Macrotech Developers Ltd Management Discussions

Review of the Global Economy

The beginning of the financial year was marked by concerns of persistently high inflation rates, with potential to impede the global economic growth trajectory and lead to further increases in policy rates. Additionally, the recovery of global trade from the disruptions caused by the Russia-Ukraine conflict in the second half of the previous financial year was threatened by the outbreak of the Israel-Palestine conflict. These factors created a challenging and uncertain business environment.

Despite the risks emanating from supply side challenges, central banks across the world including Reserve Bank of India took a pause on their policy rates throughout the financial year after increasing the rates at unprecedented pace in the previous year to allow the global economy to absorb impact of higher interest rate and provide stability & predictability.

The patient approach by the central banks played out well as major economies made significant progress towards taming inflation while avoiding hard landing. Global supply chain showed remarkable resilience as commodity and energy prices remained range bound. While US growth was a positive surprise, European Union and China grew albeit at a slower pace.

The global economy grew at 3.1% in CY23 according to International Monetary Fund (IMF) exceeding its expectation of 2.8% for the year. IMF expects growth momentum to continue and global GDP to grow at 3.2% in both CY24 and CY25.

The impact of unprecedented pace of interest rate increase played out in CY23 as inflation came down gradually. Average global headline inflation fell to 6.8% in CY23 and is expected to fall to 5.9% in CY24 with further slowing down to 4.5% in CY25. With inflation outlook being on a downward trajectory, central banks are expected to reduce policy rates in later half of FY25 to support growth. Escalation in conflicts in Middle-East and Russia-Ukraine war pose a threat to recovery in global growth and inflation. 2024 is the year of elections in many countries. While Indian general elections have already concluded with a mandate for continuity, several other important countries including major economies like US, UK etc. will be holding elections in 2024.Outcomes of these elections can significantly alter geopolitical equations and potentially further undermine stability of global economy.

Review of Indian Economy

While global economy managed to fend off hard lending, India stood out with GDP growth significantly surpassing expectations while retaining the tag of fastest growing major economy. Indias 8.2% GDP growth rate in FY24 (Source: RBI) was underpinned by robust services and manufacturing sectors. Despite the remarkable GDP growth, growth in rural economy remained elusive as inflation affected the rural populace the most. Hopes of revival in the rural growth is pinned on above average monsoon forecast by India Meteorological Department. Indias macro stability as reflected in comfortable current account balances and progress towards bringing fiscal deficit to pre-covid level have helped in attracting strong capital flows.

RBI estimates Indias GDP growth rate for FY25 at 7.2% following a stellar performance in FY24. World Bank revised its CY24 GDP estimate for India to 6.6% from 6.3% earlier, driven by robust performance in first quarter of the year. Lower than FY24 GDP estimates is attributable to the expectation that government would continue on its fiscal glide path and curtail spending on infrastructure creation. However, expectation of continuing political leadership providing policy continuity, government support for manufacturing industry through PLI scheme, comfortable corporate balance sheets and rising capacity utilizations across industries is expected to spur private capex. FY24 was a watershed moment for Indias manufacturing industry as three semiconductor facilities broke ground during the year. This will further help in attracting investment in affiliated industry. However, Indian economy still faces a major challenge emanating from external environment as India is reliant on its trade partners for its energy and commodity needs. Geopolitics is constantly in a flux which pose risks to commodity and energy prices and could hurt Indias current account balance if these prices go northward and sustain there.

India Real Estate Industry Overview

Indian real estate has seen diverging trends as compared to global peers. Higher interest rates dented housing sales, layoffs and weak consumer sentiment impacted office and retail space leasing in advanced economies. India on the other hand witnessed surge in housing demand, accompanied by recovery in office leasing despite global slowdown in IT/ITes spending. Retail real estate continues to perform well driven by upbeat consumer spending.

As India transitions from a low-income to a mid income country, the real estate sector in India is poised to play a significant role in driving economic growth and be significant beneficiary of the growing economy, as it has in other economies that have undergone similar transformations. The real estate sectors strong linkages with various industries such as steel, cement, and other construction materials will create numerous employment opportunities, thereby stimulating demand for housing. Healthy balance sheet of large developers will allow India Real Estate sector to grow in sustainable manner.

India Housing Market overview

India housing market juggernaut continued to roll in with sales increasing 476,000 units in 2023 from 365,000 units in 2022 in top 7 cities, as per property consultant Anarock, despite the impact of increase in mortgage rates throughout the entire year. This trend highlights the fundamental nature of housing demand which is driven by increasing per capita income. Although supply was largely in line with demand, months of inventory continued to reduce on higher sales.

Supply-demand dynamics, availability of finance and nature of mortgage market and commodity cycles give housing much of its cyclical nature. The current structure of Indian housing market largely negates the influence of these factors and will elongate the demand curve. Indias demography and its transition from low income to mid income economy will generate immense demand for quality housing. As per industry estimates, India is expected to see creation of 100 million new households that will become ‘home ownership capable by virtue of rise in income levels by the end of the decade.

Consolidation of supply and demand in the hands of few large developers of the micro market has resulted in a more stable pricing environment. Most of the large developers see price increasing in calibrated manner (except in NCR), keeping affordability intact while also curbing investment demand which in turn helps in maintaining pricing discipline and allowing volume potential to unfold. While absorption increased to ~476,000 units from ~138,000 units during CY20-23 and inventory came down to 14 months from 55 months, prices increased at modest 5-10% CAGR across Top 7 cities.

Housing mortgage has been the best performing asset throughout different cycles for lenders. Due to its low risk to defaults, mortgage players compete to get exposure to this asset class thereby resulting in lower transmission of change in policy rates to mortgage rate and plentiful availability to homebuyers. In addition, RBI has been very prescriptive in providing mortgage to homebuyers, by not permitting teaser rates, encouraging floating rate mortgages, fixed monthly outgo (tenor changes with change in interest rate) etc. This ensures that mortgage finance serves as an enabler rather than an inducer of demand.

Construction costs typically account for ~25% to 45% of the sales price, depending on the location and positioning of the project, with labour cost (which has seen steady and low inflation in the recent past) making up over one-third of that amount. This effectively means that the price of commodities has a lower intensity on the profitability of new projects. Short commodity cycles and long gestation period for construction provides comfort to developers to increase price in calibrated manner without impacting margin.

MMR Housing Market

Mumbai Metropolitan Region (MMR) continues to remain the largest residential market by a margin. As per a research report by Anarock, MMR accounted for ~32% of absorption and ~35% by supply in term of units of overall top-7 cities in India. Given the higher capital values and profit margins, MMR is also the most profitable market, likely accounting for over 50% of the profit pool of the residential market of these top-7 cities. MMR reported absorption of more than 1,53,000 units in 2023, showing a growth of ~40% compared to the previous year. Launches were at 157,000 in 2023, growing at 27% compared to previous year. Demand growing at faster clip resulted in overall available inventory in the MMR coming down to 16 months of sales at the end of 2023 from 20 at the end of 2022. As per Anarock, prices have increased at 8% CAGR over 2020-23, below average wage growth of 9-10%, providing a conducive environment for sustainable demand.

MMR is currently undergoing a significant infrastructure overhaul, with development of a new airport, improved road network including a coastal road and an expanding metro connectivity. These enhancements are expected to strengthen MMRs role as Indias economic hub, attracting both capital and talent to the region. MMR housing industry is going to benefit immensely as new avenue of growth opens up. MMR has emerged as a preferred destination for offshoring by international banks owing to its thriving financial ecosystem and a large pool of high quality BFSI talent. A prominent global bank recently secured ~ 2 Mn sq ft office space in the MMR. This trend is likely to continue and is expected to generate a significant number of high-paying job opportunities. This, in turn, will lead to a surge in demand for housing in MMR.

Pune housing market

Pune has emerged as Indias second largest housing market after MMR in terms of absorption in number of units. This growth can be attributed to Punes status as a hub for manufacturing facilities in various industries, including automobiles, defense, and engineering goods, as well as the presence of a significant number of IT services companies. The diversified nature of job providers has made Pune an attractive and steadily growing residential market. Its share in absorption and new launches stood at 18% and 19% respectively of overall top -7 cities in India. Pune reported absorption of 86,680 units in 2023, rising by 52% compared to previous year. Similarly new launches stood at 83,625, growing at 30% compared to 2022. Overall available inventory as months of sales has come down to 14 months from 20 months as of March 2022. Similar to MMR, prices have grown at 7% CAGR over 2020-23, below the average wage growth, allowing volumes to unfold. The city of Pune has evolved from primarily serving as a manufacturing base for multinational corporations to now attracting these companies to establish their centers for innovation. This shift has resulted in a rise in demand for housing and this trend is expected to continue, further boosting the real estate sector in Pune.

Bengaluru housing market

Bengaluru housing market continues to grow at an accelerated pace driven by significant wealth creation on the back of new age technology companies. Despite the concerns around sluggishness in IT services industry, Bengaluru market has witnessed absorption of around 64,000 units in 2023, registering growth of 29% compared to previous year, as per Anarock Research. Supply however grew at slower pace with new launches at around 54,000, a growth of 11% compared to 2022. Across top seven markets, Bengaluru has the lowest inventory levels at 8 months of sales. Bengaluru, often called the "Startup Hub" and "Silicon Valley" of India, has witnessed significant wealth creation as a result of its thriving startup ecosystem and the establishment of numerous GCCs. According to JLL, Bengaluru accounts for significant 42% of the total office space occupied by GCCs in India. As these companies continue to expand their operations in India, Bengaluru is expected to benefit significantly in terms of new job creation, which will, in turn, lead to a surge in demand for housing. Robust demand on back of significant wealth creation in startup ecosystem and launches slightly falling behind demand has resulted in prices increasing at similar to 9-10% wage growth over 2020-23, keeping the affordability intact.

Indian logistic and warehousing overview

Logistics and warehousing landscape has undergone a paradigm shift, evolving from ‘godowns to quality spaces. Strong growth in organized retail, increasing penetration of e-commerce, robust manufacturing activity, demand for integrated supply chain solution provider and multitude of initiatives including GST by the Government have created a conducive environment for organized warehousing sector to thrive.

Indian economy is digitizing rapidly on account of growing smartphone and internet penetration, resulting in a shift in consumer preferences towards online shopping, leading to an increase in the share of e-commerce in overall consumer purchases. While the pandemic pushed the e-commerce sector into a high growth trajectory, increasing focus of large conglomerates like the Tata Group and the Reliance Group in this highly competitive space combined with plethora of newer global brands wanting to take a pie of consumer demand boom, has further increased demand for quality warehousing space. Rising complexities have led to rise of ‘third party logistics (3-PL) which provide end to end integrated supply chain solutions. According to Anarock Research, 3-PL as a category had the highest share absorption in warehousing space for 1HCY23. With government incentivizing manufacturing industry through various PLI schemes and diversification by global manufacturers through China + 1 strategy means that demand for industrial and light manufacturing is also on the rise.

As per Anarock Research, Grade-A warehousing space absorption is expected to grow by 15% CAGR over 2021-25 in volume terms to 85 mn sqft. On the back of strong demand, rentals are also rising by an estimated 4%-8% per annum across various top cities.

Opportunities

India is in early stage of structural upcycle for housing demand. Dynamics of industry will largely blunt the cyclical forces and will elongate the cycle.

Fundamental drivers in place for long term housing demand Structural nature of demand

India housing is expected to be both the participant as well as the driver of GDP growth over the course of the decade, with contribution to GDP rising from 7% currently to mid-teens, as seen in developed and mid-income economies.

The demand will be supported by several long-term factors and key among them are:

Rising household income: Per capita income to increase from US$ ~2,000 to US$ ~5,000 during the course of the decade

Rapid urbanization - More people living in urban areas than in rural by 2047

Nuclearization of families – Preference for nuclear and independent family; and

Large educated workforce – ~1.5 Mn students graduating from STEM colleges alone every year

Rebound in affordable and mid-income segment

As per Anarock, share of affordable and mid-income segments in the total housing sales has come down in the recent past due to rise in mortgage rates. Rising mortgage rates reduces the loan eligibility of the consumer. Thus, while the consumer can afford the monthly payments towards the mortgage due to income growth, lower loan eligibility means a higher equity contribution on the part of the consumer. Given, this segment of the consumer has limited savings, there has been an impact on the growth for this segment. There are near term actions which are likely to support the demand in this segment. Key among them are:

Likely government incentives for entry level homebuyers – Govt has time and again shown intention of increasing home ownership in affordable segment, could announce detailed scheme soon which was mentioned in the budget announcement

Likely cut in interest rate in second half of FY25 – As inflation has come down at better-than-expected pace, RBI is likely to cut key policy rate to prioritize growth

Significant equity wealth creation to fuel luxury demand

On the back of strong economic growth and prudent policies as well as various reforms in the last three years, India has seen substantial equity wealth creation both in the listed as well as unlisted space. There has been marked increase in the number of companies having US$ 1 Bn market value both in the listed and unlisted space. The number of listed Indian companies having market cap of US$ 1 Bn has nearly doubled in 4 years to 525 companies as of March 31, 2024. Similarly, despite the softness in the start-up ecosystem, India ranks 3rd in the number of unicorns with nearly 100 unicorns. Many of these unicorns ultimately list on public markets, resulting in the unlocking of significant wealth and a positive impact on related sectors. This trend is expected to persist, keeping luxury markets buoyant in the future.

By virtue of being one of the largest residential players in the country, your company will be a disproportionate beneficiary of this opportunity.

Market share gains for larger branded players

Consolidation of supply and demand in the industry, led by policy reforms, demonetization and IL&FS crisis among other factors in the previous decade, accelerated post-Covid. Having suffered economically in the past, consumers are increasingly preferring to buy from only handful of branded tier-1 developers. Similarly lenders prefer to lend only to handful of branded developers. Devoid of customer advances and formal credit, a large number of unbranded developers have vacated the space leading to market share gains for branded developers. As per Anarock Research, more than 50% of incremental supply is now coming from branded developers.

Due to our strong brand, our company is not only able to get homebuyers trust to make their largest purchase of their life with our company but also from landowners who see us as their preferred development partner for their land under JDA partnership mode. Having consumers and landowners trust will help us achieve above industry growth.

Larger branded players growing beyond their home markets

The ongoing consolidation in the industry is enabling larger players with a strong brand and superior execution capabilities to expand into new micro-markets and cities. Over the past three years, our company has entered/expanded into the Eastern & Western suburbs of the MMR, Pune, and Bengaluru. The response to our first two projects in Bengaluru during the pilot phase has been particularly noteworthy. The success of our initial projects in Bengaluru has given us confidence to enter the growth phase earlier than anticipated. We plan to gradually explore other cities after achieving scale in our existing locations.

Threats and challenges

While our brand, execution capability and robust balance sheet put us in good position to significantly benefit from the opportunities, few challenges may arise which could impact the industry in the near term:

Reversal of gains achieved in containing inflation

Escalation of geo-political tensions exposing vulnerabilities of supply chain

Disruption in job creation with rapid advancement in Artificial Intelligence

Economic slowdown in India

Sharp increase in home prices impacting affordability

We closely monitor potential challenges which can impact the upward trajectory of the industry. Our strong management team in consultation with the board takes mitigating actions in light of such challenges.

Strengths

We are one of the largest players by pre-sales with over four decades of experience in delivering high-quality homes with world-class lifestyle amenities. Our brand is widely recognized as a symbol of luxury by consumers across all segments. Our primary focus is on the housing segment, with expanding presence in the logistics and warehousing industry and facilities management. In addition, we develop commercial real estate as part of mixed-use developments in and around our larger residential projects to promote vibrancy and provide convenient walk-to-work options for our residential customers.

Over time we have built unique strengths which have helped us grow to become one of the largest residential real estate companies and will enable us to continue our growth trajectory.

Strong brand: We have established a strong consumer brand that allows us to sell our products at scale at launch and continue to generate sales over time during the sustenance phase of the project. The true testimony of our brand is showcased by our ability to generate nearly 24% of new sales from our existing customer base who are either upgrading themselves or are recommending us to their friends and family who end up owning a Lodha house. This strength is further demonstrated in our ability to charge premium prices compared to the market.

Superior execution capabilities: Our strong brand is supported by our superior in-house execution capability, with ~50% employees dedicated to engineering and design. This focus allows us to deliver the finest developments in the industry. Our strong execution capability has helped us develop large townships – a unique non replicable strength, which provides us with growing cash flows similar to annuities.

Diversity in portfolio: We cater to a wide range of customers by offering properties across price points ranging from C5 Mn to C 1 Bn or more per unit. This allows us to serve a significant portion of the market demand. Additionally, we are not dependent on any particular location, project or on new launch. Our pre-sales of C 145.2 Bn in FY24 was derived from ~40 distinct projects across three cities of MMR, Pune and Bengaluru at different non overlapping micro-markets within these cities. Our diversified presence significantly de-risks our performance and allows us to generate consistent and predictable pre-sales growth even during industry downcycle.

Ample availability of land: We have ample raw material resources, with our large existing land holdings of ~700 Mn sq ft area. Furthermore, we are the preferred partner for landowners seeking JDA partnerships helping us continuously keep building our project pipeline and add to our existing raw material.

Decentralized and empowered management: Our exceptional management capabilities are reflected in our decentralized organizational structure. This structure allows for efficient decision-making and ensures effective management across all levels of the company.

Strategies

We are working towards achieving 20% CAGR in pre-sales and 20% ROE over the medium term with low leverage. We plan to achieve the twin objectives by focusing on following strategies:

Achieve reasonable market share in each micro-market of the cities where we operate

The ongoing consolidation in the Indian housing market has presented growth opportunities for established brands like ours on a pan-India level. However, to achieve strong profitability, it is crucial to attain a certain scale in every city we operate. Prior to our IPO in 2021, we had a significant presence in only three of the seven micro-markets in the MMR and had either no presence or insignificant presence in the remaining four micro-markets and in Pune city. Our well-established brand recognition in these micro-markets provides us with a unique opportunity to expand and capture a larger market share. Our current focus is to increase our presence in the under-served micro-markets of MMR and Pune and reach our deserved market share of at least 15%. Our strong brand and execution capabilities enable us to grow in a capital-light mode through JDAs in these under-served markets. In the past three years since our IPO, we have added 33 projects in these under-served micro-markets with a combined gross development value (GDV) of C ~550 Bn, primarily through JDAs.

Two phase expansion strategy in new cities

We plan to expand into new cities every three to four years after achieving success in its existing locations. To mitigate the risks associated with entering new cities, we have adopted a two-phase strategy for each new location. The initial phase will be a three to four year "pilot phase," during which we will focus on building our brand, team, and understanding local consumer preferences while also developing supplier networks. We will begin with a limited number of projects and prioritize delivering superior products and customer experiences. This approach will establish our brand in a capital-efficient organic manner. Following the successful establishment of the brand, we will enter the subsequent phase of rapid scale-up, which will significantly reduce the risks and capital intensity of the business. Additionally, we will continue to keep our net debt within the target ceiling of 0.5x of equity. This strategy will enable us to maintain a strong and resilient balance sheet, creating a headroom that will allow us to capitalize on opportunities that may arise during challenging years due to some global black swan event or adverse macro condition for the sector.

Capital light expansion strategy through optimum mix of JDA project

We intend to leverage our brand and leadership position to grow our business by entering into JDAs with landowners and other smaller developers enabling us to deliver our Presales with a mix of 60:40 where 40% of Pre-sales comes from of land tied up under JDAs. With this strategy, we can reduce upfront land acquisition costs and increase capital efficiency. Projects with owned land typically generate a return on equity (ROE) in the range of 15%-20%, JDA projects generate over 30% ROE. By maintaining an optimal mix of JDA projects, the company can achieve its objective of a 20% return on equity while pursuing a 20% CAGR in pre-sales.

Generating recurring income with ROEs largely similar to our residential business

We are focusing on three business segments which will generate sizeable recurring income with returns commensurate with our core residential business.

Logistics & warehousing business: We are developing warehousing, logistics, in-city fulfillment center and light industrial facilities. Our goal is to cater to the digitization of the economy and tap the opportunities arising from growing share of manufacturing in Indian economy. We are currently developing ~5.5 Mn sq ft at Palava and Kurla, MMR.

Facilities management with a digital layer: We have a growing facilities management business on the back of rising number of households staying in Lodha developments. Currently, we are managing nearly 65,000 homes across our development and Our long-standing relationship with our customers has allowed us to gain a deep understanding of their needs. Leveraging technology, we have launched BelleVie, an integrated platform offering several services e.g., home improvement services, real estate services, ‘near commerce etc. on top of traditional facilities management services. Over time, we will have the potential to onboard other developments of non-competing developers (in addition to our own captive developments) and add a critical mass of consumers. This will enable us to generate recurring fee income and given this business is adjunct to our residential business requiring low capital, will generate high ROE.

Portfolio of select high quality office & retail assets: While our focus is primarily on residential real estate, we also develop retail and office spaces as part of our mixed-use development strategy. In the past, we have developed such assets and monetized the same. In order to diversify our income stream, we intend to retain some of these assets, which we believe have high probability of significant capital appreciation (in addition to their rental yield) on account of their superior location, product quality or tenant mix. Given these assets would be developed along with our residential developments on larger land parcels suitable for mixed use developments, capital intensity of the same would be significantly lower and thus can generate strong ROEs.

Business Performance Overview

For the FY24, our company has achieved pre-sales of C 145.2 Bn registering a growth of 20% over FY23. 13% of the sales came from launches at new locations. The strong pre-sales performance at new locations as well as existing locations signify strong consumer intent to own a home despite steep increase in mortgage rates in the year ago period. City-wise pre-sales performance is as follows:

MMR: MMR recorded pre-sales of C 109.3 Bn (8% YoY growth) in FY24. While existing projects such as Bellevue, Divino, Lodha Park and The World Towers continued to exhibit strong performance, our new launches such as at Worli, Tardeo, Vikhroli and Matunga received good response.

Our strategy of growing in micro-market of MMR where we had limited or no presence before IPO is also playing out well. Eastern Suburbs of MMR, where we were not present before our IPO as we had depleted our inventory, has grown to C 19.7Bn of pre-sales in three years. We started adding projects in FY22 and now in-line with our strategy of having projects in all the demand centers, we have presence across the length of market with projects at Matunga, Vikhroli, Powai, Bhandup and Mulund, catering to significant part of the addressable market.

Pune: From one project on the outskirts of Pune before IPO, we now have five projects spread across Pune city. In line with our strategy of expanding in any new city in two phases, we launched Lodha Belmondo in middle of the last decade. After building our brand, supply chain, and partner ecosystem, and gaining a deeper understanding of the local market, we began to rapidly expand our presence in Pune after our IPO. Our presales have grown to C 18.0 Bn (60% YoY) from C 2.0 Bn in FY21. We are well on track to be among the top-3 developers by FY25 on the back of further new launches.

Bengaluru: Similar to Pune, we have adopted a two-phase strategy for expansion in Bengaluru. We launched two projects in the city which received phenomenal response as launched inventory got sold out within days of launch. The better-than-expected response to the new launches has meant that your Company is tracking ahead of its plan in the city of Bengaluru and could potentially get into the second stage i.e., ‘growth phase similar to what was seen in Pune. Bengaluru contributed C 12.0 Bn to our pre-sales in FY24.

Land monetization: We consistently monetize surplus land assets around and generate recurring cashflow. Development of infrastructure around these townships has sparked substantial interest from corporates looking to establish facilities on our land. In FY24, we sold land worth C 4.4 Bn mainly for digital infrastructure usage. This creates a virtuous cycle for Palavas residential business as it creates jobs and leads to housing demand.

Completions: Overall completion declined to 5.4 Mn sq ft area in FY24 from 9.3 Mn sq ft in FY23. Completions are not the true barometer of execution strength as these could be lumpy depending on timeline of launches. Our construction spends, which give better picture, grew to C 36.0 Bn in FY24 from C 33.3 Bn in FY23. Key completions during the year were in our project The Park, Amara, Palava and Upper Thane.

Collections: Our collections grew 6% YoY to C 112.6 Bn. Collection growth lagged our pre-sales growth due to lower share of RTMI inventory in pre-sales compared to previous year.

Digital Infrastructure: Our digital infrastructure business is scaling up steadily as rentals from first assets has already commenced in FY24. Currently, we have ~5.5 Mn Sq ft area under development across various assets of which 1.4 Mn Sq ft is under construction, 1.2 Mn Sq ft is already leased out.

Business Development: We added 10 projects with GDV potential of C ~203 Bn in FY24 largely through JDAs in under-represented micro market. Our ability to expeditiously launch project after acquisition of land coupled with strong sales velocity for our brand, we are a preferred partner to landowners in MMR and Pune. Strong response to our launches in Bengaluru will also help in attracting landowners there to partner with us. We continue to have a robust business development pipeline across the MMR, Pune and Bengaluru giving us visibility of growth.

During the year, the Company emerged as the winning bidder in the Corporate Insolvency Resolution Process of a prestigious beach-facing property located in Juhu, Mumbai. The property, situated in one of the prime luxury residential areas in the western suburbs of Mumbai, holds immense potential for the development of a luxury residential project offering unparalleled living experiences and captivating beachfront views. Acquiring this highly lucrative land parcel in April 2024 further enables us to strengthen our leadership position in the micro-market.

Capital Raising: We continued on our deleveraging path even as we grew our pre-sales and tied up projects for our future growth. Our net debt reduced to C 30.1 Bn as of March 31, 2024 from C 70.7 Bn as of March 31, 2023 largely due to internal accruals and QIP proceeds. Substantial high pace of business development performance showcases the attractiveness of brand Lodha to landowners leading to a robust pipeline of new attractive opportunities which will enable us to sustainably grow our business in future. To capitalize on some of these opportunities while continuing on our deleveraging path, we raised raised C 32.8 Bn of equity through a Qualified Institutional Placement in March 2024.

Sustainability

Driven by our purpose of doing good while doing well, we leverage our capabilities to grow responsibly, creating a positive impact on both the planet and the society. In December 2023, we became the first real estate company in India to have our overall net-zero targets validated by the SBTi.

Near-term targets include reducing absolute scope 1 and 2 greenhouse gas (GHG) emissions by 97.9% by FY28 and reducing scope 3 GHG emissions by 51.6% per square meter of developed area by FY30, both based on a FY22 baseline. Long-term net-zero target is to maintain 97.9% reduction in Scope 1 and 2 emissions while reducing scope 3 GHG emissions intensity by 97.9% per square meter of developed area by FY50. Starting March 2024, we have achieved carbon neutrality in our operations (Scope 1 and 2 emissions), marking a significant milestone in our net-zero journey.

These net-zero targets are substantiated by our concrete on-ground action, driven by Lodha Net Urban Accelerator. The Accelerator unveiled its publication "Gateway to Indias Dymaxion" during the inaugural RMI-Lodha Sustainability Conclave earlier this year, presenting first year updates and outlining strategies to accelerate decarbonisation of the real estate sector. The conclave brought over 200 visionaries dedicated to reshaping Indias built environment.

At the core of our strategy is forging strategic alliances to expedite the industrys journey towards Indias net-zero goals through innovation. We signed Memoranda of Understanding with IIT Delhi to pilot LC3 concrete at scale and partnered with Third Derivative, the startup incubator of RMI, to drive innovation in the Built Environment. Our commitment to transition to low carbon emission reflects in our portfolio as well, with ~54 Mn Sq ft already been green certified by the Indian Green Buildings Council (IGBC), and additional ~37 Mn Sq ft undergoing the certification process. Our efforts have been recognized with the "Green Champion Award" from IGBC, highlighting our role in leading the green homes movement in India.

We remain dedicated in fostering a sustainable and inclusive world for all. We are championing our flagship womens empowerment initiative, Unnati at the company level, industry level and community level. Our all-women construction management team and the Women in Construction Network platform are established to propel gender diversity within our company and the industry. This initiative accelerates us towards achieving our gender diversity target of 44% in the company. At the community level, we will place over 1,000 women in formal jobs within a 30-minute commute from their homes across Mumbai this year. Health & Safety remains a foremost concern for us as a company engaged in construction activities. We prioritize this by following stringent policies, protocols, training and awareness programmes. Our focus on enhancing safety capabilities at every level aligns with our business objective of ‘zero hospitalisation and zero fatalities.

Our performance across these focus areas got well recognized by the leading global sustainability benchmarks as well. We are proud to have been included in esteemed Dow Jones Sustainability Index on the back of our exceptional S&P CSA score of 77 out of 100, ranking us third in the real estate development industry globally. We maintained our position in the FTSE4Good index in the December 2023 review as well. Additionally, the Global Real Estate Sustainability Benchmark (GRESB) recognized as a Global Sector Leader in residential development, based on our outstanding score of 100 out of 100 and a 5-star rating in the GRESB Development Benchmark. In the GRESB Standing Investments Benchmark, we received a score of 90 out of 100 and a 5-star rating.

Financial Performance Overview

Our result of operations

The following table provides select financial data from our consolidated statements of profit and loss for financial years ended March 31,2024 and March 31, 2023, respectively, the components of which are also expressed as a percentage of total revenue for such periods.

	For the year ended March 31
	2024		2023
Particulars	(In J Bn)	(% of Total Income)	(In J Bn)	(% of Total Income)
INCOME
Revenue from Operations	103.2	98.5%	94.7	98.5%
Other Income	1.5	1.5%	1.4	1.5%
Total Income	104.7	100.0%	96.1	100.0%
EXPENSES
Cost of Projects	62.0	59.2%	60.6	63.1%
Employee Benefit Expense	4.7	4.5%	4.2	4.4%
Other Expenses	9.7	9.2%	9.2	9.6%
EBITDA	26.8	25.6%	20.7	21.5%
Adjusted EBITDA*	34.3	32.8%	29.7	30.9%
Finance Costs	4.8	4.6%	4.8	5.0%
Depreciation, Amortization & Impairment	2.0	1.9%	0.9	0.9%
Expenses
Total Expenses	83.2	79.5%	79.7	82.9%
Profit before Exceptional Item and	21.5	20.5%	16.4	17.1%
Taxes
Exceptional Items	(1.0)	(1.0)%	(11.8)	(12.3)%
Share of Net Loss in Associate	(0.1)	(0.1)%	(0.1)	(0.1)%
Profit before Tax	20.3	19.4%	4.5	4.7%
Tax Credit/(Expense)	(4.7)	(4.5)%	0.4	0.4%
Profit for the Year	15.5	14.8%	4.9	5.1%

*Adjusted EBITDA = After Grossing up of Finance cost included in cost of project.

Cash Flows

The table below summarizes our cash flows for the consolidated operations for the year ended March 31, 2024 and 2023.

Particulars (Amounts in J Bn)	For the year ended March 31
	2024	2023
Net cash generated from operating activities	25.1	27.5
Net Cash Flows from Investing Activities	(29.5)	17.8
Net Cash Flows from / (used in) Financing Activities	9.5	(37.1)
Net Increase / (Decrease) in Cash and Cash Equivalents	5.2	8.2

Indebtedness

Our consolidated indebtedness as of March 31, 2024, and 2023 is set out below:

Category of Borrowings (Amounts in J Bn)	For the year ended March 31
	2024	2023
Gross Debt*	76.8	90.4
Cash & Cash Equivalent	46.6	19.7
Net Debt	30.2	70.7

*Including H 0.1 Bn preference shares issued by one of our wholly owned subsidiaries

Key Financial Ratios

Ratios (Definition)	FY24	FY23	FY23	Reason for change
Trade Receivables Turnover (Revenue from Operations/ Average Trade Receivables)	13.4	13.7	(2.0)%	Decrease in Trade Receivables Turnover Ratio is mainly due to increase in revenue from operations.
Inventory Turnover Ratio (Cost of project / Average of Inventory)	1.2	1.2	(1.0)%	Decrease in Inventory Turnover Ratio is mainly due to increase in average finished inventory.
Interest Coverage Ratio (Earnings before Interest Expenses, Depreciation and Tax (excludes Exceptional Item) / Interest cost#)	2.9	2.3	28.6%	Improvement in Interest coverage ratio is mainly on account of increase in Earnings before Interest Expenses, Depreciation and Tax (excludes Exceptional Item).
Current Ratio (Current Assets/ Current Liabilities)	1.6	1.5	8.4%	Increase in Current ratio is due to increase in Current Assets.
Debt-Equity Ratio (Debt / Total Equity (Share Capital + Applicable Reserves))	0.4	0.7	(39.3)%	Improvement in Debt Equity ratio is due to reductions in Total Debt from internal accruals and equity raise
Operating Profit Margin (%)(Earnings before Interest Expenses# , Tax, & Exceptional Item less Other Income / Revenue from Operation)	33.3%	31.4%	192bps	Increase in Operating Profit Ratio is due to lower increase in cost of projects vs revenue from operations compared to previous year
Net Profit Margin	14.8%	5.1%	975bps	Increase in Net Profit Ratio is due to increase in operating profit margin, lower finance cost and lower exceptional items compared to previous year
(Profit After tax / Total Income)
Return on Net Worth Margin	10.3%	3.9%	634bps	Increase in Return on Equity Ratio is due to increase in profit after tax compare to last year on account of increase in operating profit and lower exceptional items compared to previous year
(Profit after tax / Average of total Equity)

#Interest cost represents finance cost debited to statement of Profit and Loss and interest cost charged through cost of projects

Risk & mitigation
Reversal of gains made in fight against inflation	Risk: Central banks across the world acted in sync to raise interest rate sharply in fight against inflation in FY23. RBI had also raised repo rate by 250 bps in FY23, steepest ever hike in a year. Central banks allowed the impact of rate hikes to play out on inflation. The patient approach has paid off and inflation has come down at better-than-expected pace and now central banks are contemplating of rate cuts in later half of the year. Reversal of the gains could make the central banks rethink their stance and lead to increase in interest rates and in turn in mortgage rates.
	Mitigation: Despite the steep hike in interest rate in FY23, volumes continued to grow at a rapid pace with a modest price increase. Strong structural demand has continued to generate volumes for the industry. Mortgage lending has been safe haven asset class across cycle for lenders. Due to less risk to default, lenders strive for market share, leading to lagged or lower transmission of changes in policy rates. Mortgages in India are floating rate product with fixed EMI. Changes in interest rate leads to change in tenor. Given the structural demand and the lagged impact of increase in policy rates, impact will be muted except on the entry segment.
Economic slowdown	Risk: Job sentiments which is linked to overall health of the economy is the key driver of housing demand in India. Steep increase in policy rates in FY23 had slowed down economic growth in advanced economy. While India managed to weather the storm in a better manner, there was significant impact on IT Services sector as sector leaders froze new hiring. Worsening of job sentiments either due to job losses or reduced rate of new job creation or inadequate salary growth could lead to slowdown in housing demand.
	Mitigation: While the global growth has slowed down, India is expected to be the fastest growing major economy with approximately 7% growth rate for FY25. After slowdown in FY24, there are green shoots visible as sector leaders have already started hiring from campuses. Additionally, GCCs continue to repose their faith in India talent pool as they keep exploring newer area of services and skillsets. Policy push by Government for ‘Make in India, especially in newer industry such as semiconductor, electric mobility and new energy will open new avenues of job creation. Impact of slowdown in global growth on housing sector will largely get offset by robust structural drivers of housing demand. Nonetheless, we have our ear to the ground to keep a tab on evolving trends in the economy & industry and have flexibility to adjust timing and sizing of our new launches to respond to changing dynamics, which should help us address any adverse impact on our performance to a large extent.
Cyclicality of the industry	Risk: Real estate industry is cyclical in nature and is affected by macroeconomic factors, government regulations, supply demand dynamics etc. Currently, the cycle is in third or fourth year of multi-year upcycle. However, the cycle may take a short pause, impacting the overall business for the industry.
	Mitigation: Housing real estate in India is going through once in a lifetime opportunity as India transitions from low-income economy to middle income economy making the industry multi-decadal opportunity. Nonetheless industry can go through short downcycle. The cyclicality can be mitigated by keeping a robust balance sheet. As a strategy, we see our growth as a subset of our capital structure. Our pre-sales growth target of 20% would be achieved with a cap on our leverage at 0.5x Net D/E. We have already achieved this threshold and will keep it well below the threshold. This will enable us to capitalize on the opportunities that may come our way in a cyclically bad year for the sector.
Worsening of Geopolitical tensions	Risk: Even when Russia - Ukraine war had not subsided, another flare up in geopolitically sensitive Middle-East threatened to destabilize global trade. So far, Israel – Palestine conflict has not had any material impact on supply chains. Escalation of these two conflicts in other region can significantly undermine geopolitical stability and lead to inflation in energy and commodity price which in turn feeds into overall inflation.
	Mitigation: While global interests are very much intertwined with the countries at war, conflicts are contained within these countries. Escalation if any will lead to volatility in commodity and energy prices. However, if the past is any indication, such volatility would not last long. Long construction cycle allows flexibility to manage impact of commodity price inflation in an effective manner. Moreover, Indias real estate supply chain is completely local with only high-speed elevators being imported. Thus, impact of disruption of global supply chain on the business will not be material. As an ongoing effort, we keep diversifying our sourcing which helps us address such events.
Concentration Risk	Risk: Large part of our sales is derived from MMR market. Any adverse impact on the residential segment of MMR could adversely affect performance of our company.
	Mitigation: We are diversifying our geographical presence by expanding in the city of Pune and Bengaluru. This geographical expansion diversifies our customer profile base. While Mumbai gives us exposure to corporate head offices, BFSI, high value consulting, entertainment, healthcare, large SME base, our expansion in Pune has provided us exposure to customer base which is employed into manufacturing, defense, automobile and mid-end IT services. On the other hand, Bengaluru which is often called Silicon Valley of India, gives us exposure to customer base employed in the high-end IT services and new age startup ecosystem.
	To further diversify, we are developing digital infrastructure which includes warehousing, logistic etc. as well as scaling up our facilities management business and have rental portfolio of select office and retail asses. While we will continue to be residential focused company, we will generate a sizeable annuity income from these businesses.
Climate Risk	Risk: Climate risk is a growing concern for the real estate industry, as the impact of climate change become increasingly apparent due to rising sea levels, increasing frequency of natural disasters and rising temperature
	Mitigation: As a leading player in the real estate sector, our company recognizes the significant role it plays in addressing the challenges posed by climate change. With climate risk becoming increasingly critical, we are committed to global leadership in implementing best practices to mitigate these risks. Our approach of resilience in tandem with decarbonization enables us to decouple growth from emissions. We have consistently been ranked among the best by various benchmarking institutions for our efforts in this regard. Our sustainable design practices incorporate passive design and equipment efficiency, resulting in significant reductions in greenhouse gas emissions and lower operating costs. We are also increasing the use of sustainable materials, which helps to reduce embodied carbon in our built environment. Our company is Indias first real estate company to have its emission reduction goals validated by the Science Based Target initiative (SBTi). We have set target to reduce 97.9% of absolute Scope 1,2 emissions by FY28 and 97.9% of Scope 3 emissions intensity by FY50. We have achieved carbon neutrality in Scope 1,2 emissions, starting March 2024. Our commitment to sustainability and our focus on decarbonization and resilience demonstrate our dedication to creating a more sustainable and profitable future for our company and the real estate industry as a whole.
Competition Risk	Risk: India real estate has been consolidating led by policy reforms. Reversal of this trend can increase competition and impact performance of the company.
	Mitigation: Consolidation of supply and demand has led to market share gains for larger branded developers. Consumers having burnt their hard-earned savings are increasingly preferring to buy from only handful of branded tier-1 developers. Lenders also are wary of extending credit to unbranded developer who do not have execution capability. This trend is unlikely to shift in near term as significant share of new launches are being done by branded developers. Our company with strong brand resonance with customers and exceptional execution capability will continue to be a significant beneficiary of consolidation and gain market share. Devoid of customer advances and formal credit, a large number of unbranded developers have vacated the space leading to market share gains for branded developers.

Outlook

Operating environment for housing market continued to remain supportive in FY24 even as full impact of increase in repo rate in FY23 played out during the year. Structural demand drivers and industry dynamics will continue to generate significant demand for coming years. Indias stellar performance on economic front, even as global growth has slowed down, due to policy reforms, focus on manufacturing coupled with ongoing supply chain diversification away from China and robust service sectors will keep providing enough fuel to job creation engine. Along with robust wage growth for white collar workers, confidence of buying a house will remain high. Possible rate cuts in later half of the year, will further give impetuous to demand. Consolidation of the industry both on the supply side as well as demand side is favoring branded developers to benefit disproportionately. With robust brand, strong balance sheet and execution capability, your company is well placed to deliver 20% pre-sales growth along with 20% RoE and low leverage. Industry tailwinds will further solidify our growth trajectory. We would see launch of new projects in underserved micro-markets of MMR, Pune and Bengaluru. We also have a robust business development pipeline which will cater to our growth beyond FY25.

Our industrial and warehousing business has progressed well as it started generating revenue from FY24. We completed construction of one of the largest warehousing box in India in FY24. We are currently developing ~5.5 Mn Sq ft warehousing space. We are now looking to ramp up significantly as we add new locations.

Our Facilities Management business turned a new chapter with the launch of ‘BelleVie, through which we intend to provide home improvement products and services, real estate services (such as rental or resale), as well as ‘near commerce, i.e. local day-to-day needs that are not currently served by e-commerce brands on top of existing services already being provided to residents staying in our residents. Currently around 65,000 households are being managed by us. This number will continue to grow inline with our residential business.

Internal controls

The Company has a robust internal financial control system commensurate with the size, scale and complexity of its operations. It has put in place adequate controls, procedures and policies for ensuring orderly and efficient conduct of its business including adherence to policies, safeguarding its assets, reasonable framework aimed at prevention and detection of frauds and errors, accuracy and completeness of accounting records. Appropriate frameworks have been designed to have internal controls over financial reporting, which ensures the integrity of financial statements of the Company and reduces possibility of malpractice.

Design of key processes and various policies are reviewed periodically, from the point of view of adequacy of controls. The Company has in place an Internal Audit (IA) function headed by the Chief Internal Auditor. The internal audit plan for the year is approved by the Audit Committee at the start of the financial year.

The Management Audit Committee (MAC) meeting reviews the detailed internal audit reports prior to placing the same before the Audit Committee. The MAC is chaired by the MD & CEO and co-chaired by the CFO and the other functional heads are invitees to the meeting as and when required. The Audit Committee oversees the scope and coverage of the IA plan, and evaluates the overall results of these audits during the quarterly Audit Committee meetings. The functional leadership team members join the meeting as and when necessary to provide updates on developments regarding the status of controls and compliance within their respective functions.

Internal controls are tested for effectiveness, across all project sites and functions by the Internal Audit team, which is reviewed by the management for corrective action from time to time and deviations, if any, are reported to the Audit Committee periodically.

A certificate from the CEO and CFO form part of the Corporate Governance Report, confirming the existence and effectiveness of internal controls, and reiterating their responsibility to report Deficiencies to the Audit Committee and rectify the same.

Human Resources

At Macrotech, we believe that our people and our "We Care" culture strengthen our processes and operations and are central to our continued success. We are committed to build and further enhance skills of our people and provide them with a safe, inclusive, caring and an unbiased environment. Our workplace culture fosters creativity, agility, innovation and meritocracy. We respect and are committed to uphold human rights of all our stakeholders - employees, subsidiaries, suppliers and other partners.

We had 4,560 permanent employees as on March 31, 2024 – an increase of 9% over FY23. For more details on our employee practices and processes refer to the Human Capital section on page 110 and the BRSR on page 190 of the Integrated Report.