Mac Charles (India) Ltd Management Discussions

470
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Jul 25, 2024|03:40:00 PM

Mac Charles (India) Ltd Share Price Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Our Company has been reporting consolidated results considering the results of its subsidiary. This discussion, therefore, covers the financial results and other developments during April 2022 to March 2023. Some statements in this discussion describing the projections, estimates, expectations or outlook may be forward looking. Actual results may, however, differ materially from those stated because of several factors such as changes in government regulations, tax regimes, economic developments within India and abroad, exchange rates and interest rates fluctuations, impact of competition, demand and supply constraints.

1. GLOBAL ECONOMY

Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades. The cost-of-living crisis, tightening financial conditions in most regions, Russias invasion of Ukraine, and the lingering COVID- 19 pandemic all weigh heavily on the outlook. Global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023. This is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic.

International trade faced challenges due to disruptions in supply chains, reduced demand, and trade tensions. Some sectors, such as e-commerce and technology, thrived, while industries heavily reliant on global supply chains faced difficulties. The recovery in global trade was gradual, with some regions rebounding faster than others.

Inflation emerged as a concern during this period. A combination of factors, including supply chain disruptions, rising commodity prices, and increased demand, led to inflationary pressures in many economies. Central banks responded by closely monitoring inflation levels and considering policy adjustments.

Emerging market economies faced both challenges and opportunities. While some countries struggled with the impact of the pandemic, others capitalized on structural reforms, diversified trade relations, and robust domestic demand to drive growth. However, vulnerabilities remained in countries heavily reliant on sectors like tourism and commodities.

The pandemic resulted in a significant increase in global debt levels as governments implemented fiscal stimulus measures to support their economies. While such measures were necessary to prevent a deeper economic downturn, the long-term implications of elevated debt levels remain a concern.

2. INDIAN ECONOMY

The overall growth was robust and is estimated to be 6.9 percent for the full year with real GDP growing at around 7.7 percent for the fiscal year 2022/23. There were some signs of moderation in the second half of FY 22/23. Growth was underpinned by strong investment activity bolstered by the governments capex push and buoyant private consumption, particularly among higher income earners. Inflation remained high, averaging around 6.7 percent in FY22/23 but the current-account deficit narrowed on the back of strong growth in service exports and easing global commodity prices.

3. INDUSTRY INSIGHT

The commercial real estate industry in India has experienced a mix of challenges and opportunities in recent years.

The demand for office spaces in India has been strong, driven by sectors such as information technology, e- commerce, and financial services. Companies have been expanding their operations, leading to increased leasing activity in major cities like Bengaluru, Mumbai, and Delhi-NCR.

The concept of co-working spaces continues to gain popularity in India, catering to startups, freelancers, and small businesses. Co-working operators expanded their presence, offering flexible workspaces and amenities. However, the COVID-19 pandemic and the shift to remote work temporarily affected the demand for such spaces.

Remote work and economic uncertainties led to reduced office space requirements, resulting in a slowdown in leasing activity and increased vacancy rates. However, as the situation stabilizes, companies are gradually returning to physical office spaces.

The commercial real estate industry in India is experiencing technology-driven changes. Smart buildings, energy efficiency measures, and digitization of property management processes are becoming increasingly important. Additionally, evolving workforce preferences, such as the desire for flexible work arrangements, are influencing office space requirements.

In the midst of this uncertainty, we hold an optimistic outlook on various aspects related to the Commercial Real Estate industry. Our company has strategically invested in the construction of a top-tier Commercial Tower in the central business district of Bangalore. Our aim is to create an iconic office building that will be leased to prominent global multinational corporations (MNCs) and other esteemed clients, further enhancing our presence in the market.

Our Project is committed to offering exceptional office spaces and amenities to renowned corporations globally, including those in India. Bangalore continues to be a prominent technology hub, attracting our desired customer base. The cost advantage and affordable rentals in India remain advantageous factors. Furthermore, the increasing significance of technology in the global economy has provided additional benefits to technology companies. Our Projects objective is to provide a premium product and a comprehensive business ecosystem in a prime location within Bangalores central business district (CBD). This guarantees sustained demand and reinforces the resilience of our project, particularly during uncertain times.

4. MARKET OUTLOOK

The commercial real estate market in India is expected to experience steady growth, particularly in prime locations and major cities. The demand for office spaces remains strong, driven by sectors such as technology, e- commerce, and financial services. Co-working spaces are also expected to play a significant role in the commercial real estate sector.

Even amidst a highly volatile global macro environment, India continues to attract more and more global companies to set up and grow their offshore captive centers. Morgan Stanley, in its recently published report ‘Why This is Indias Decade, has highlighted off shoring as one of the key "megatrends" which will continue to fuel Indias growth. The dual drivers for this phenomenon are structural, namely Indias abundant STEM talent and the cost efficiency offered by Indias gateway cities, relative to more expensive and less scalable markets globally. These global captives continue to pursue premium-quality wellness-focused properties, to attract and retain talent and to grow their presence in India.

5. OPPORTUNITIES

The commercial real estate sector in India presents several opportunities for growth and investment. The demand for office spaces in India is expected to continue growing, driven by sectors such as technology, e- commerce, and financial services. With companies expanding their operations and increasing workforce, there is a need for high-quality office spaces in prime locations.

The concept of co-working spaces has gained popularity in India, providing flexible and collaborative work environments. This trend presents opportunities for developers and operators to cater to the needs of startups, freelancers, and small businesses.

Technology-driven solutions are becoming integral to the commercial real estate sector. Incorporating smart technologies, energy-efficient designs, and digital platforms can enhance the efficiency and sustainability of buildings, attracting tech-savvy tenants and investors. While major cities like Mumbai, Delhi, and Bangalore offer significant opportunities, there is also potential in emerging markets and tier-II cities. These locations are experiencing rapid urbanization and economic growth, presenting opportunities for commercial real estate development. The introduction of REITs in India has opened up avenues for retail and institutional investors to invest in income-generating commercial properties. REITs provide liquidity, transparency, and diversification benefits, attracting more investors to the sector.

6. THREATS/ CHALLENGES

Unfavorable changes in government policies and the regulatory environment can adversely impact the performance of the sector. Retrospective policy changes and regulatory bottlenecks may impact profitability and affect the attractiveness of the sector and companies operating within the sector.

The sector can be impacted by delays in multiple approval processes which need to be undertaken for every project.

7. SEGMENT WISE PERFORMANCE AND FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL

PERFORMANCE

• Factors used to identify the entitys reportable segments, including the basis of organisation:

The Companys 100% subsidiary Company is operating a three-star hotel at Kochi, Kerala, this business was sold in March 2022.

The company has divested its non core assets resulting in a profit on sale of Rs 210.69 cr.

The Company has diversified into electricity generation through Wind Turbine Generators (WTG) for captive consumption and sale of electricity to the GESCOM, HESCOM & Group Cative., and third-party consumers. Further, the Company has earnings on investments.

For management purposes, the Company has multiple reportable segments namely: Development of Real Estate , Windmill, Rental Income and others.

Financial performance of the Company is as under:

PARTICULARS Segmentwise Turnover/Revenue Financial Year ended 31-03-2023 Financial Year ended 31-03-2022
a) Sale of Electricity 108.27 105.55
b) Office Rentals 3.62 114.22
c) Others 1014.56 1153.94
Total Revenue 1126.45 1373.71
Profit/( Loss ) before Depreciation ,Finance Cost & Tax 997.10 1239.59
Less Depreciation 19.13 26.36
Less Finance Cost 325.30 59.58
Profit/( Loss ) before tax 652.67 1153.65
Profit/( Loss ) for the year 589.75 1110.32
Total Comprehensive Income 588.52 1109.74
Earning Per Share - basic & Diluted- Rs 45.02 84.75

• Geographical Information

The geographic information analyses the Companys revenue and Non-Current Assets by the Companys country of domicile and other countries. As the Company is engaged in Development of Real Estate property in India, Windmill and Rental income, it has only multiple reportable geographical segment.

• Information about major customers

Business segment Customer
Windmill Vikas Telecom Pvt. ltd.
Rental Income LG and Inmobi

Apart from above no other customers constituted 10% or more of the total revenue of the Company for the years ended March 31, 2023 and March 31, 2022.

8. RISKS AND CONCERNS Industry Risk

The real estate sector in India is heavily regulated by the central, state and local governments. Real estate developers are required to comply with a number of laws and regulations, including policies and procedures established and implemented by local authorities in relation to land acquisition, transfer of property, registration and use of land. These laws often vary from state to state.

General Economic Conditions:

The Real Estate and Construction Industry is prone to impact due to fluctuations in the economy caused by changes in global and domestic economies, changes in local market conditions, competition in the industry, government policies and regulations, fluctuations in interest rates and foreign exchange rates and other social factors.

Socio-Political Risks:

In addition to economic risks, your Company faces risks from the socio-political environment, internationally as well as within the country and is affected by events like political instability, connect between nations, threat of terrorist activities, occurrence of infectious diseases, extreme weather conditions and natural calamities, etc., which may affect the demand and supply activity.

Company Specific Risks:

The Company specific risks remain by and large the same as mentioned hereinabove. Further, it cannot have effective marketing leverages. The industry in general has a high operating leverage.

9. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Internal information systems ensure smooth information to facilitate proper control. Adherence to the systems is then validated through the process of internal audit. The Company has adequate system of internal audit control to ensure that all the assets are safeguarded and protected. Regular internal audits are conducted by the professional Chartered Accountant firm and reports submitted by these Internal Auditors are periodically reviewed by the Audit Committee of the Board. The findings and compliance/s are reported to the apex level management on a periodic basis. The Company has constituted an in-house Committee for timely implementation of internal audit recommendations. The Company has clear systematic process and well-defined roles and responsibilities for people at different hierarchical levels. This ensures appropriate information on to facilitate monitoring.

10. DEVELOPMENT IN HUMAN RESOURCES AND INDUSTRIAL RELATIONS

As reported last year, the Company is operating with 6 employees in various roles post closure of its Hotel operations in October 2019.

The Company believes that the quality of the employees is the key to its success in the long run and is committed to provide necessary human resource development and training opportunities to equip them with skills, enabling them to keep pace with ongoing technological advancements and evolve. Employees are provided opportunity to grow and prosper. In the meantime, all efforts are being made to control cost to maintain present level of profitability.

11. DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS

The details of significant changes (i.e. change of 25 % or more as compared to the immediately previous financial year) in key financial ratios, alongwith the explanation, are furnished as under:

Sl.No Particulars of ratio Ratio for the FY 2021-22 Ratio for the FY 2020-21 Extent of change over the previous year in % Explanation for significant change (more than 25 %)
1 Debtors turnover 7.42 20.71 (64%) Basis change in revenue from operatioms
2 Inventory turnover - - - -
3 Interest coverage 3.07 20.81 (85%) Basis change in finance cost and profit
4 Current ratio 24.27 .95 2455% Basis change in bank balances other than cash and cash equivalents.
5 Debt Equity 1.11 .43 158% Basis change in debetures issued during the year
6 Operating profit Margin (%) - - -
7 Net profit margin (%) 52% 81% (36%) Basis change in profit

Change in Return on Net Worth

Return on net worth during the financial year 2022-23 is INR 4739.26 Million as compared to financial year 202122 INR 4021.13 Million.

8. DISCLOSURE OF ACCOUNTING TREATMENT:

The Company has followed all relevant Accounting Standards while preparing the Financial Statements.

9. CAUTIONARY STATEMENT

The views and futuristic statements contained in this report are the perception of management and subject to certain risks and uncertainty that could cause actual results to differ materially from those such statements. Readers should carefully review the other information in this Annual Report and in the Companys periodic reports. The Company undertakes no obligation to publicly update or revise any of these futuristic statements, whether because of latest information, future events, or otherwise.

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