Eldeco Housing & Industries Ltd Management Discussions.


According to World Economic Outlook April, 2019 by IMF, global growth is now projected to soften from 3.6% in 2018 to 3.3% in 2019, before returning to 3.6% in 2020. India continues to remain one of the fastest growing economies in the world despite the moderation of Indias real GDP growth to 6.8% in FY 2018-19 from 7.2% in FY 2017-18. The economy has achieved significant growth due to favourable demographics reforms like GST implementation, simplified bankruptcy framework and improved infrastructure. According to Economy Survey Report July, 2019, Indian economy is projected to grow by 7.0% in FY 2019-20 as against 6.8% in FY 2018-19 on the back of robust Private consumption, structural reforms initiated by the Government, higher credit growth and further increase in Private investment.


Indian Real Estate Market

Real estate in India as an inherently strong sector of the economy. Robust demand due to rising household incomes, easy financing, urbanisation and the trend of nuclear families has considerably contributed the real estate sector growth in India. Indias real estate sector would probably touch a market size of USD 1 trillion by 2030 from USD 120 billion in 2017. The sector has considerably contributed to Indian GDP and would form 13% of the total GDP of the country by 2025.

Indias real estate market is expected to reach USD 650 billion in 2025 from USD 120 billion in 2017, before increasing to USD 1000 billion in the year 2030.

Growth drivers for the sector are :

• Transparency: A major confidence booster has been the transparency brought about by the implementation of Real Estate (Regulation and Development) Act (RERA) 2016. This law, while reviving buyer sentiments, is also expected to bring back investors.

• Increased Urbanization: The demand for residential properties has increased due to rapid urbanisation and rising household income. Indias urban population is expected to reach 543 million by 2025 from 461 million estimated in 2018. About 10 million people migrate to cities every year.

• Tier 2 Cities development: There has been a marked growth in real estate activity in cities like Lucknow and other 2-tier cities. Most of these cities have a thriving local economy and much improved infrastructure. This has opened new avenues of growth for the sector.

Government Initiatives

The role of Government in the growth of construction, infrastructure and real-estate sector has been immense. By initiating schemes like Housing for All and Smart Cities Mission, it is working on infusing more vibrancy and transparency in the real estate sector. The significant government initiatives can be summed up as follows:

• Housing for All: "Housing for AN" programme was launched in June 2015 under Pradhan Mantri Awas Yojana (PMAY) with the core aim to build 20 million urban homes and 30 million rural houses by 2022. As per Union Budget 2019- 20, over 8.1 million houses have been sanctioned under PMAY-Urban, as of March 2019. Under PMAY - Gramin, a total of 15.4 million rural houses has been completed as against a target of 10 million houses till March 2019. Also the Government has increased the carpet area for houses falling under the affordable housing scheme, giving a boost to developers having large inventories. As per NHB, PMAY has approved 9,694 statutory towns from earlier 4,041 towns for acquiring or constructing residential units.

• Interest Deduction: In Union Budget 2019-20, the Government has announced an additional deduction of Rs 1.5 lakhs on interest thereby amounting to total deduction of Rs. 3.5 lakhs interest, for loans borrowed up to March 31, 2020, for affordable houses (purchase of house up to Rs 45 lakhs).

• Fiscal Incentives: The implementation of GST in July 2017 has brought the much needed transparency in the sector. Earlier multiple taxes say excise, service tax, VAT, local taxes etc. were levied on both under construction and ready properties. The implementation of GST will simplify tax compliance and minimise the scope for double taxation. In order to boost the demand in the real estate sector, GST council has already reduced the GST rate for under- construction flats to 5% from 12% and for affordable housing to 1% from 8 % without claiming the input tax credit. This is beneficial for buyers as it will reduce the cost for them.

Future Industry Trends

• Demand and Supply Trends: With the turnaround expected in the real estate market, major concentration would be in the mid and affordable segments. Projects launched in the locations with proper placed and developed physical and social infrastructure are expected to see better demand and supply traction in the coming years.

• Market Consolidation: Demonetisation, RERA Act, NBFC cash crunch and GST have resulted in accelerated market consolidation, as they impacted small and medium sized developers with high leverage. Developers with scalable business model are better placed to increase their market share in a regulatory environment with better accountability and transparency.

• Private Equity Investors Participation: The return of equity participation is anticipated due to the enabling environment created by the Governments progressive reforms, which will keep housing momentum up.

• Increasing trend of Co-living: With the increasing number of students and young professionals, Co-living is gaining huge prominence, in which the apartment or house is shared between few students or professionals. Although this concept is already renowned in metro cities, it is gradually percolating to tier II cities like Lucknow and Jaipur where both working millennials and students are increasingly opting for these spaces.


Housing sector in India has shown consistent growth over the past few years and will continue to be a bright spot going forward. The affordable housing, which was generally overlooked by developers, investors and financial institutions, has now become an area of huge potential. With the improving affordability, under penetrated mortgage market, stabilised property prices, rising population, growing aspirations, increasing nuclear families, rapid urbanization and Governments interventions, the housing sector in India is poised for great growth in the coming years.

Lucknow Residential Market

Lucknow, the state capital of Uttar Pradesh, is one of the fastest growing cities of the country. The city is growing rapidly with its Metro network, expressways, medical and educational facilities and rising job opportunities attracting increased migration from the neighbouring cities. The state government and local government have invested heavily in upgrading the infrastructure of the city in the last few years. New roads, malls, residential developments and social infrastructure within Lucknow, its suburbs and along the highways to Sitapur, Faizabad, Sultanpur, Rae Bareli, Kanpur and Hardoi are quickly transforming the face of this historic city.

As per ANAROCK data, the housing sale in Lucknow increased by 19% in 2018 as compared to 2017 and it outpaced supply for the first time in the last six years. The growth was primarily driven by Mid-segment and affordable housing segment with nearly 47,100 new units launched in the sub Rs 80 lakh budget in last 6 years. The unsold inventory in Lucknow registered a decline of 6% year-on-year and stood at 21,080 units at the end of 2018.

Source: https://www.newsbarons.com/real-estate/anarock-launches-lucknow- operations/


Eldeco Housing and Industries Limited (herein referred as "EHIL" or "Eldeco" or "the Company") is the leading real estate developing Company engaged in the promotion, construction, development and sale of townships, residential and commercial properties. The company was founded in 1985 and is based in Lucknow, India. EHIL is part of the Eldeco Group which has presence in most states of North India. The Company along with its professional and experienced workforce, best-in-class consultants and experts, superior construction technology resulting in high consumer satisfaction, steers its course along the path of successful growth. The Company has a track record of paying uninterrupted dividend since its incorporation.

EHIL has successfully delivered many large projects in the last few years. Some of the large under-going projects portfolio includes the following:

• Eldeco City: It is an integrated township with villas, plots, group housing and convenient shopping facilities in 133 Acres at 1.1.M Road, Lucknow. Apart from villas and plots Eldeco City comprises of Eldeco City Breeze, a group housing project with 2 lacs sq. ft of built up area and shopping complex Eldeco City Arcade I and II. The Company has also launched an affordable group housing project Eldeco City Dreams comprising of 96 units having 1 BR and 2 BR apartments. Three small neighbourhood shopping centres are also developed for the convenience of residents of Eldeco City.

• Eldeco Saubhagyam: It has a built up area of 11.9 lac sq.ft and comprises of 11 towers. The Company has offered possession for 80% of the units. Work is in process for Eldeco Saubhagyam Arcade a convenient shopping comprising of 20 shops and Tower 5 would be launched soon.

• Eldeco Eternia: It is a premium housing group of more than 4.30 Lacs sq. ft. of built up area. The registrations and possessions for 3 towers (T1, T2 and T3) have been completed. Two more towers under the name Eldeco Luxa have been recently launched in the same complex.

• Eldeco Samridhi: The project comprises of widely spread plots and villas in approximately, 8 acres of land. Many families have moved in and almost all registrations are being completed.

• Eldeco Shaurya: A township project with plotted development and villas spread over 43 acres of land. Registrations process is going on and most of the units released for sale are booked.

• Eldeco Regalia: A 33 acres township project consisting of plotted development and villas. Construction work at site is going on at a rapid pace and the Company plans to offer possession in the current financial year.

• Eldeco Elegante: It is a commercial project consisting of approx. 52,000 sq. ft. built up area. Completion certificate has being received and the possession has happened and a few shops/offices have become operational.

The Company is looking to replenish its pipeline of projects in Lucknow while evaluating the opportunities through the criteria of saleability, risk and return on investment.

Financial Performance Consolidated

The Companys total revenue grew by 54% from Rs 10,898.30 lacs in FY 2017-18 to Rs 16,819.44 lacs in FY 2018-19. EBITDA recorded 45% growth by increasing from Rs 3,880.08 lacs in FY 2017-18 to Rs 5,615.49 lacs. Net profit for the year increased from Rs 2,534.89 lacs in FY 2017-18 to Rs 3,829.97 lacs, thereby registering 41% growth rate. During the year under review, Cash and Cash equivalents reached Rs 6,403.14 lacs from Rs 3,163.57 lacs while Net Worth increased to Rs 18,373.49 lacs from that of Rs 15,005.91 lacs in the previous year.

The Company has stayed long term debt free and plans to operate with minimal leverage in future as well.


On standalone basis, the Company recorded a growth rate of 45% by growing to Rs 10,766.76 lacs during the year under review from Rs 7,435.48 lacs. EBITDA grew by 45% to reach Rs 4,198.28 lacs in FY 2018-19 from Rs 2,976.33 lacs in FY 2017-18. Net profit for the year stood at Rs 2,845.55 lacs, growing by 50% from Rs 1,897.39 lacs attained in FY 2017-18. Its Cash and Cash equivalents reached Rs 5,436.64 lacs from Rs 2,893.87 lacs, exhibiting a growth of 88%, while Net Worth increased to Rs. 16,391.90 lacs from that of Rs 13,938.44 lacs in FY 2017-18.

Details of significant changes in Key Consolidated Ratios - (i.e. change of 25% or more as compared to FY 2017-18)

• Inventory turnover ratio improved to 0.77x in FY 2018-19 from 0.58x in FY 2017-18 due to significant increase in net sales by 54%, which was more than to offset the increase in average inventory.

• Debtor turnover ratio stood at 4.21x in FY 2018-19 as compared to 2.41x in FY 2017-18. This was mainly assisted by substantial increase in net sales coupled with decrease in average debtors.

• Interest Coverage Ratio appreciated to 29.65x in FY 2018- 19 as compared to 19.57x recorded in FY 2017-18. This was mainly attributed to higher Earnings before Interest and Tax (EBIT) coupled with lower interest expense. The interest expense reduced to Rs 188.66 lacs in FY 2018-19 as compared to Rs 196.86 lacs in FY 2017-18 due to decrease in borrowings.

• Debt equity ratio improved to 0.003x in FY 2018-19 as compared to 0.015x in FY 2017-18. This was mainly on account of significant increase in networth, which was further aided by decrease in borrowings owing to higher debt repayment.

Corporate Social Responsibility

Eldeco Group has always put efforts in improvement of community life for society at large and also for immediate neighbourhood. The Company aims providing free of cost medicines, health check-up, vocational training to workers at project site and also the population in the neighbourhood as well as providing elementary education to labours children. Many activities are undertaken at the Company projects to improve the environment:

• Efficient waste management system for residents and surrounding areas

• Extensive Rain water harvesting

• Introduction of environment friendly E-Rickshaw for the residents in its townships

• Installation of Solar panels Human Capital

Human Capital management practices in the Company are focused on the organizational need to provide specific workforce related competencies in its HR acquisition, management and optimization. Employees are infused with a sense of belongingness and empowerment that drives business growth. More focus on personal development by providing technical and management training are provided on regular basis to enhance human capabilities. The Company provides an atmosphere for development of different skills, which enables it to recruit and retain quality professionals in all the fields.

Environment, Health and Safety (EHS)

EHILs Environment, Health and Safety (EHS) management encapsulates the use of end-to-end business processes and requirements that are designed to systematically achieve continuous improvement in EHS performance. EHS management includes increased integration with other software systems such as ERP to better streamline it in order to achieve overall sustainability management.


The Company is committed towards best in class quality control processes and systems to manufacture absolute quality products for highest customer satisfaction. This includes the determination of a quality policy, creating and implementing quality related planning, assurance, control and improvement. In order to achieve this, the Company focuses on exercising increasing efforts and adopting high end technological advancements.

Internal Control

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 a reasonable assurance with regard to maintenance of proper accounting controls, monitoring of operations, protecting assets from unauthorized use or losses, compliances with regulations and for ensuring reliability of financial reporting.

Some significant features of the internal control systems are:

• Preparation and periodically scanning of annual budgets for all operating and service functions;

• A well-set regulatory Internal Audit team, which performs analysis of internal controls and intimates management and the Audit Committee about the compliance with internal controls and the efficacy and effectiveness of operations and the key process risks;

• 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.

Risk and Mitigation

• Funding Risk: The cost of funding remains high as land financing is available mostly from NBFC. Due to materially high cost of capital and gradually rising funding may affect adversely on the returns for the Company.

Mitigation Measures: Eldeco has stayed a long term debt free Company. It ensures the optimisation of liquidity, which is further used to finance new projects and developing existing ones.

• Operational Risk: It is important for the Company to maintain high operational efficiency in order to ensure its competitiveness across the region.

Mitigation Measures: The management team effectively handles the internal processes in terms of optimisation in technology absorption and capital efficiencies. It had handled business complexity with efficacy and reduced any complication considerably.

• Input Risk: The cost of raw material might elevate the cost prices used in construction. Such price movements in commodities and labour market affect the profit margin of the Company.

Mitigation Measures: The Company establishes clear terms with suppliers regarding raw material prices. It also tracks price changes periodically. The Company tries to match its sales price and input price to the extent possible. 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.