benchmarks, enhancing their representation in the global MSCI index and attracting significant global investor interest. The outlook for Indias financial landscape remains bullish, driven by expectations of rate cuts, upward GDP growth revisions, strong FPI inflows, and the potential inclusion of Indian bonds in global indices.

At Crest Ventures Limited ("Crest"), we are committed to developing high-quality assets and iconic buildings via the greenfield and redevelopment route. Nearing completion of our projects in Bandra in the MMR region, we are seeing Crest being cemented as a brand in the Mumbai realty space. We are constantly exploring new opportunities to take on redevelopment projects in the MMR region where we can extend credit to the projects as well allowing us to manage cashflows optimally and maximizing our return on investments.

Our asset-light approach focuses on optimizing upfront capital expenditure, achieving better return on equity and capital employed. We invest in the acquisition of land only when it meets return expectations. Design, planning, and execution are managed by our experienced in-house team, ensuring meticulous attention to detail and quality. Additionally, we provide project capital to develop projects in partnership, emphasizing our commitment to fostering growth in our real estate developments.

With Crest Link and Crest Parkview expected to be completed in the next financial year, we are constantly evaluating projects in India (with a focus on the MMR region) where we deploy minimal capital and optimize our IRR through Joint Development Agreement(s) or earn fees through project management engagements. We have developed some strong strategic partnerships which have enabled us to onboard and develop some marquee premium and luxury projects across Mumbai, Chennai, Raipur, and Jaipur. We have recently secured a project in the prestigious Pali Hill area of Mumbai. This project is poised to be a landmark development, enhancing the visibility and recognition of the Crest brand within Indias luxury real estate market. We are committed to delivering value and distinctive living experiences.

In collaboration with the landowners, we are jointly developing over 100,000 square feet of residential space in Andheri East, Marol, Mumbai. This project is thoughtfully designed with three interconnected, 12-storey towers, boasting a range of shared amenities. The distinctive facade sets this development apart, nestled atop a serene hill. With around 130 units available in 2 and 3-BHK configurations, we have made significant progress in our construction and launched the project for sales as well. Our goal is to complete this project within a three-year timeframe.

Crest Link represents our mixed-use redevelopment initiative located in the vibrant high street of Linking Road, Khar. Construction is well underway, with substantial progress achieved in the past year. Currently, we have successfully completed over 80% of the Project. With a successful launch and 100% of our residential inventory liquidated, we anticipate completing the project in the next few months. While we have sold 30% of the saleable commercial area, we are evaluating whether to sell or lease the remaining area as we have received significant demand for both options.

Situated in the serene neighborhood of Bandra West, Mumbai, Crest Parkview is a boutique redevelopment which has been recently completed. Nestled amidst the tranquility of Guru Nanak Park, the project covers an overall area over 25,000 square feet, with around 8,000 square feet of saleable residential area. The construction of the project has been completed within our timelines and we have made good progress on sales.

Crest @ Palladium is an under-construction office building, encompassing an impressive 500,000 square feet of space. This development is an integral part of the mixed-use project within the Palladium complex, situated atop the Phoenix Palladium Chennai. We have made good progress and finished the RCC work in construction. We anticipate that this project will yield us strong annual rental returns. This project is in Joint Venture with The Phoenix Mills Limited through SPV named Starboard Hotels Private Limited wherein the Company owns 50% stake.

We have commenced the development of Phase 2 of the remaining 18 acres within the 50-acre parcel in the heart of Raipur. Following the successful completion and delivery of Phase 1, we continue to change the landscape of Raipur with this marquee development. After surveying the requirements of the region, we have planned for Phase 3 of the project as well, where we plan to build a high end residential tower. We hope to complete this project in the next 3 years.

We have commenced the development of a prime plot in Bani Park, Jaipur. Spanning an impressive 47,780 square yards, this centrally located plot serves as the canvas for a residential plotted development. We are managing the project which includes the construction of essential infrastructure, roads, landscapes, and amenities, including a clubhouse, garden, gym, and recreational facilities. We expect to complete this project in 1.5 years and establish a strong brand in Jaipur.

Our upcoming developments include projects in prestigious areas like Pali Hill, Dadar, Parel, and Andheri, among others. Together, these projects will encompass over a million square feet and include well planned residential and commercial areas. We have managed to secure a robust pipeline of projects while being capital efficient.

In keeping with our dedication to sustainability and excellence, every project will have design and features designed to improve lives and raise community expectations.

The residential real estate sector is expected to continue its growth with robust demand. We are seeing a rising shift towards more luxurious, spacious and sustainable apartments.

Having key real estate regulations in place, strong GDP growth predictions, controlled inflation, and high homebuyer optimism, FY 2024-25 could see another peak in housing sales and new launches.

The increasing costs in Indias real estate sector reflect both challenges and opportunities. Rising land prices, especially in urban areas, indicate strong demand and potential for growth. The higher cost of construction materials like cement, reinforced steel, structural steel, and stones, along with constantly rising labour rates are leading to an increase in construction cost. By using technology, effectively streamlining operations and slashing overhead costs, we are aiming to keep our costs minimal. Regulatory and compliance enhancements ensure a more transparent market, although they add to development expenses which make home prices more expensive.

Mumbai is continually expanding, and its property prices are influenced not only by location and regulations but also by the potential of valuable land hidden in old, run-down buildings and large slum dwellings. In a city where space is extremely precious, redevelopments are key to solving Mumbais housing crisis by utilizing the citys available land more efficiently and improving residents living conditions. Over the past few years, Indias stock market has been on a consistent upward trajectory, indirectly benefiting the countrys real estate sector. As peoples equity portfolios become a significant portion of their savings, they can realize their dreams of owning homes, including luxurious ones. A significant decline in the Indian equity markets could greatly impact Mumbais real estate sector, as people may delay or be unable to afford home purchases.

In the Financial Services division, we continue to dominate market share in OTC SLR and forex derivatives markets in FY 2023-24. We have recently started operations in GIFT City and expect that desk to grow in the coming years. Global inflation still remains sticky, and the rising geopolitical tensions is still a concern for central banks around the globe. Further delay in rate cuts can lead to a decline in the overall volumes in the brokered market. We are cognizant of electronic trading platforms as a threat which can lead to lower volumes in the OTC brokered market. The company is evaluating various options to boost growth in various verticals of the business.

In the Investments and Credit division, we have been quite selective in our investments and primarily focused on Real Estate and Financial Services businesses in our public markets portfolio. We have a long term positive outlook on those sectors and see it fueling Indias growth story in the current decade. We have unlocked value in some of our earlier investments and continue to look for similar opportunities. Our private markets portfolio remains unchanged and the businesses continue to deliver good returns. We have increased our credit book primarily against the projects we are developing in partnership. These loans are part of structured transactions which have allowed us to unlock a lot of development opportunities in the Mumbai market.

Forex Desk: The Indian Rupee () started strong at 81.80 in April, 2023, depreciating to 83.52 by March, 2024. Key economic indicators like GDP growth rates, inflation, and employment data influenced the strength of the US$ against the . Geopolitical events, trade policies, and interest rate differentials also impacted currency valuations. Forward yields were volatile, ranging from 1.50%-2.50%, and forward volumes were subdued due to central bank interventions. The outlook for the remains stable between 82.25-83.25, supported by favorable external balances, strong capital flows, adequate forex reserves, and low external debt.

Government Securities Desk: Yields were range-bound throughout FY 2023-24, peaking in October, 2023 due to RBIs bond auctions and subsiding in February 2024 following fiscal consolidation announcements. Trading volumes in G-sec averaged 27 lakh crore in FY 2023-24, up from 20 lakh crore in FY 2022-23. SDL and T-bill markets saw FY24 volumes of 2 lakh crore and 4.5 lakh crore, respectively. FPI interest in debt rose significantly in the second half of FY 2023-24, with net investment in the debt markets reaching 121,059 crore, the highest since FY 2014-15. Overall, revenues remained stable.

Integrated Derivatives Desk: The interest rate swaps market saw significant activity, driven by dynamic interest rate shifts, regulatory changes, and evolving investor preferences. Currency options market volumes increased, leading to a 15% rise in revenues.

Currency Options Desk: Market volumes increased in the financial year 2023-24 due to rise in liquidity. Overall, we saw a rise in our revenues by 15%.

We create value in companies that we invest in and grow by strategic business planning, leveraging our connectivity across the group and ensuring effective resource allocation while empowering and enabling the leadership teams.

Vascon Engineers Limited: Since our strategic investment in October, 2021, Vascon has demonstrated expertise in EPC, real estate construction, and development. The company delivered handsome profits and returned good value to shareholders. We have sold most of our stake, achieving significant returns.

TBOF Foods Private Limited ("TBOF"): TBOF, a D2C organic agri-food company, has grown at 76.48% CAGR Y-o-Y and established itself as a category leader in the D2C space. It is known for products like cultured Desi Gir cow ghee and wellness products. The company is on track to raise over 50 crores in their series A round from a pool of seasoned investors. We own 20.74% of the company as on March 31, 2024.

Tamarind Global Private Limited: Tamarind, a destination and event management company, operates under tours, MICE, events, and online verticals. The companys performance has turned around and delivered healthy profits after recovering from its setbacks due to the pandemic. We have a 23.14% shareholding in the company.

Outlook :

Domestic and global investors continue to show bullish sentiment towards India as an investment destination, driven by robust macroeconomic fundamentals and expanding digital infrastructure. Growing sectors like renewable energy, defense, infrastructure and clean technology offer avenues for investment diversification and growth. The resurgence of PE-backed IPOs further underscores the enduring appeal of the Indian market, despite prevailing challenges. Indias global competitiveness, driven by demographic strengths and macroeconomic factors, positions it as an attractive market for PE/VC investors. This positive sentiment, coupled with ongoing reforms and favorable demographic trends, positions India as an attractive investment destination with considerable growth potential. Additionally, the launch of a new unit in GIFT City for broking non-deliverable derivative products represents a significant opportunity in the financial services sector. We are committed to leveraging our expertise and resources to capitalize on emerging opportunities and contribute to the continued growth and development of the Indian investment landscape.

The Company remained steadfast in its commitment to nurturing a workplace environment cantered around teamwork, innovation, and perseverance with a belief that these core values are essential for driving sustainable growth and achieving outstanding results. Moreover, our dedication to fostering a culture of collaboration, underpinned by diversity and inclusion, is ingrained in every aspect of our operations. The Company recognizes that diverse perspectives and talents are essential for driving innovation and propelling us towards our strategic objectives. As such, the commitment to conscious inclusion remains unwavering and will continue to guide our actions in the years ahead. The HR Team played a critical role in building the new phase of the Company and worked on various strategic initiatives aligned with the growth vision set for the real estate business. They focused on strategic hiring of high-quality professional talent across the organization, from leadership positions to roles within sales, design, and liaison teams. This was done to ensure the successful and seamless execution of the ambitious project pipeline established by the Company.. Furthermore, emphasis on leveraging technology to drive efficiency and achieve desired outcomes was demonstrated through the successful implementation of ERP across all functions within the real estate division. This integration not only streamlined operations but also positioned the Company for future growth and scalability.

The Company continues to firmly believe that people are the engine of success. Therefore, it remains steadfast in its commitment to creating a motivated, engaged, and merit-based work culture. Several initiatives that aimed at fostering employee engagement and development were launched. Events such as the "Day in the mountains" a trekking event and the "Women Support Circle" were met with enthusiasm and served as platforms for fostering camaraderie and empowerment. Additionally, investment in employee development through innovative upskilling and reskilling programs underscores the Companys commitment to nurturing talent at every level of the organization.

As we reflect on the past year, the Company extends its sincere appreciation to its dedicated employees for their unwavering trust, commitment, and support. It is through their collective efforts that the Company has achieved significant milestones and positioned itself for future success. As of March 31, 2024, Crest Group, including subsidiary companies, comprised 142 employees, including the Managing Director. In line with the future business growth plans, we strategically added a considerable amount of talent across various levels, with a significant focus on strengthening our capabilities within the real estate vertical. This deliberate investment in talent underscores our commitment to driving growth and achieving our long-term strategic objectives.

This document contains statements that are forward-looking about expected future events and the financials of Crest. By their nature, forward-looking statements require our Company to make assumptions and are subject to inherent risks and uncertainties. There is a significant risk that the assumptions, predictions, and other forward-looking statements may not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as several factors could cause assumptions, actual future results, and events to differ materially from those expressed in the forward-looking statements. Accordingly, this document is subject to the disclaimer and qualified in its entirety by the assumptions, qualifications and risk factors referred to in the Management Discussion and Analysis section of this Annual Report.