1. INDUSTRY - STRUCTURE AND DEVELOPMENTS:
A. INDIAN ECONOMY AN OVERVIEW:
The real estate sector is one of the most globally recognized sectors. In India, real
estate is the second largest employer after agriculture and is slated to grow at 30 per
cent over the next decade. The real estate sector comprises of four sub sectors - housing,
retail, hospitality, and commercial. The growth of this sector is well complemented by the
growth of the corporate environment and the demand for office space as well as urban and
semi-urban accommodations. The construction industry ranks third among the 14 major
sectors in terms of direct, indirect and induced effects in all sectors of the economy.
Indias rank in the Global House Price Index has jumped 13 spots to reach the ninth
position among 55 international markets, on the back of increasing prices in mainstream
residential sector. New housing launches across top seven cities in India increased 27 per
cent year-on-year in January-March 2019. The Indian real estate market is expected to
touch US$ 180 billion by 2020. Housing sector is expected to contribute around 11 per cent
to Indias GDP by 2020.
The fallout of RERA, demonetization and GST was still very visible in 2018, but the
dust began to settle. With developers and brokers accepting the new market realities and
beginning to fall in line, the residential sector began to regain visibility and
viability. Transparency and accountability never the defining characteristics of Indian
real estate – became the ‘new normal this year, and the market reacted
positively. 81% respondents in ANAROCKs Consumer Survey, which covers both resident and
non-resident Indians (NRIs), believe that Indian real estate has become more credible and
efficient.
Even though sales and new supply picked up q-o-q across the top cities, the issue of
stalled projects showed few signs of resolution in 2018. However, a number of landmark
court judgments strongly indicated that the Indian legal system is awake and aware of the
problem. 2018-2019 was a year where consumers, previously held hostage by lack of
efficient regulation, finally felt that they are being heard and represented. As is always
the case, the process of resolving a problem starts with acknowledging that a problem
exists. The annual GDP growth rate of India has been falling for the past 2 years from
8.2% in 2015 to 7.1% in 2016 and further reducing to 6.6% in 2017. While the annual GDP
seems to be on a rise, to 2.6 lakh crore USD in 2017 from 2.27 lakh crore USD in 2016, the
growth rate seems to be declining. However, the first quarter of 2018-19 saw a growth rate
of 8.2%, the rate fell to 7.1% in the third quarter, much lower than the expected growth
rate.
B. OVERVIEW OF THE REAL ESTATE INDUSTRY:
The Real estate market has been amongst the sectors worst hit by the economic downturn
in the year 2018, but as compared to last year the real estate industry has shown the sign
of revival and is showing better growth in the year 2019. By introducing regulations like
GST, Real Estate (Regulation and development) Act ("RERAs") further amendments,
Benami Transaction Prohibition, Real Estate Investment Trusts ("REITs"), there
is a long-term industrial growth and it also impacts on ease of business by transparency
at work. A lot is expected from Government of India ("GOI") in the upcoming
years to offer some relief in the Real Estate sector which will have positive impact on
Your Company and its related stakeholders.
The ongoing NBFC crisis has, for all intents and purposes, hijacked Indian real
estates growth story over the short to mid-term. It not only freeze funds to the real
estate sector, but also impact private equity (PE) funds flowing into the sector.
This is because PE players become extra-cautious in lending to developers, become more
selective, and engage in extremely deep due diligence before making any plays in the
currently tense market environment.
Simultaneously, Indias first REIT listings are a sure-fire draw for liquidity
infusions into the sector. In fact, REITs will cause commercial property players to focus
even more on this segment to cater to the sustained demand from occupiers.
REITs operate in a manner similar to that of mutual funds. A REIT can be recognized as
a pool of funds by a sizeable number of investors, and these investments are made towards
rent-generating properties. In the Indian realty market, REITs can play a major role to
solve the problem of unsold and unoccupied inventory, which is a big challenge facing the
Indian realty sector today. REITs can help mobilize the returns on these properties, while
offering investors tremendous diversity when it comes to real estate investment.
Further, The GST Council, on March 19, 2019, approved a transition plan for the
implementation of the new tax structure for housing units with effect from April 1, 2019.
The developers of residential projects which are incomplete as on March 31, 2019, will
have the option either to choose the old structure with ITC or to shift to the new 5% and
1% rates, without ITC. The new tax rate of 1% for affordable houses and 5% for others,
without ITC, will apply on new projects started on or after April 01, 2019.
C. GOVERNMENT STANCE:
The Government formalized its vision and investment cycle to empower the bureaucracy to
revive the Sector. The government has launched its ambitious moto of ‘Housing for all
by 2022 specially "affordable housing", which encompasses building six crore
housing units through Public-Private Partnership model recognizing the need to fill up the
gap in urban housing. The Government also formalized several initiatives directed towards
improving urban infrastructure.
It has already identified 100 cities to be developed as Smart Cities under its
"The Smart City Project", identified 500 cities for urban rejuvenation under
‘Atal Mission for Rejuvenation & Urban Transformation ("AMRUT"),
and launched Heritage City Development & Augmentation Yojana ("HRIDAY"),
which would transform urban infrastructure in 12 Heritage Cities.
Some of the recent initiatives and developments undertaken by the government for
Housing Sector are listed below:
Under the Pradhan Mantri Awas Yojana (PMAY) Urban, more than 6.85 million houses have
been sanctioned up to December 2018.
In February 2018, creation of National Urban Housing
Fund was approved with an outlay of Rs 60,000 crore (US$ 9.27 billion).
Under the Pradhan Mantri Awas Yojana (PMAY) Urban
1,427,486 houses have been sanctioned in 2017-18. In March 2018, construction of
additional 3,21,567 affordable houses was sanctioned under the scheme.
2. OPPORTUNITIES, THREATS & CHALLENGES:
A. OPPORTUNITIES:
Easing of Monetary Norms
The Real Estate Sector performance is directly bound by the countrys economic
fundamentals and monetary policies. The Reserve Bank of India("RBI"),maintained
its benchmark repo rate of 6 percent during Financial Year 2018-19. (Repo rate is the
rate at which the RBI lends money to commercial banks) monetary easing initiatives
will provide an impetus to housing demand.
Push for Affordable Housing by giving them "Infrastructure Status".
The implementation of Real Estate (Regulation and Development) Act, 2016 and by
introducing the amendments in said regulation it has been improved confidence of buyers in
the sector, as it improved transparency, provided various buyer-friendly measures and
encouraged timely completion of projects.
Relaxation in Foreign Direct Investment ("FDI") norms
Indias FDI in India during 2018-19 stood at US$ 35.94 billion, indicating that
governments effort to improve ease of doing business and relaxation in FDI norms is
yielding results.
REITs
In Union Budget 2018, Centres proposal to bring equity shares, units of equity shares,
units of equity oriented fund and business trusts under the new Long Term Capital Gains
(LTCG) Tax in the Union Budget 2018-19 is likely to push investors expectations of
healthy returns from REITs higher. Presenting budget in the parliament, Finance Minister
has proposed a 10 percent tax on LTCG of over र 1 lakh without indexation benefits.
RERAs
India has moved up just one spot in the global real estate transparency index from 36
in 2016 to 35 in 2018, despite the implementation of the Real Estate (Regulation And
Development) Act or RERA, according to a report by real estate advisory firm Jones Lang
LaSalle Inc. (JLL).
RERA was implemented in May 2016 to bring accountability and transparency into the
sector. However, unlike a few states such as Maharashtra and Karnataka, several states
have been slow in its implementation. India is thus yet to figure among the transparent
markets, despite the regulatory changes and the possibility of a Real Estate Investment
Trust (REIT) listing.
The countries in the top 30 ranks have been defined as transparent markets, while those
in the top 10 are categorized as highly transparent, according to the report that comes
out every two years. The UK, Australia, the US, France and
Canada are the top five countries. The report, however, said that India is one of the
10 countries that have registered maximum improvement in transparency in real estate over
the last two years. Since 2014, India has moved up by five spots from 40th in the global
real estate transparency index. The index measures transparency based on factors such as
data availability, authenticity and accuracy; governance of public agencies as well as
stakeholders of the realty sector; transaction processes and costs associated with those;
and the regulatory and legal environment, the report said.
Between 2009-18*, Indian real estate sector attracted institutional investments worth
US$ 30 billion. Private Equity and Venture Capital investments in the sector reached US$
4.47 billion in 2018 and US$ 546 million in Jan-Feb 2019. The countrys ranking is likely
to improve further in Global Real Estate Transparency Index2020 mainly on the back of the
comprehensive implementation of RERA in all states of India, introduction of insurance
policies for land title, pseudo-ownership of properties weeded out through ‘Benami
Transactions Act and the sector aligning itself well with GST regime," it said.
Reference to above, Your Company is a major player in Mumbai Real Estate market with a
land reserve of approx. 193 million Sq.ft. as on March 31, 2019, with 90% of its land
reserves in Mumbai Metropolitan Region.
Your Company has been a major player in residential, commercial, Affordable Housing and
Redevelopment spaces. Relaxation of policies with regards to affordable housing &
redevelopment and markets sign of regaining momentum will boost your Company in terms of
new project launch and Floor Space Index ("FSI") sale.
B. THREATS & CHALLENGES:
Regulatory Hurdles
Unfavorable changes in government policies and the regulatory environment can adversely
impact theperformance of the sector. There are substantial procedural delays with regards
to land acquisition, land use, project launches and construction approvals. Retrospective
policy changes and regulatory bottlenecks may impact profitability and affect the
attractiveness of the sector and companies operating within the sector.
Funding Problems
The RBI has set sectoral caps for the total maximum exposure of banks to real estate,
including individual housing loans and lending to developers for construction finance
which is quite low and is curtailing the growth of the sector. Absence of long term
funding from banks is forcing developers to look at alternative sources offunds, most of
which do not offer affordable interest rates.
Shortage of Manpower & Technology
Despite being the third largest employer in the country the construction sector as a
whole faces man power shortage. Further the sector is heavily dependent on manual labour
which increases the timelines for construction companies and results in supply getting
deferred. Hence, technologically less labour intensive alternative methods of construction
need to be adopted on a large scale through training and skill development of manpower.
General Election
The general elections coming up in the first half of 2019 will definitely play a
pivotal role in deciding the fate of Indian real estate in the coming year. It is a known
fact that prior to elections, many prospective homebuyers adopt a wait-and-watch approach
because a new Government may announce new schemes and policies, which may impact the
attractiveness of real estate investments. For this reason, the current time before the
general elections is decidedly favourable for homebuyers as they can do some hard
bargaining. Developers generally refrain from launching new projects until the general
elections results are in.
3. SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE:
Your Company has managed to improve its registration of project process over the
previous year and the Management of your Company is satisfied with the performance during
the current financial year, Specially with the registration of all the ongoing projects
with the Government of Maharashtra established Maharashtra Real Estate Regulatory
Authority (MahaRERA). From Company results prospective the major contributor to the
profits are projectsales, Transfer of Development Rights ("TDR") and FSI
sale which graduallyis value addition to the profitability of the Company. Your Company
has the most efficient human capital with each team having expertise in its domain.
As on March 31, 2019, the portfolio of your Company comprised of residential component
of 43.15%, commercial,retail 13.76% and SRA 43.09%.
HDIL Project Mix Segment wise Breakup
Presently, the Company is executing projects at Nahur, Mulund, Kurla, Andheri,
Ghatkopar, Virar and Palghar. There are some projects at various stages of construction
and possession of some projects has already commenced.
4. OUTLOOK:
Although its hard to forecast the real estate market that is highly sentiment driven
in India, several factors will drive the future trend. With the implementation of RERA
2016 by the states, the Indian Real Estate Sector to be more transparent, credible and
attractive with only organised players on the ground.
Companys major focus will be debt reduction with a plan to reduce it during this
fiscal year. The Company will be focusing on project completion and execution along with
TDR and FSI sale and to grow stronger over next 3-4 years.
5. RISKS AND CONCERNS:
Economic conditions have a greater bearing on the sector as a whole. Hence, sales
depend highly on the growth of the economy. Liquidity in the market is pivotal for
speeding up project execution and launch of new projects.
Inspite it Government has taken various initiatives, more efforts in terms of
approvals, policies, liquidity and also timeline of approval are required. Otherwise there
is a possibility of the projects getting delayed in approval process and the regulator
putting the entire blame on the developer.
6. INTERNAL CONTROL SYSTEMS:
The Company has an adequate system of internal controls to ensure that all assets are
protected against loss from unauthorised use or disposal and to ensure all transactions
are authorised, recorded and reported correctly. It has in place internal controls
covering all fields across all financial and operating functions ranging from procurement
of land to smooth execution of projects. Apart from ensuring that proper accounting
policies and financial reporting regarding the same is made properly, the internal control
team keeps a close watch on the schedules followed, to ensure that the Company is able to
meet the delivery deadlines. The audit committees keep reviewing the internal audit
reports from time to time, and offer suggestions for improvement of internal controls and
systems within the Group. The statutory audit of the Company is conducted by M/s.
Rajeswari & Associates., Chartered Accountants who submit their reports to the Board
of Directors and Audit Committee.
7. FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONS PERFORMANCE:
For F.Y. 2019-20, the Companys major focus will be Debt reduction with a plan to
reduce it below
15%. The Company will be focusing on project completion along with TDR and FSI sale.
The key components of our strategy will be focused around:
• Speedy Project Completion;
• Handing over of Possession;
• Sale of TDR and FSI and
• Financial Strength and Liquidity.
Wealth maximisation of our investors and stakeholders has beenour strength and major
objective. Our major focus is on improving end customer experience by providing good
quality product at reasonable pricing with high product visibility and customised sales
agreement. Improving product quality and timely execution has been and will always be our
priority.
8. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/ INDUSTRIAL RELATIONS FRONT,
INCLUDING NUMBER OF PEOPLE EMPLOYED:
Your Company considers its employees as its most important asset; and has created a
work environment that ensures their continued well-being. It strongly aligns the
organisations growth with the growth of every individual who is functional in taking the
organisation closer to its goals. It aims at attracting, nurturing and retaining the best
industry talent; and invests substantial time and energy in maintaining an engaging human
resource culture. New employees are trained to make them accustomed to the HDIL culture,
while continuing employees are given ample opportunities to explore their talent and
capabilities. The Company will continue to expand itself by virtue of its core intellect
that resides with human resource. The Company had 286 employees on its rolls as on 31st
March 2019, of which 11% of talents are women.
9. CAUTIONARY STATEMENT:
The above Management Discussion and Analysis contains certain forward looking
statements within the meaning of applicable security laws and regulations. These pertain
to the companys future business prospects and business profitability, which are subject
to a number of risks and uncertainties and the actual results could materially differ from
those in such forward looking statements. The risks and uncertainties relating to these
statements include, but are not limited to, risks and uncertainties regarding fluctuations
in earnings, our ability to manage growth, competition, economic growth in India, ability
to attract and retain highly skilled professionals, time cost over runs on contracts,
government policies and actions with respect to investments, fiscal deficits, regulations
etc.
For and on behalf of the Board of Directors
Mr. Rakesh Kumar Wadhawan
Executive Chairman
DIN : 00028573.
+91-9892691696
