ganesh housing corporation ltd share price Management discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

I Overview of the Indian Economy

A shining star in the global universe

Indias economy has displayed immense resilience despite a challenging external environment. The country partly managed to shield its economy owing to robust domestic consumption and government l capex in infrastructure development. Despite immense geopolitical issues and persistently high inflation, India recorded a robust GDP growth of 7.2% in FY23.

The global turmoil in FY23 triggered broad- based inflation worldwide, and India was I no exception. In April 2022, retail inflation, measured by CPI (consumer price index), reached the highest (7.79%). RBI increased ¹ interest rates to contain the soaring inflation. By the end of this fiscal, CPI (consumer price index) came down to 5.66%.

Indias Index of Industrial Production dropped to 5.1% in FY23, dragged down by the manufacturing and electricity sectors. The agriculture sector sustained its 3% plus growth momentum yet again, which enhanced the liquidity of rural India - a key consumption engine for India.

The economys resurgence was also backed by GST, which has stabilised to become a vital source of revenue for the government, with its collection increasing at 24.8% YoY basis. The collection of indirect taxes grew by 14% YoY in FY23, surpassing the required rate of 3.5%, thus achieving the full-year target.

Net FDI declined by nearly 27% to US$ 28 billion in FY23 compared to US$ 38.6 billion) a year ago, mainly due to moderation in gross foreign direct investment inflows and increased repatriation.

A surge in exports was witnessed at 13.84% during FY23, supported by the rupees depreciation against the dollar. Fitch Ratings affirmed Indias long-term foreign-currency issuer default rating (IDR) at BBB- with a Stable outlook, backed by a robust growth outlook and abating core inflation pressure.

According to the Centre for Monitoring Indian Economy (CMIE), new projects worth C6 trillion were announced in the December quarter. This is a 44% increase compared to the previous year. This was driven by private sector investments as they have doubled quarter on quarter (QoQ).

In an effort to push the infrastructure capex, in the financial budget for FY24, the Central Government has announced a massive increase of 33% in the capex outlay to C10 lakh crore, about 3.3% of the GDP This is said to have a multiplier effect resulting in additional economic activities and job creation, with all-round economic activity being the single point agenda.

In FY24, the GDP is expected to grow by about 6-6.5%, supported by an increased thrust in government spending, a rise in private sector capex and a cyclical recovery in consumption. Having said that, significant challenges persist in the global environment. Slower consumption, income growth, and rising borrowing costs will affect the countrys overall economic growth.

Indian Real Estate Market

March into the greens

Indias real estate sector is the second- highest employment generator after agriculture. It is also expected that this sector will incur more non-resident Indian (NRI) investment, both in the short and long term. The construction industry ranks third among the 14 major sectors in terms of direct, indirect, and induced effects in all sectors of the economy.

The real estate market bounced back after the pandemic and gained momentum.

Indias Gross Fixed Capital Formation (GFCF) has witnessed an upward trajectory since the Covid-19 pandemic. As per government data, GFCF grew at 17.1% to reach C79.5 lakh crore in FY23, driven by household investment in real estate and government capex.

Indian real estate developers, post covid, have registered positive growth. In FY23, 87 separate land deals were sealed, cumulatively accounting for over 1,862 acres, against 44 land deals accounting for approximately 1,649 acres in the previous fiscal across various Indian cities.

(Source: Business Standard)

Of all deals closed in FY23, at least 76 accounted for approximately 1,059 acres were in the top 7 cities, and the remaining 11 deals accounting for approximately 803 acres took place in Tier-2 and -3 cities, including Ahmedabad, Kurukshetra, Lucknow, Nagpur, Panchkula, Panipat, Raigad and Surat.

(Source: Business Standard)

Among the top 7 cities, Mumbai topped with 25 land deals accounting for over 267 acres, followed by Delhi NCR with 23 land deals of approximately 274 acres. In terms of total land area transacted in the top 7 cities, Chennai topped with approximately 292 acres changing hands in 9 separate deals.

Private equity investment in real estate remained steady in FY23 at US$ 4.2 billion, of which over 22% of the contribution came from domestic investors, while foreign investors contributed more than 75% in the real estate sector. Domestic investors were visibly more active, with the investment value increasing by 50% in FY23 (US$ 0.9 billion) over FY22 (US$ 0.6 billion).

The real estate sector in India is expected to reach US$ 1 trillion in market size by 2028, up from US$ 200 billion in 2021 and will contribute 13% to the countrys GDP by 2025. Retail, hospitality, and commercial real estate are proliferating, providing much-needed infrastructural support for Indias growing needs.

Key growth drivers

Robust & growing economy - India is expected to improve its position in the world economic order - moving up from the fifth position now to the third position over the medium term.

Alluring policies: Government policies such as Make in India, Atmanirbhar Bharat and the PLI schemes are increasing the demand for real estate - residential and commercial spaces.

China-plus-One playout: In the postpandemic era, global enterprises have accelerated implementing their supply chain broadening strategy. This trend has brought India under the global spotlight. Further, Indias upward rise in the Ease of Doing Business ranking globally is luring foreign investors into the nation. Case in point: Apple is setting up large manufacturing bases and stores in India. This trend is driving the demand for real estate.

Improved infrastructure: India has been investing heavily in infrastructure in recent years. This includes the construction of roads, airports, ports, and other related projects. These investments are catalyzing real estate development around the periphery of the massive projects.

Road & highway development: Roads are the lifeline for economic progress. India has built more than 20,000 km of roads in the last two years. This massive development is expected to drive real estate development along its sides.

Rising population - India has overtaken China as the worlds most populous country, which is a significant shift in the global demographics. This will create a greater demand for housing and other real estate-related services.

Increasing nuclear families

- The growing number of nuclear families will boost the demand for real estate. The need for unhindered privacy

Reverse migration:

The mass exodus of the migrant working population across income levels has set off a new wave of "reverse migration" in India, as laborers (both skilled and unskilled), management executives and entrepreneurs are moving from bigger cities to smaller home towns and suburban areas. These urban-rural migrants, comprising professionals who have lost employment in the metros or are likely to in the near future, want to reap the benefits of a lower cost of living and a healthier lifestyle that many Indian Tier 2 and Tier 3 cities provide.

Residential Sector

More homes for more Indians

The residential real estate market has seen notable progress in 2022 and has recorded a sales growth of 34% year on year. The residential sector, in particular, has witnessed a robust demand revival, registering decadal-high sales across the top-seven cities — Mumbai, Delhi- NCR, Bengaluru, Hyderabad, Chennai, Kolkata, and Pune.

As per the estimates of Knight Frank, the demand momentum was strong in H2 2022, with sales growing on a YoY basis in all markets except for Kolkata. Hyderabad saw the most sales growth at 32% YoY, while NCR and Mumbai grew at 24% and 19% YoY respectively.

Sales in the <C5 mn ticket size price segment reduced from 45% in 2020 to 42% in 2022. Conversely, during the same reference period, the share of annual sales in the C5-10 mn and >10 mn ticket-size categories grew from 35% to 37% and 20% to 21%, respectively. The higher income segments were not as impacted by income disruptions caused by pandemic exigencies as was initially expected. Besides, the high savings rate due to the initial weak sentiments and lockdowns played a seminal role in fueling the current wave of demand.

The importance of home ownership post-pandemic has become stronger, and it is considered a safe investment during difficult times. Home-seekers are also showing keen interest in

under-construction projects as ready- to-move-into apartments of the same size and with similar amenities are likely to be 10-30% more expensive. With developers showing promising signs of new launches and completing delivery of under-construction properties, investments in such avenues are being preferred by customers.

Nowadays, digitisation is essential in saving customers time and resources in their home-buying process. Digital tools like virtual walkthroughs, remote viewing, and 3D modeling have enabled customers to overcome the challenges of restricted movement and access relevant services to help them realise their dream homes.

Indian Commercial Sector

India is back in its Offices

The commercial real estate sector rebounded sharply with solid growth in the corporate environment and the demand for office space. Commercial real estates most popular offering, office assets, has attracted 40% of the private equity outlay. It reaffirms investors faith in the excellent returns from commercial projects.

Despite the significant macroeconomic challenges seen this year, the strong resurgence in office demand is a testament to the strength of the Indian office space market. Hence, exceeding most expectations, the Indian office space market concluded 2022 with a significant 36% YoY growth in transaction volumes and a 28% YoY growth in completions. The 4.8 mn sq m (51.6 mn sq ft) transacted during the year is second only to the 5.6 mn sq m (60.6 mn sq ft) recorded in 2019 in annual transacted volumes. Even in halfyearly volumes, the 2.45 mn sq m (26.3 mn sq ft) transacted in H2 2022 are second only to the 3.08 mn sq m (33.2 mn sq ft) transacted in H2 2019.

According to India Ratings and Research, the commercial real estate sector had a strong leasing demand. It noted that the total leasing (excluding renewals) in FY 23 was 32 MSF (million square feet) (FY 22: 26 MSF). This demand was primarily attributed to return-to-office policies and the pent- up demand in the wake of the pandemic.

Indian Retail Sector

India is buying stuff

The Indian retail sector continued to show resilience despite the pandemic-induced disruptions. Retail credit in India grew to C37.7 Tn in October 2022, recording a growth of 20% y-o-y, despite the rise in interest rates. 2022 recorded 74 Bn UPI transactions of C 125.94 Tn, compared to 38 Bn transactions valued at C71.54 Tn a year ago.

Most brands, retailers, and mall developers promptly acted upon this revival of consumer sentiments and penchant for consumption. Tier II and III also gained much prominence due to the large- scale reverse migration and opening of employment centers in these cities.

The established retail real estate assets have also witnessed heightened activities owing to the significant increase in footfalls and improved occupancy of 94% in established Grade A malls across the major cities.

Private equity investments in the retail real estate segment also recovered, with total investment in 2022 estimated to be US$ 267 Mn, significantly higher than the previous year and accounting for 5% of the total private equity investments in the real estate sector. The average ticket size of US$ 134 Mn is similar to that of 2019. This confirms the investors continued faith in the potential of the retail sector in India.

About Ahmedabad

The emerging real estate hub Ahmedabad is the commercial capital of the state of Gujarat, where the primary industrial sectors are pharmaceuticals, construction and textiles. Ahmedabads contribution to total investments in all stock exchanges in India is 14% and 60% of the total productivity of the state. The city continues to host various industries, such as pharmaceuticals, plastics, metal, machinery, chemicals, electronics and passenger cars. Additionally, with many educational establishments, the Gandhinagar corridor has emerged as R and D and technological hub. Another industry that is becoming prominent in the Ahmedabad district is the power and renewable energy industry.

With a reliable infrastructure, a prudent industrial policy of the state government, and a peaceful industrial atmosphere, Ahmedabad has ensured a peaceful industrial atmosphere that ensures economic development and industrial growth.

There has been tremendous development

I on the grounds of infrastructure. Whether we talk about connectivity, commercial hub, educational institutes, residential inventory, or social growth, the past few years have been the golden years for this city on all these grounds. Owing to the rapid development, many investors nationwide have shown interest in investing in the Ahmedabad real estate market. For instance, the real estate firm Arvind SmartSpaces focuses on affordable housing and plans to invest C 1,000 crore in the next two-three quarters in Ahmedabad, Bengaluru, the Mumbai Metropolitan Region (MMR) and Pune.

Ahmedabad has emerged as one of the favorites for property investment among the tier two and tier three cities in a consumer sentiment survey by the Anarock Property Consultant Pvt. Ltd. Rapid industrialisation, proposed infrastructure development, good connectivity, GIFT city—one of the first smart cities in the country (located to the North East of Ahmedabad at a distance of around 23 km) and expressways are major factors spearheading realty growth.

Ahmedabad saw considerable growth in fresh office supply of office space in 2022 among the nine major cities, with more than a five-fold jump to 4.6 million square feet, according to CBRE India. In its latest report on the office market, CBRE India mentioned that the new supply of office space during the 2022 calendar year rose 2% to 50.6 million square feet from 49.7 million square feet in the previous year.

In 2002, Ahmedabad Municipal Corporation (AMC) expanded its area to the eastern and western sides of the city. This brought Naroda, Odhav, Bopal- Ghuma, Kathwada and Vatva within municipal surroundings. Surrounding areas of the estates were allotted as commercial areas and industrial areas. According to the Town Planning Department records, the Ahmedabad Municipal Corporation (AMC) approved a staggering 560 projects between March 1 and April 15 in the year 2023. The records revealed that over 100 builders bought chargeable FSI worth more than C400 crore from the AMC.

Ahmedabad Residential Sector

Very affordable and increasingly promising

As per Knight Frank Research, the Ahmedabad residential market witnessed the launch of 4,817 units in the first calendar quarter of 2023, recording a growth of 13% and 12% on a QoQ and YoY basis, respectively. Mid-segment dominated quarterly launches with a 55% share, followed by the affordable category with an 18% share. In this quarter, affordable segment launches dropped 50% from the average in the last four quarters. Meanwhile, quarterly launches in high-end and luxury segments witnessed a 1.3x rise from the last four-quarter average.

Recently, Ahmedabad is considered to be the most affordable market among the top eight cities ( Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai, NCR, and Pune) owing to the preferences of a very price-sensitive homebuyer. It emerged as the most affordable housing market in the country, with an affordability ratio of 22% in 2022.

The Ahmedabad residential market displayed immense strength during the pandemic lows, with rising sales volumes and almost reaching pre-pandemic levels in early 2022. Sales levels remained strong, with 5,865 units sold during H2 2022, constituting a 25% growth over H2 2021. In annual terms, sales growth also remained strong at a substantial 58% YoY, despite increasing concerns about the broader economy.

The cumulative 135 bps repo-rate hikes in August, September and December 2022 and the 90 bps hike in February 2023 were significant impediments to homebuyer affordability. While these rate hikes did not impact YoY sales growth, sales levels in H2 2022 were lower than those seen in H1 2022.

It was observed that homebuyers remained inclined towards upgrading their familys primary residence. Many people shifted from functional residences to high-value properties due to their exposure to international lifestyle standards. Therefore the shift in demand over the past few years to the C5-10 mn ticket size, from 15% in H1 2018 to 30% in H2 2022, has been prominent. The > C10 mn ticket size has also seen its share of sales increase from 8% in H2 2021 to 10% in H2 2022. Conversely, there has been a gradual decrease in the share of sales with ticket sizes < C5 mn since 2018. The share of sales in this category has shrunk from 76% in H1 2018 to 60% in H2 2022.

High affordability, comparatively lower prices per square foot and an improving local economic environment remain compelling drivers for the Ahmedabad residential real estate market and should support market traction despite any macroeconomic challenges.

Ahmedabad Commercial Sector

Gain prominence in the Commercial world

Ahmedabad recorded a gross leasing volume (GLV) of 0.25 MSF in the first quarter of 2023, indicating an 18% growth from the previous quarter but a decline of 6% on a YoY basis. IT-BPM took the lead with a 22% share of the total leasing activity, closely followed by BFSI and Professional Services at a 20% share each. The Secondary Business District (SBD) area continues to be the most preferred office submarket in the city, capturing the majority of overall leasing activity, mainly in locations like Sindhu Bhavan Road, Thaltej, and Iskcon Ambli Road.

Vaishnodevi area, located towards the northern zone of Ahmedabad, is well located and connected via S-G Highway and Sardar Patel Ring Road. This area is witnessing massive real estate development. Large industrial groups such as Zydus Cadila and Adani have established corporate houses near the Vaishnodevi Circle. This is expected to attract many more corporates in this area. As a result, modern and luxurious residential complexes are coming up at this location.

With the world returning to normal, the Ahmedabad office market showed strong growth with a rebound in occupier demand and a scaling of 0.2 mn sq m (2.2 mn sq ft) during the year. Transaction volumes in the second half of the year grew by a healthy 24% YoY to 0.08 mn sq m (0.9 mn sq ft), much higher than the 13%

YoY growth seen by all eight markets (Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai, NCR, and Pune) cumulatively during the period. ( Knight Frank Report - July to December - 2022)

The rate of office space completion was reduced as existing vacancy levels allowed only selective development. Also, building completion certificates/ approvals were delayed during the period. The growth in transactions and supply curtailment caused the vacancy level to drop to 42.8% in H2 2022 from 45.9% in H2 2021. The heightened occupier activity also helped maintain rent at the same level in YoY terms despite the persistently high vacancy level.( Knight Frank Report - July to December - 2022)

The Information Technology sector is expected to have occupied the most extensive tenant base of the coworking sector as it benefitted from the flexibility offered by co-working/ managed office space operators instead of making long-term lease commitments. Its aversion to taking up traditional leases in Ahmedabad is also reflected in its modest 8% share of directly transacted (leased or acquired) area during the period.

In addition, the BFSI sector, which accounted for 23% of the space transacted in H2 2022, has gradually gained popularity in Ahmedabad with the governments support of the GIFT city.

Ahmedabad Retail Sector

Under the global spotlight

City-wide mall vacancy was recorded at 19.6% this quarter, a 290 bps drop from last quarter, given a healthy leasing momentum. Main streets witnessed good leasing activity in Q1 with close to 0.18 MSF of space uptake. A new mall supply of 0.75 MSF was added to the citys mall inventory owing to the completion of Palladium Mall, where 85% of the area was already pre-leased. Fashion, CDIT (Consumer Durables & IT), and F&B retail chains opened multiple stores across the city.

The rents in superior malls of the city witnessed a 20% rise annually due to limited supply and strong leasing activity over the last year. With existing availability in superior mall space, the rentals might witness limited growth in the next few quarters. Main streets have experienced a 4-5% YoY rise in rentals as retail chains expand across locations like Sindhu Bhavan Road, CG Road, and others. Going further, prominent main streets with retail leasing activity might experience rental growth over the next few quarters.

Ahmedabad witnessed healthy mall leasing of 0.66 MSF in the first quarter of 2023 across categories such as Fashion, Food & Beverages, and Lifestyle & Accessories. One of the years biggest highlights was the successful entry of UAE- based retail conglomerate LuLu Group in Ahmedabad. LuLu Group International signed an MoU with the Government of Gujarat, which would open doors to future real estate investment in the state.

Opportunities and Threats

Two sides of the coin

Opportunities

Real Estate Investment Trusts: REITs have been introduced in India that provide an opportunity to investors to diversify their investment portfolio. REITs are making real estate participation for novice investors smooth and easy. Apart from the benefits of dividends, these also offer liquidity to an investors portfolio. Developers can benefit from REITs by monetising their assets and attracting long-term investors.

According to a report by Windmill Capital, India recorded 6.85% YoY growth in the total leasable area of listed (REITs), an increase from 87.6 million square feet (MSF) to 93.6 MSF between September 30, 2021, and September 30, 2022.

Further, India is likely to see the listing of at least four Real Estate Investment Trusts (REITs) on bourses from the second half of this year through the end of next year or early 2025, depending on the performance of the stock markets, according to CBRE India.

Co-Living and Co-Working Spaces:

Coworking and co-living are two innovations redefining how people live and work. People nowadays prefer to live near locations close to their workplace and economic activity. Commuting for long hours is something people want to avoid. To meet the housing demand ofthis mobile population, developers are focusing on flexible and affordable living and working spaces. The growing demand for coworking space is shifting the dynamics of office space in India. According to Knight

Frank data, the co-living segment will offer a business opportunity of C one trillion and 5.7 mn beds by 2023.

Technology-Enabled Real Estate Services:

Technology is playing an increasing role in the Indian real estate sector, with the development of online property portals, virtual property tours, and digital marketing. Developers and brokers are increasingly employing AI-enabled technology to automate processes related to property search, analysis, listings, pricing, tenant screening and other processes resulting in improved efficiency and cost savings. Machine learning enables real estate companies to draw insights from large data sets and identify areas with growth potential.

Threats

Land Acquisition: Land acquisition is a significant challenge for real estate development in India. The process is complicated, time-consuming, and often leads to disputes between developers, landowners, and government authorities.

Financing: Access to financing is another major challenge for real estate developers in India. Banks are often hesitant to lend to the industry due to long gestation, high levels of default risk, and interest rates can be prohibitively high.

Construction Delays: Delays in project completion are a common problem in the Indian real estate industry. This can be due to a variety of factors, including delays in obtaining approvals, shortage of skilled labor, and supply chain disruptions.

Financial Performance Consolidated

RATIOS	2022-2023	2021-2022	Change (%)	Reason for change
Debtors turnover Ratio	6.84	3.26	109.68%	Debtors Turnover Ratio has improved on an account of higher proportionate realisation compared to increase in turnover.
Inventory Turnover Ratio	1.20	0.89	34.47%	Inventory Turnover Ratio has improved as increase in sales and decrease in inventory on account of revenue booking from projects.
Interest Coverage Ratio	19.00	3.73	409.38%	Interest Coverage Ratio has improved on account of substantial reduction in Debt Liabilities.
Current assets Ratio	4.82	2.59	85.94%	Current Ratio has improved as reduction in current liability and increase in current assets.
Debt equity Ratio	0.20	0.35	-41.62%	Debt Equity ratio is reduced on account of reduction in Debt & other Liabilities.
Operating profit margin	0.41	0.35	18.17%	Operating Profit Margin Ratio has improved significantly on account of higher than expected revenue and reduction in operating cost during the year.
Net profit margin	0.17	0.18	-9.87%	Net Profit Margin has reduced mainly on account of deferred Tax adjustment.
Return on net worth	8.67%	8.05%	7.74%	Return of Net Worth Ratio has improved on account of higher revenue and reduction in operating cost & Finance cost during the year.

Human resource

People are the foundation for the Companys success. The people, their intellectual capital, dedication and disciplined determination differentiate the Company from others in its business space and make it stand out for its superior creations.

The Company aims to build a thriving work environment with robust hiring and recruitment processes. Over the years, it has created a pool of skilled personnel at all levels of the administrative hierarchy by acquiring the right talent that is essential to build a strong company and aligns with the organisations goals.

Ganesh Housing Corporation Limited believes in upskilling the team. It inculcates a culture of self-learning where team members can be encouraged to expand their horizons in areas of interest that align with business goals. The Company focuses on creating a safe and amiable working environment that fosters team bonding.

Internal Control System and their Adequacy

Throughout the year, Ganesh Housing Corporation Limited discovered new risks and re-evaluated old risks to develop risk mitigation methods. Credit risk, market risk, operational risk, and legal risk are some of the risks that the Companys key businesses face. Ganesh Housing Corporation Limited has also looked into unique risks associated with investment management and the environment in which it operates. The Company manages cost- escalation risk through measures targeted at reducing costs with our suppliers and sorting out stringent contracts and procurement. Ganesh Housing Corporation Limited assesses track records and performance skills to ensure the relevant contractors are on board to manage project execution risk.

Cautionary Statement

The Management Discussion and Analysis report containing your Companys objectives, projections, estimates and expectations may constitute certain statements that are forward-looking within the meaning of applicable laws and regulations. The statements in this reports Management Discussion and Analysis section could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include raw material availability and prices, cyclical demand and pricing in the Companys principal markets, changes in the governmental regulations, tax regimes, forex markets, economic developments within India and the countries with which the Company conducts business and other incidental factors.