Manav Infra Projects Ltd Management Discussions

Manav Infra Projects Limited (Manav) is an organization providing infrastructural services In FY23-24 Indias economy consolidated its place as one of the fastest-growing in the world, outpacing other significant emerging and developing economies like China. Despite challenges including inflation and geopolitical uncertainty, the National Statistical Office (NSO) reported a growth rate of 7.2% for FY23-24 in its second advanced estimates. Because of the countrys robust domestic demand, brisk investment activity, and wide-ranging sectoral expansion, the Indian economy showed outstanding resilience.

Industry Overview

Indias high growth imperative in 2023 and beyond will significantly be driven by major strides in key sectors with infrastructure development being a critical force aiding the progress. Infrastructure is a key enabler in helping India become a US $26 trillion economy. Investments in building and upgrading physical infrastructure, especially in synergy with the ease of doing business initiatives, remain pivotal to increase efficiency and costs. Prime Minister Mr. Narendra Modi also recently reiterated that infrastructure is a crucial pillar to ensure good governance across sectors.

The governments focus on building infrastructure of the future has been evident given the slew of initiatives launched recently. The US$ 1.3 trillion national master plan for infrastructure, Gati Shakti, has been a forerunner to bring about systemic and effective reforms in the sector, and has already shown a significant headway. Infrastructure support to the nations manufacturers also remains one of the top agendas as it will significantly transform goods and exports movement making freight delivery effective and economical. The "Smart Cities Mission" and "Housing for All" programmes have benefited from these initiatives. Saudi Arabia seeks to spend up to US$ 100 billion in India in energy, petrochemicals, refinery, infrastructure, agriculture, minerals, and mining.

The infrastructure sector is a key driver of the Indian economy. The sector is highly responsible for propelling Indias overall development and enjoys intense focus from the Government for initiating policies that would ensure the time-bound creation of world-class infrastructure in the country. The infrastructure sector includes power, bridges, dams, roads, and urban infrastructure development. In other words, the infrastructure sector acts as a catalyst for Indias economic growth as it drives the growth of the allied sectors like townships, housing, built-up infrastructure, and construction development projects. To meet Indias aim of reaching a US$ 5 trillion economy by 2025, infrastructure development is the need of the hour. The government has launched the National Infrastructure Pipeline (NIP) combined with other initiatives such as Make in India and the production-linked incentives (PLI) scheme to augment the growth of the infrastructure sector. Historically, more than 80% of the countrys infrastructure spending has gone toward funding for transportation, electricity, and water, and irrigation. While these sectors still remain the key focus, the government has also started to focus on other sectors as Indias environment and demographics are evolving. There is a compelling need for enhanced and improved delivery across the whole infrastructure spectrum, from housing provision to water and sanitation services to digital and transportation demands, which will assure economic growth, increase quality of life, and boost sectoral competitiveness.

Indian Infrastructure Sector:

Indian economy is driven through multiple economic sectors and infrastructure is one of the major sector contributions to continuous growth. The infrastructure sector in India is poised to grow at a CAGR of 8.2% by 2027. The launch of a quadrilateral economic forum by India, the US, Israel & the UAE in November 2021 has further added to the influx of infrastructure growth perspectives. Alternatively, the introduction to the "Infrastructure for Resilient Island States" program in November 2021 has shown a significant opportunity to improve the lives of vulnerable nations across the globe by enabling Indian infrastructure growth to flourish in tri-folds. In order to meet Indias aim of reaching a US$ 5 trillion economy by 2025, infrastructure development is the need of the hour. The government has launched the National Infrastructure Pipeline (NIP) combined with other initiatives such as Make in India and the production-linked incentives (PLI) scheme to augment the growth of the infrastructure sector. Historically, more than 80% of the countrys infrastructure spending has gone toward funding for transportation, electricity, and water& irrigation. In India, about 42% of the projects in the NIP are under implementation, which means construction work is already going on. Another 19% is under the development stage, while a significant 31% is still in the conceptual stage. During the fiscals 2020 to 2025, sectors such as Energy (24%), Roads (19%), Urban (16%), and Railways (13%) amount to around 70% of the projected capital expenditure in infrastructure in India. The real estate industry in India stands poised at the threshold of a transformative year in 2024. Characterized by a delicate balance of cautious optimism and burgeoning potential for growth, the sector plays a pivotal role in shaping the nations economic landscape. In 2024, the Indian real estate sector exhibits promising indicators of market growth, fueled by stable interest rates and an upswing in property prices. This positive path creates an atmosphere of cautious optimism, suggesting a short-term boom. However, beyond immediate gains, the significance of real estate policies takes center stage, marking a crucial juncture for long-term economic sustainability.

Global Economy

The baseline forecast is for the world economy to continue growing at 3.2 percent during 2024 and 2025, at the same pace as in 2023. A slight acceleration for advanced economies-where growth is expected to rise from 1.6 percent in 2023 to 1.7 percent in 2024 and 1.8 percent in 2025-will be offset by a modest slowdown in emerging market and developing economies from 4.3 percent in 2023 to 4.2 percent in both 2024 and 2025. The forecast for global growth five years from now-at 3.1 percent-is at its lowest in decades. Global inflation is forecast to decline steadily, from 6.8 percent in 2023 to 5.9 percent in 2024 and 4.5 percent in 2025, with advanced economies returning to their inflation targets sooner than emerging market and developing economies. Core inflation is generally projected to decline more gradually. The global economy has been surprisingly resilient, despite significant central bank interest rate hikes to restore price stability. Chapter 2 explains that changes in mortgage and housing markets over the prepandemic decade of low interest rates moderated the near-term impact of policy rate hikes. Chapter 3 focuses on medium-term prospects and shows that the lower predicted growth in output per person stems, notably, from persistent structural frictions preventing capital and labor from moving to productive firms. Chapter 4 further indicates how dimmer prospects for growth in China and other large emerging market economies will weigh on trading partners.

Indian Economy

Indias growth continues to be resilient despite some signs of moderation in growth, although significant challenges remain in the global environment, India was one of the fastest growing economies in the world. The overall growth remains robust and is estimated to be 6.9% for the full year with real GDP growing 7.7% year on year during the first three quarters of FY 2022-23. There were some signs of moderation in the second half of FY 2022-23. 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% in FY 2022-23 but the current account deficit narrowed in Q3 on the back of strong growth in service exports and easing global commodity prices.

The World Bank has revised its FY 2023-24 GDP forecast to 6.3% from 6.6% (December 2022). Growth is expected to be constrained by slower consumption growth and challenging external conditions. Rising borrowing costs and slower income growth will weigh on private consumption growth and government consumption is projected to grow at a slower pace due to the withdrawal of pandemic related fiscal support measures. Although headline inflation is elevated, it is projected to decline to an average of 5.2% in FY 2023-24, amid easing global commodity prices and some moderation in domestic demand.

The Reserve Bank of India has withdrawn accommodative measures to rein in inflation by hiking the policy interest rate. Indias financial sector also remains strong, buoyed by improvements in asset quality and robust private sector credit growth. The central government is likely to meet its fiscal deficit target of 5.9% of GDP in FY 2023-24 and combined with consolidation in state government deficits, the general government deficit is also projected to decline. As a result, the debt to GDP ratio is projected to stabilize. On the external front, the current account deficit is projected to narrow to 2.1% of GDP from an estimated 3.0% in FY 2022-23 on the back of robust service exports and a narrowing merchandise trade deficit

Positive Indicators and Opportunities

The positive curve of Indias real estate sector in 2024 is underpinned by robust market growth observed in the preceding year, particularly in 2023. Latest reports from the Indian real estate industry indicate a continuation of this upward trend, showcasing resilience and promise. The confluence of stable interest rates and escalating property prices has fueled a demand surge, primarily in the residential segment, creating a buoyant market atmosphere. Government initiatives play a pivotal role in fostering stability and accessibility within the real estate landscape. The implementation of the "Housing for All" initiative underscores a commitment to making housing a reality for every Indian citizen. This strategic move not only addresses the housing deficit but also propels economic activity by generating employment through construction and related sectors. Further contributing to the positive outlook is the industrys sustainability push, exemplified by policies like the Green Rating for Integrated Habitat Assessment (GRIHA). These initiatives promote eco-friendly construction practices, aligning the real estate sector with global trends toward environmental consciousness. As sustainability becomes a focal point, developers and homebuyers alike are increasingly embracing green building standards, signaling a positive shift in the industrys ethos.

Investments / Developments

Indian real estate sector has witnessed high growth in the recent times with rise in demand for office as well as residential spaces. The Private Equity Investments in Indias real estate sector, stood at US$ 4.2 billion in 2023.

The Securities and Exchange Board of India lowered the minimum application value for Real Estate Investment Trusts from Rs. 50,000 (US$ 685.28) to Rs. 10,000-15,000 (US$ 137.06 - US$ 205.59) to make the market more accessible to small and retail investors. FDI in the sector (including construction development & activities) stood at US$ 55.5 billion from April 2000- December 2022.

Some of the major investments and developments in this sector are as follows:

* The sale of luxury homes in India increased by 130% in the first half of 2023 compared to the corresponding period of the previous year. Between January-June 2023, 6,900 luxury homes costing Rs. 4 crore (US$ 488,011.96) and above were sold, as opposed to 3,000 in 2022.

* In Indias top eight cities, housing prices rose 7% year-over-year due to strong housing demand supported by persistent purchaser demand and steady borrowing rates.

*The Indian real estate sector witnessed strong private equity (PE) investments of US$ 1.92 billion in Q2 of 2023, demonstrating investor confidence in the market. According to the most recent Investment report from Cushman & Wakefield, this was 63% higher than the previous quarter (Q1 of 2023) and 60% higher than the same time last year.

Market Size:

By 2040, real estate market will grow to Rs. 65,000 crore (US$ 9.30 billion) from Rs. 12,000 crore (US$ 1.72 billion) in 2019. Real estate sector in India is expected to reach US$ 1 trillion in market size by 2030, up from US$ 200 billion in 2021 and contribute 13% to the countrys GDP by 2025. Retail, hospitality, and commercial real estate are also growing significantly, providing the much needed infrastructure for Indias growing needs.

Indias real estate sector saw over 1,700 acres of land deals in top eight cities in the first nine months of FY22. Foreign investments in the commercial real estate sector were at US$ 10.3 billion from 2017-2021. As of February 2022, Developers expect demand for office spaces in SEZs to shoot up after the replacement of the existing SEZs act. As per ICRA estimates, Indian firms are expected to raise >Rs. 3.5 trillion (US$ 48 billion) through infrastructure and real estate investment trusts in 2022, as compared with raised funds worth US$ 29 billion to date.

Challenges and Considerations

The real estate sector in India, while witnessing positive indicators, is not without its set of challenges and considerations that merit careful attention. Foremost among these is the critical importance of effective policy implementation. While policies are devised with the best intentions, their success hinges on meticulous execution, streamlined processes, and a commitment to transparency. The industry must collaboratively work towards ensuring that governmental initiatives translate into tangible outcomes on the ground. Affordability emerges as a paramount concern for fostering sustainable and inclusive growth. Despite commendable initiatives like the Pradhan Mantri Awas Yojana (PMAY), addressing the housing needs of low and middle-income segments, challenges persist. The complexities of land acquisition and the need for well-developed infrastructure in affordable housing projects require ongoing attention to bridge the affordability gap and facilitate broader economic participation.

The delicate task of balancing the market introduces another layer of consideration. While the overall market showcases positive trends, theres a need for vigilance, especially in the luxury segment. Some experts caution about the potential for corrections in this high-end market, emphasizing the necessity for measured growth and equilibrium to prevent market imbalances.

Government Initiatives

Government of India along with the governments of respective States has taken several initiatives to encourage development in the sector. The Smart City Project, with a plan to build 100 smart cities, is a prime opportunity for real estate companies. Below are some of the other major Government initiatives:

1. In the Union Budget 2023-24, the Finance Ministry announced a commitment of Rs. 79,000 crore (US$ 9.64 billion) for PM Awas Yojana, which represents a 66% increase compared to the last year.

2. In October 2021, the RBI announced to keep benchmark interest rate unchanged at 4%, giving a major boost to the real estate sector in the country. The low home loan interest rates regime was expected to drive the housing demand and increase sales by 35-40% in the festive season in 2021.

3. The Atmanirbhar Bharat 3.0 package announced by Finance Minister Mrs. Nirmala Sitharaman in November 2020 included income tax relief measures for real estate developers and homebuyers for primary purchase/sale of residential units of value (up to Rs. 2 crore (US$ 271,450.60) from November 12, 2020 to June 30, 2021)

4. In order to revive around 1,600 stalled housing projects across top cities in the country, the Union Cabinet approved the setting up of Rs. 25,000 crore (US$ 3.58 billion) alternative investment fund (AIF).

5. Government created an Affordable Housing Fund (AHF) in the National Housing Bank (NHB) with an initial corpus of Rs. 10,000 crore (US$ 1.43 billion) using priority sector lending short fall of banks/financial institutions for micro financing of the HFCs.

Road Ahead

The Securities and Exchange Board of India (SEBI) has given its approval for the Real Estate Investment Trust (REIT) platform, which will allow all kind of investors to invest in the Indian real estate market. It would create an opportunity worth Rs. 1.25 trillion (US$ 19.65 billion) in the Indian market in the coming years. Responding to an increasingly well-informed consumer base and bearing in mind the aspect of globalisation, Indian real estate developers have shifted gears and accepted fresh challenges.

The most marked change has been the shift from family-owned businesses to that of professionally managed ones. Real estate developers, in meeting the growing need for managing multiple projects across cities, are also investing in centralised processes to source material and organise manpower and hiring qualified professionals in areas like project management, architecture and engineering. The residential sector was expected to grow significantly, with the central government aiming to build 20 million affordable houses in urban areas across the country by 2022, under the ambitious Pradhan Mantri Awas Yojana (PMAY) scheme of the Union Ministry of Housing and Urban Affairs. Expected growth in the number of housing units in urban areas will increase the demand for commercial and retail office space.

The current shortage of housing in urban areas was estimated to be ~10 million units. An additional 25 million units of affordable housing are required by 2030 to meet the growth in the countrys urban population.

The growing flow of FDI in Indian real estate is encouraging increased transparency. Developers, in order to attract funding, have revamped their accounting and management systems to meet due diligence standards. Indian real estate was expected to attract a substantial amount of FDI with US$ 8 billion capital infusion by FY22.

Companys Vision

Throughout the past years, the Company has expanded in number and joined growing infrastructure segments. After achieving success in the select areas of businesses, the company today has a much more focused approach and is picking projects which suit its credentials, improve its credibility and enrich the society in general.

Company Strengths

Your Company continues to capitalize on the market opportunities by leveraging its key strengths. These include:

1. Brand Reputation: Enjoys higher recall and influences the buying decision of the customer. Strong customer connects further results in higher premium realizations.

2. Execution: Possesses a successful track record of quality execution of projects with contemporary architecture.

3. Strong cash flows: Has built a business model that ensures continuous cash flows from their investment and development properties ensuring a steady cash flow even during the adverse business cycles.

4. Significant leveraging opportunity: Follows conservative debt practice coupled with enough cash balance which provides a significant leveraging opportunity for further expansions.

5. Outsourcing: Operates an outsourcing model of appointing globally renowned architects/contractors that allows scalability and emphasizes contemporary design and quality construction a key factor of success.

6. Transparency: Follows a strong culture of corporate governance and ensures transparency and high levels of business ethics.

7. Highly qualified execution team: Employs experienced, capable and highly qualified design and project management teams who oversee and execute all aspects of project development.