Eldeco Housing & Industries Ltd Management Discussions

ECONOMY OVERVIEW

The economy navigated rough waters with the pandemic-led challenges through the CY

GLOBAL NOMIC OUTLOOK INDIAN ECONOMY

India began year 2020-21 with complete lockdown coupled with physical movement of INDIAN REAL ESTATE MARKET

The real estate sector in India plays a significant role in the economy, as it contributes extensively to the GDP, drives growth of multiple industries and generates maximum employment (second largest employer after Agriculture). Indias real estate market is projected to grow to US$ 1 trillion by 2030, up from US$ 120 billion in 2017, and will contribute 13% of the countrys GDP by 2025.

The real estate sector had high expectations from FY 2020-2021 as it had begun to stabilise after three years of business disruptions caused particularly by demonetisation, the introduction of GST, the real estate law RERA, as well as the NBFC crisis. Covid-19 changed the game drastically, prompting the government to enact strict restrictions on physical movements beginning the financial year and lasting for almost first quarter of FY 2020-21. In H1 of FY 2020-21, the pandemic delayed execution of ongoing projects due to labour shortage on one hand while on other hand, revenues from ready-to-sell projects declined because of the threat to economic growth, possible job losses and consumer sentiment being affected negatively.

After witnessing substantial decline in sales and new launches in first quarter of 2020-21, the sector exhibited revival in second half of FY 2020-21. H2FY21 observed strong recovery supported by improved sentiments, need for upgrading living spaces owing to more work from home, festival demand, benign interest rates on home loans, relatively low housing prices coupled with offers from developers.

With further impetus from the Government, developers launched projects with 55,033 units in third quarter (equal to pre-covid level in Q3FY20) and 76,006 units in fourth quarter, a significant increase of 38 percent year on year. Unit sales also improved from 9,632 units of sales in Q1FY21 to 61,963 units in Q3FY21 and 71,963 units in Q4FY21, representing a yearly growth of 17% and quarterly growth of 84%. Commercial real estate (office) also exhibited a similar trend with revival of sales. Office space absorption level in seven major cities improved to 8.24 million sqft in Q3FY21 from 3.32 million sqft in Q1FY21 while the new supply improved to 13.43 million square feet in Q4FY21 from low level of 5.77 million Sqft in Q1FY21.

However, with the second wave of Covid-19, the sector once again suffered huge setback with dampened growth momentum. In H2 of 2021, the relaxed lockdown norms and lifting of inter-state travel restrictions is expected to resurrect the real estate sector, increase income exposure and draw investments. Low interest rates, fiscal support and monetary stimulus by government will additionally act as catalyst for growth. The success of REITs in Indian market has also opened new investment opportunities for investors and a new avenue to raise capital for quality developers.

INDIAN RESIDENTIAL REAL ESTATE

FY 2020-21 has been full of surprises for developers and investors of residential real estate. The year started on a gloom as sales volumes declined ~81% sequentially between Apr-June 2020 while new project launches declined ~90% sequentially. However, the industry exhibited resilient spirit in coming quarters with easing of lockdowns and opening of economic activities. Developers were able to survive immediate financial impact thanks to measures like loan moratorium and extension of RERA completion deadlines. The service sector started ‘Work from home which highlighted the importance of owning a comfortable living space while those who owned houses started planning to upgrade to better facilities. This was further aided by one of the lowest interest rates on housing loan at about 7%, a significant correction in apartment prices, coupled with financial incentives from the government in the form of relaxation in ready reckoner rates and stamp duty/ registration charges.

With improved sentiments and government support, quarterly sales volumes for residential real estate have progressively grown, surpassing the 2019 pre-COVID quarterly sales average in Q3 & Q4 FY 2020-21. This solid sales growth prompted developers to initiate new projects, as evidenced in 55,033 units launched in the third quarter (equal to pre-covid level in Q3FY20) and 76,006 units launched during the fourth quarter, a significant increase of 38 percent year on year. Increased sales volumes have also slowed the rate of decline in residential prices in most areas, with cities like Hyderabad and the NCR witnessing marginal increase in pricing compared to a year ago. We anticipate further recovery of the residential real estate market in the coming quarters.

RBIs house price index gives a fair indication of pricing trends, thereby indicating improvement in the on-ground situation.

RBIS HOUSE PRICE INDEX

RBIs House Price Index (HPI) released every quarter provides an indication of pricing trend in seven major cities across the country - Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai, and Pune. Given below is the pricing trend for the quarters of FY 2021, which indicates moderate pricing trend as average of these seven major cities.

	Q-o-Q trend (overall)	Y-o-Y trend (overall)	Details for Sequential Change
Q3 FY 2021	+1.2%	+1.1%	Chennai, Delhi, Bengaluru and Lucknow recorded increase in HPI while it contracted for other cities
Q2 FY 2021	(1.1%)	+1.1%	Delhi, Bengaluru, Kolkata and Chennai recorded decline in HPI, whereas house prices in Mumbai remained around its previous quarters level
Q1 FY 2021	+1.2%	2.8%	House prices in Bengaluru, Kochi, Ahmedabad and Lucknow increased during the quarter
Q4 FY2020	(0.2%)	+3.9%	Delhi, Bengaluru, Ahmedabad, and Jaipur recorded decline while Mumbai recorded the highest rise

Source: RBI HPI press release (base: 2010-11=100)

HOME PURCHASE AFFORDABILITY

Benign increase in real estate prices, declining interest rates and improving EMI to income ratio have further rallied affordability for buyers of residential real estate properties.

DEMAND-SUPPLY SCENARIO FOR RESIDENTIAL REAL ESTATE

The demand of residential real estate in eight major cities (Ahmedabad, Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai and Pune) is represented by sales volumes of housing units reported by Knight Frank. The residential sales volumes declined significantly in the period between Apr-June 2020 while the following quarters witnessed strong demand, revival and unit sales that reached to 61,963 units between Oct-Dec 2020. This was equivalent to the average quarterly sales volumes of 2019, pre-covid level. During the fourth quarter of 2020-21, the industry booked strong residential unit sales volume of 71,963 units, representing a yearly growth of 17% and quarterly growth of 84%.

The supply side is characterised by new project launches by real estate developers. Between Apr-June 2020, the unavailability of labour force and logistical issues for raw material supply forced developers to curtail new project launches. With ease in lockdown restrictions and physical movement, the sector witnessed ampli_ed revival in demand for houses thereby encouraging developers to launch new projects. The sector also noted resurgence in new launches, and these fully recovered in the third quarter and registered robust growth of 38% y-o-y in the fourth quarter and 77% quarter on quarter.

Data in (units)	Sales volume	New Launches
Jan-Mar 2020	49,905	54,905
Apr-Jun 2020	9,632	5,584
Jul-Sep 2020	33,403	31,106
Oct-Dec 2020	61,593	55,033
Jan-Mar 2021	71,963	76,006
Growth in Q121 (vs. Q420)	17%	38%

Source: Knight Frank Research

LUCKNOW - IDEAL REAL ESTATE DEVELOPMENT MARKET

Lucknow, the capital city of Uttar Pradesh (UP) is emerging as one of the fastest growing non-metropolitan cities in the country. Spread over an area of 631 square kilometre, with population of almost 37 lakh people, Lucknow, a multicultural city ranks fourteenth in terms of population and is the twelfth largest urban agglomeration in the Country.

These unique characteristic features make Lucknow well-suited for real estate development: Lucknow , the capital of Uttar Pradesh is Indias most populous state. The headquarters of Lucknow division consist of six districts.

With an approximate population of 37 lakhs and a population density of 8,100 residents per square km along with a literacy rate of ~82%, Lucknow is the choice of residence for the millennials.

The Citys civic administration is run by Lucknow Municipal Corporation, one of Indias oldest municipal bodies.

The City has a bench of Allahabad High Court, divisional headquarters of the Northern Railway Division, and headquarters of the Central Command of the Indian Army.

Both the Small Industries Development Bank of India (SIDBI) and the Pradeshiya Industrial and Investment Corporation of Uttar Pradesh have their head offices in the city.

Major Indian National Highways that have their intersection at Lucknows NH-24 to Delhi, NH-30 to Allahabad via Raebareli, whereas NH-27, Porbandar-Silchar is longest National Highway in India. Lucknow-Azamgarh-Ballia Poorvanchal Expressway, Agra-Lucknow Expressway is considered as a ‘growth highway for Lucknow. Lucknow is also one of the three cities in Uttar Pradesh Tourisms Heritage Arc (along with Agra and Varanasi).

The City has direct air connectivity with all the other major cities of India. Chaudhary Charan Singh International Airport is one of the busiest airports in India which is now being developed and run by Adani Group.

Lucknow Metro is a rapid transit system that started its operations in 2017 (North-South metro corridor). An East-West metro route is also under execution and expected to finish by 2022.

The City has several prominent educational institutions like IIM-L, IIIT-L, National Law University (RMNLU), Institute of Hotel Management, Lucknow (IHM), Central Drug Research Institute, Indian Institute of Toxicology Research, National Botanical Research Institute (NBRI), Sanjay Gandhi PG Institute of Medical Sciences, Dr. RML Institute of Medical Sciences and King Georges Medical University (KGMU) etc.

Lucknow is also one among eight cities in India where textile business clusters are being developed under the GoI program.

Aer onautics, automobile, machine tools, distillery chemicals, furniture, and Chikan embroidery are among the major industries in the Lucknow urban agglomeration.

Lucknow , once known for handloom and small-scale is rapidly evolving into an IT/ITeS and technology hub. The UP government has planned to develop an IT/ITeS Special Economic Zone (SEZ) to promote the citys technology sector and attract more FDI. Tata Consultancy Services (TCS), HCL Technologies, and local opensource technology companies are among the IT and ITeS companies now with their setup in Lucknow.

LUCKNOW REAL ESTATE

Lucknow real estate market is mostly end user-driven where government sector employees, self-employed professionals, private sector workers etc. are majority of buyers. People from nearby towns are also moving to Lucknow as the city provides better infrastructure, education and job prospects. New gr owth corridors on the real estate development map have emerged as a result of the citys radial expansion, especially along highways connecting to Kanpur, Rae Bareli, Hardoi, Sitapur, Faizabad, and Sultanpur.

Lucknow Metros 23 km operational stretch from Munshipulia to Chaudhary Charan Singh (CCS) International Airport has not only decongested the roads but also boosted growth prospects for areas such as Gomti Nagar Extension, Amar Shaheed Path, Faizabad Road and Bijnor Road etc.

The 11 km long under-construction East-West corridor of the Lucknow metro from Rajajipuram to Patrakarpuram is scheduled for completion in 2022.

Lucknow s real estate developers provide community housing, bungalows, villas, condominiums, penthouses, high-end luxury residences and townships etc. to choose from to the buyers that represents how the market has evolved.

With government support, affordable housing is attracting buyers along with an increase in demand in premium and luxury segment. trade Lucknow has seen average annual sales of 4,000 - 5,000 units per year in pre-covid time.

As on 31^st March 2021, there were 45 projects 33 developers consisting of 16,380 dwelling units declared as stalled projects.

COMPANY OVERVIEW

Incorporated in 1985, Eldeco Housing and Industries Ltd. (herein referred as "EHIL" or "the Company") is a leading real estate developer in Lucknow. The Company is primarily engaged in the promotion, construction, development and sale of townships, residential, commercial properties and developed plots. EHIL is a part of Eldeco Group, which is one of North Indias prominent real estate developers with an expertise in housing and commercial spaces in Tier I, Tier II and Tier III towns. EHILs success is driven by its timely delivery of quality projects and exceptional customer service. The Company has won several accolades and awards like Builders Excellence Award and Award for Excellence in Construction.

EHIL has a long track record of handling large and multiple projects simultaneously and efficiently.

ON-GOING PROJECTS

The projects wherein the construction has started, but the completion certificate is yet to be received are considered as on-going projects. As on March 31, 2021, EHIL has 13.2 Lakh sq. ft. of saleable area under ongoing projects, out of which 7.7 Lakh sq. ft. area has been booked by the customers.

THE DETAILS OF ONGOING PROJECTS

S No Ongoing Projects	Project Area (sq. mtr.)	Saleable Area (sq. ft.)	Area Booked (sq. ft.)	Area Allotted to partner (sq. ft.)	Area Available (sq. ft.)	Expected Completion
1 Eldeco Luxa	6,249	1,32,736	20,184	45,013	67,539	Sep-22
2 Eldeco Eternia Arcade		1,728	-	-	1,728	Sep-22
3 Eldeco Regalia Arcade	1,830	17,759	15,196	-	2,563	Sep-22
4 Eldeco Uday	1,942	12,530	12,530	-	-	Sep-21
5 Eldeco Joy		17,842	17,842	-	-	Sep-21
6 Eldeco City Dreams	3,736	72,756	59,249	-	13,507	Dec-21
7 Eldeco Select	2,236	63,932	40,936	-	22,996	Nov-21
8 Eldeco South Block	2,921	16,330	16,330	-	-	Dec-21
9 Eldeco North Block	7,727	50,044	50,044	-	-	Sep-21
10 Eldeco Inner Circle	7,745	41,735	41,735	-	-	Jun-21
11 Eldeco Shaurya Arcade	2,250	20,336	10,333	-	10,003	Jul-23
12 Eldeco City at Bareily (40% of 40 acres)	1,44,128	8,73,549	4,84,020	-	3,89,529	Jun-26
Total	1,80,764	13,21,277	7,68,399	45,013	5,07,865

PROJECT PORTFOLIO

Some of the key completed projects include the following:

S No Project Name	Type	Saleable Area (Sq. Ft.)	Area Booked (Sq. Ft.)	Inventory (Sq. Ft.)	Average Realization (I / Sq. Ft.)	Date of Completion
GROUP HOUSING
1 Eldeco Saubhagyam	Hi-Rise Group Housing	12,11,760	12,00,696	11,064	2,849	2016-2020*
2 Eldeco Eternia	Hi-Rise Group Housing	3,67,128	3,57,851	9,277	2,357	Jul-17
3 Eldeco City Breeze	Hi-Rise Group Housing	2,18,066	2,14,840	3,226	3,234	Jul-18
TOWNSHIPS
1 Eldeco City	Plots & Villas	23,34,951	22,38,472	96,479	2,029	Jun-16
2 Eldeco Samridhi	Plots & Villas	1,65,021	1,56,741	8,280	3,428	Jun-19
3 Eldeco Shaurya (Phase- I)	Plots & Villas	6,39,936	5,80,000	59,936	1,700	Oct-17
4 Eldeco Regalia	Plots & Villas	6,93,365	6,01,534	91,831	2,790	Oct-20
COMMERCIAL
1 Eldeco Elegante	Retail Cum Office Spaces	55,271	52,011	3,260	4,647	Jan-17
2 Eldeco Corporate Tower	Office Spaces	81,839	81,839	-	4,180	Feb-13
3 Eldeco City Arcade 1	Shops	13,983	11,790	2,193	7,783	Jul-18
Total		57,81,320	54,95,774	2,85,546

*Project completed in different phases

OUR PILLARS OF STRENGTH

Market leadership in Lucknow

Strong brand for trusted delivery

Fast growing city with high demand for residential & township projects Lucknow among Top Tier-2 Cities with respect to real estate growth

Execution Capability across Verticals

Vast experience in project execution Quality and timely delivery of projects

Simultaneous handling of multiple large projects 41 projects completed till date

Prudent Financial Management

Long-term Debt-free Company

Ability to fund business operations by taking advances from customers Consistent growth in PAT and healthy return ratios

FINANCIAL HIGHLIGHTS

Particulars	FY21	FY20	Change Y-Y
Revenues	159.4	128.5	24.0%
EBITDA	74.5	54.1	37.8%
PBT	73.0	52.5	39.0%
PAT	54.2	39.2	38.4%
EPS (I per share)	275.7	199.2	38.4%
EBITDA Margin	46.7%	42.1%	466 bps
PBT Margin	45.8%	40.9%	492 bps
PAT Margin	34.0%	30.5%	353 bps

Revenue increased by 24% to Rs 159.4 crore in FY21. As per the new accounting standards, revenue is recognized once the completion certificate is obtained, or possession is offered in lieu of full payment made by customer. The Company has long duration projects causing revenue recognition to be lumpy in some years.

The EBIDTA margin improved from 42.1% in FY20 to 46.7% in FY21 The PBT (profit before tax) increased by 39.0% from Rs 52.5 crore in FY20 to Rs 73.0 crore in FY21. The PBT margin improved from 40.9% in FY20 to 45.8% in FY21 The PAT (profit after tax) increased by 38.4% from Rs 39.2 crore in FY20 to Rs 54.2 crore in FY21 and PAT margin improved from 30.5% to 34.0% during the same period

EPS stood at Rs 275.7 in FY21 as against Rs 199.2 in FY20 The Board of Directors has recommended a dividend of Rs 40.0 per share (400% of face value Rs 10 per share) At the end of March 31, 2021, the Companys net worth stood at Rs 265.0 crore

The Company remained substantively zero long term debt Company, with cash and cash equivalents of Rs 145 crore as on March 31, 2021

DETAILS OF KEY CONSOLIDATED FINANCIAL RATIOS DURING FY 2021

Particulars	Consolidated
	FY21	FY20	Change
Debtors Turnover (x)	14.9	8.7	70%
Interest Coverage	84.1	59.2	42%
Ratio (x)
Operating Profit	46.7%	42.1%	+460 bps
Margin (%)
Net Profit Margin (%)	34.0%	30.5%	+353 bps
Return on Net worth	20.5%	18.6%	+190 bps
– RoNW (x)

Note: EHIL is long term debt free Company, hence not included Debt Equity Ratio.

Interest coverage ratio improved to 84.1x in FY21 as compared to 59.2x recorded in FY20. This was mainly attributed to higher Earnings before Interest and Tax (EBIT) and marginal decrease in interest expense. The interest expense decreased to Rs 0.88 crore in FY21 as compared to

Rs 0.90 crore in FY20

Operating profit margin improved to 46.7% in FY21 from 42.1% in FY20 due to better realisations of previous inventory PAT margin improved to 34.0% in FY21 from 30.5% in FY20 due to better profitability on sold inventory

HUMAN RESOURCES

Our people, our human resource are backbone of the Companys business. The Company considers its people as its most valuable asset. The Company believes its employees are an integral part of the organisation. Employees have a sense of belonging and empowerment, which helps the Company nourish. On a regular basis, the Company delivers technical and managerial training in a variety of skills to improve human capacities in order to supply services, satisfy strategic needs, and match with the organizations values, strategic plan, and overall mission. During the tough phase of the pandemic, Company provided strong support to employees and site workers. As on March 31,2021, the Company had 41 employees on payroll.

ENVIRONMENT, HEALTH AND SAFETY (EHS)

EHIL is committed to take a practical and appropriate approach towards health and safety management while ensuring training and development of human-assets in a safer environment. The Company adopts rational procedures and has adequate safety measures in place for all its workers at the construction site, thereby reducing worksite injuries. The Company also works towards employee wellbeing while ensuring diversity, zero discrimination and other attributes essential to a healthy and beneficial working environment.

EHIL has put greater emphasis on providing a fraud-free and corruption-free work culture The various policies of the Company such as Code of Conduct, Policy on Prevention of Sexual Harassment at Workplace and vigil mechanism ensure overall welfare of all the employees of the Company. The Company aims for continuous improvement in EHS performance by designing end-to-end business processes and requirements systematically and integrating them with Enterprise Resource Planning (ERP) to achieve overall sustainability.

QUALITY

EHIL is committed towards best in-class quality control processes and systems to achieve the maximum customer satisfaction. The Company is well known for the highest quality and on-time delivery of projects. It has an efficient and highly skilled in-house construction team of engineers, architects, designers, and other associated employees along with a strong IT platform. The Company uses latest indigenous technology, which is well established in the Country. EHIL is focused on enhancing quality in planning, assurance, control and improvement and further strengthening its quality system by adopting high-end technological advancements.

INTERNAL CONTROL

EHIL has an adequate system of internal controls in place, commensurate with the size and nature of its business. Internal controls cover all fields across all financial and operating functions ranging from procurement of land to smooth execution of projects in time. The Company has also developed an internal expertise to coordinate and monitor project development processes for various stages such as initiation, planning, designing, procurement / contracts, construction and finally close out. It also ensures compliances at all corporate and project levels. EHILs easy-to-use, on-demand solution helps efficiently develop, deploy, verify and monitor the ongoing effectiveness of internal controls. Internal Controls at the Company have been designed to provide sound assurance with regards to maintenance of proper accounting controls, monitoring of operations, protecting assets from unauthorised use or losses, compliances with regulations and for ensuring reliability of financial reporting.

Some significant features of the internal control systems are: Preparation of annual budgets for all operating and service functions and periodical review of the same.

Regular internal audits and checks are carried out by a well-set regulatory internal audit team to ensure responsibilities are executed effectively and that the systems are adequate. The Audit Committee of the board reviews the adequacy and effectiveness of the internal control systems and suggests improvements for strengthening them.

Periodic reviews of important audit findings, accuracy of internal controls, compliance with Accounting Standards and the reasoning for changes in accounting policies and practices (if any) Anti-fraud programme

CAUTIONARY STATEMENT

Certain Statements found in the Management Discussion and Analysis may constitute "Forward-looking Statements" within the meaning of applicable securities laws and regulations. These forward-looking statements involve known and unknown risks, uncertainties and other factors that are difficult to predict, and which may cause our actual results, performance or achievements to be different from any future results, performance and achievements expressed or implied by these statements. In accordance with the Code of Corporate Governance approved by the Securities and Exchange Board of India, shareholders and readers are cautioned that in the case of data and information external to the Company, no representation is made on its accuracy or comprehensiveness though the same are based on sources thought to be reliable. The Company does not undertake to make any announcement in case any of these forward-looking Statements become materially incorrect in future or any update made thereon.