Marathon Nextgen Realty Ltd Management Discussions

Global economy overview

Global economic growth is projected to be 3.2% in 2024 and 3.3% in 2025. Although the growth momentum varies across regions, economic activity is becoming more aligned with potential as cyclical factors diminish.

The global economy is witnessing varied momentum, with strong export performance from Asia, particularly in the technology sector, driving global trade. However, services price inflation remains a challenge, complicating monetary policy normalisation and increasing the likelihood of prolonged high interest rates. This scenario is compounded by escalating trade tensions and heightened policy uncertainty. To manage these risks and sustain growth, policymakers must carefully sequence their strategies to achieve price stability and restore fiscal bu_ers.

In the United States, growth is projected to be 2.6% in 2024, slightly lower than previous estimates, due to slower consumption and a negative trade contribution. Growth is expected to moderate to 1.9% in 2025 as the labour market cools and fiscal policies tighten. In the Euro area, economic activity has bottomed out with a modest growth pickup expected at 0.9% in 2024, driven by stronger services and exports. Growth is anticipated to rise to 1.5% in 2025. In Japan, growth forecasts have been revised downward to 0.9% for 2024 due to temporary supply disruptions and weak private investment. However, strong wage settlements are expected to boost consumption in the latter half of the year. Coming to China and India, China?s growth is forecasted at 5% in 2024, propelled by a rebound in private consumption and strong exports. India?s growth is revised upward to 7%, driven by robust private consumption and improved rural prospects.

Emerging market economies are expected to see growth driven by stronger activity in Asia. However, regions like Latin America and the Middle East face downward revisions due to natural disasters and geopolitical conflicts affecting key economies.

Global trade growth is expected to recover to approximately 3.25% annually in 2024-25. Financial conditions remain accommodative, despite upward drift in long-term yields. However, fiscal discipline may come under pressure due to higher borrowing costs.

Inflation is projected to decline gradually, with advanced economies experiencing slower disinflation in 2024 and 2025. Persistent services inflation and higher commodity prices pose risks. Emerging markets may see inflation fall more slowly, yet it is expected to approach pre-pandemic levels for many economies.

Key risks include persistent inflation in the services sector, escalating trade tensions, and policy uncertainty, particularly related to fiscal profligacy and protectionism. These could lead to prolonged high interest rates, impacting financial stability and economic growth.

Overall, while the global economic outlook for 2024 remains stable, achieving balanced growth will require careful management of inflation risks, fiscal policies, and structural reforms. The resilience of major economies and effective policy coordination will be crucial in navigating these challenges and harnessing growth opportunities.

Source: IMF World Economic Outlook - July 2024

Indian economy overview

The Indian economy is estimated to have grown by 8.2% in real terms in FY24, as per the Economic Survey of India. As per the IMF, India?s growth is 7% in FY24, and is expected to be 6.5% in FY25.

The Indian economy remains strong and stable, showcasing resilience amid geopolitical challenges. The post-Covid recovery has been solidified, with fiscal and monetary policymakers ensuring economic and financial stability. However, to sustain this recovery, significant efforts are required on the domestic front, especially given the increasingly challenging global environment for reaching agreements on key issues such as trade, investment, and climate.

The impressive economic growth in FY24 follows growth rates of 9.7% and 7.0% in the previous two financial years. Headline inflation remains largely under control, though certain food items have seen elevated prices. The trade deficit has narrowed compared to FY23, and the current account deficit is around 0.7% of GDP, with the current account even registering a surplus in the last quarter of the financial year. Foreign exchange reserves are ample.

Public investment has continued to sustain capital formation over the past several years. The private sector, having overcome its balance sheet challenges, began reinvesting in FY22. It now needs to maintain this investment momentum, taking the lead from the public sector. The signs are promising.

National income data indicate that non-financial private-sector capital formation, measured in current prices, expanded significantly in FY22 and FY23 following a decline in FY21. Investment in machinery and equipment, which had declined for two consecutive years (FY20 and FY21), rebounded strongly. Early corporate sector data for FY24 suggest that private sector capital formation continues to grow, albeit at a slower pace.

The RBI and the IMF have projected that Indias consumer price inflation will progressively align towards the inflation target in FY26. Assuming a normal monsoon and no further external or policy shocks, the RBI expects headline inflation to be 4.5% in FY25 and 4.1% in FY26. The IMF has projected an inflation rate of 4.6% in 2024 and 4.2% in 2025 for India.

Overall, the Indian economy is positioned on a solid foundation, with sustained growth and investment reflecting positive economic prospects for the future.

Source: Economic Survey, Ministry of Finance, Government of India

The global landscape favours india

In the United States, growth is projected at 2.6% in 2024, slightly below previous estimates due to slower consumption and negative trade contributions. Growth is expected to moderate to 1.9% in 2025 as the labour market cools and fiscal policies tighten. In the Euro area, economic activity has bottomed out, with a modest growth pickup expected at 0.9% in 2024, driven by stronger services and exports. Growth is anticipated to rise to 1.5% in 2025. In Japan, growth forecasts have been revised downward to 0.9% for 2024 due to temporary supply disruptions and weak private investment. However, strong wage settlements are expected to boost consumption in the latter half of the year. China?s growth is forecasted at 5% in 2024, propelled by a rebound in private consumption and strong exports.

Amidst this, India?s growth is revised upward to 7%, driven by robust private consumption and improved rural prospects. The Indian economy is on a strong and stable footing, demonstrating resilience in the face of geopolitical challenges. The Indian economy has consolidated its post-Covid recovery with fiscal and monetary policymakers ensuring economic and financial stability. Potential downside risks include protracted geopolitical tensions, tightening global financial conditions, and slowing external demand. But firms in manufacturing, services, and infrastructure sectors are optimistic about the business outlook.

Source: IMF World Economic Outlook & Economic Survey

Indian real estate sector review

The Indian real estate sector was estimated to be worth ~$120 billion in 2017 and is projected to grow to $1 trillion by 2030.

India?s real estate sector has traditionally been a significant contributor to the country?s GDP, accounting for 6%-8% of the total GDP during 2014-2017. Going forward, it is expected to double to 13% by 2025, making the sector one of the major drivers of the country?s economic growth. The increasing share of real estate to the GDP would enable increasing industrial activity, improving income level and urbanisation.

Source: Compled by ANAROCK Research

The real estate industry plays a pivotal role in influencing numerous related sectors, including cement, steel, iron, paint, furniture, and other construction materials.

Construction ranks third in terms of foreign direct investment (FDI) inflows, accounting for 4% of total FDI inflows into the country between April 2000 and September 2023. FDI in the real estate sector, which includes construction development and activities, was $58.5 billion between April 2000 and September 2023.

After agriculture, the real estate sector is an important provider of employment in India. As the sector continues to grow, we expect employment to grow multi-fold in the coming years. Over 18% of India?s workforce is employed in the real estate industry, which is a vital component of the country?s economy and is connected with over 250 ancillary businesses.

Source: Industry Estimates, DIPP, Construction Development includes townships. housing, built-up infrastructure and construction-developrnent projects

Under PM Awas Yojana Urban 2.0, housing needs of 1 Crores urban poor and middle-class families will be addressed with an investment of H10 lakh Crores, as per the Union Budget.

Source: ANAROCK, NAREDCO

Opportunities & threats

OPPORTUNITIES

Obtaining construction permits has historically been a lengthy and cumbersome process, often taking several months for building plans to be sanctioned. However, India has made significant strides in improving this aspect of ease of doing business. From a ranking as low as 184^th in 2014, India improved to 27^th in 2019 according to the World Banks last ranking. Numerous initiatives have been implemented to streamline the procedures and reduce the time required for obtaining construction permissions.

Key Initiatives:

01 Online Building Permission System (OBPS)

An online single-window system for obtaining all building permissions has been introduced in Mumbai and Delhi regions. This system significantly reduces the complexity and duration of the approval process.

02 Fast-Track Approval System by BMC

The Brihanmumbai Municipal Corporation (BMC) has introduced a fast-track approval system for issuing building permits. This includes features such as a Common Application Form (CAF) provision using digital signatures and online scrutiny of building plans.

03 Reduced timeline for permissions

The timeline for issuing building permissions has been reduced from 128 days to 98 days, as reported by the Doing Business 2018 and 2020 reports.

04 Reduction in procedures

The total number of procedures required for obtaining construction permissions in Mumbai has been reduced to 19.

05 Cost reduction

The cost of obtaining construction permission has been reduced from 23% to 5.4% of the economy?s per capita income.

Embracing digital transformation

The pandemic has accelerated the adoption of digital mediums in the real estate sector. The year has seen a significant push towards digitisation and technology adoption, marking a new era in the industry. There has been a notable rise in digital launches, virtual property events, online listings and viewings, data analytics, cloud-based services, and more.

SRA digitalisation

The Slum Rehabilitation Authority (SRA) is planning to enhance transparency by digitalising its systems. This will allow the entire redevelopment process - from developers applying for schemes to the allotment of tenements to eligible slum dwellers - to be tracked online. A web portal has been introduced for citizen-centric processes, providing detailed information on allotments in SRA.

A_ordable housing segment

A_ordable housing has emerged as a highly preferred segment due to the amenities offered at reasonable prices. This segment is also attracting significant interest from investors, particularly in metropolitan areas. The boost in this segment is expected to continue, especially with timely completion of surrounding infrastructure developments. During the COVID-19 pandemic, the Company received a positive response in the affordable housing segment under the SRA scheme, as the importance of owning a home became more pronounced. This sentiment is likely to persist, further driving demand in this segment.

Challenges

Despite a strong growth trajectory, the real estate sector must navigate various complexities to sustain momentum. India?s GDP growth rate for FY24 was an impressive 8.2%, underscoring robust economic momentum. However, India?s GDP growth is expected to moderate to around 6.5% to 7% in FY25 due to factors such as higher interest rates and reduced fiscal stimulus. This slowdown requires careful financial management to sustain profitability amidst changing economic conditions.

Input costs for construction materials and labour continue to increase, adding pressure on project budgets. Higher interest rates are likely to impact profit margins and reduce home buyers a_ordability due to higher EMIs. This necessitates strategic cost management and innovative financing solutions to mitigate these impacts.

While there has been strong demand for homes, particularly in the premium segment, the affordable housing market also shows potential due to supportive government schemes. Balancing demand across different segments and regions will be crucial.

The commercial real estate sector continues to attract significant FDI due to higher returns compared to residential rentals. This trend emphasises the need to focus on commercial projects to attract investment. Additionally, exploring redevelopment projects and the potential of mini REITs for single leased premises will help diversify our portfolio and revenue streams.

The pandemic has accelerated digital transformation in real estate. Continued investment in digital tools for marketing, sales, and operational efficiency will be essential. Digitalisation efforts, such as the Slum Rehabilitation Authority?s (SRA) initiatives, will enhance transparency and efficiency in project execution.

Government reforms, such as adjustments in stamp duty and the introduction of affordable rental housing complexes, are expected to support the sector. Staying informed about these regulatory changes and leveraging them effectively will be vital for sustaining growth.

The increased repo rate could impact residential sales, particularly in the affordable segment, by raising the cost of borrowing and reducing a_ordability. It is important to understand the impact of this policy on the market and advise clients accordingly. While the hike may increase the cost of borrowing, it reflects the central banks efforts to control inflation and maintain stability in the economy.

The Finance Minister?s emphasis on ‘Green Growth? and the PMAY allocation of H79,000 Crores for affordable housing highlight the governments focus on sustainable development. Organisations working on green, sustainable living will benefit from these initiatives, aligning with their goals more efficiently.

Also, we face the following challenges:

• Navigating a complex regulatory environment

• Rising costs of manpower and essential inputs

• Delays in obtaining project approvals

While FY24 presents several challenges, including rising costs, economic fluctuations, and evolving demand dynamics, MNRL is well-prepared to navigate these hurdles. By focussing on strategic growth areas, embracing technological advancements, and adapting to regulatory changes, we aim to continue driving growth and delivering value to our stakeholders.

Our strengths

We continue to capitalise on market opportunities by leveraging our key strengths.

01 Brand reputation

With over five decades in the business, the Marathon brand enjoys high recall and significantly influences customer buying decisions.

02 Execution

We have a proven track record of executing projects with contemporary architecture and delivering high quality.

03 Significant leveraging opportunity

Our conservative debt practices, coupled with a healthy cash balance, provide significant opportunities for future expansions.

04 In-house design

We primarily operate with an in-house team of highly skilled designers capable of creating state-of-the-art designs in collaboration with external firms. We also collaborate with renowned architects and contractors, allowing us to scale while maintaining contemporary design and quality construction - key factors in our success.

05 Transparency

We uphold a strong culture of corporate governance, ensuring transparency and high levels of business ethics.

06 Digitalisation

We have embraced new-age customer experiences. In a buyer?s market, empowering customers to make informed decisions is crucial. Our digital tools simulate our products, enable online decision-making, facilitate easy transactions, and provide curated and secure sampling at physical sites.

THREATS

The real estate industry is frequently influenced by changes in government policies and regulations. There are significant procedural delays concerning approvals for land acquisition and usage Unfavourable changes in government policies and the regulatory environment may adversely affect our performance. Some of the challenges in the real estate sector include:

01 Extensive documentation for SRA projects

SRA projects involve a cumbersome documentation process, which can cause delays and complications.

02 Slowdown in project execution

Delays in project execution are expected to limit the overall decline in net cash flows, impacting financial stability.

03 Need for single window clearance

Implementing a single window clearance mechanism for approvals would greatly reduce the time required to complete projects, enhancing efficiency and project timelines.

Outlook

The economic outlook for the coming year is optimistic, reflecting Indias strong growth trajectory and favourable market conditions. Indias GDP is projected to grow between 6.5% and 7% in FY24-25, driven by robust domestic demand, improved industrial activity, and significant public investment. This positive economic environment is expected to benefit Marathon NextGen Realty Limited significantly.

Indias economy has shown considerable strength, marked by an increase in rural growth and a notable decline in consumer price index (CPI) inflation, which fell to around 5% in early 2024. This decline in inflation has eased cost pressures, making it a favourable time for investment and growth.

The governments unprecedented infrastructure investment continues to be a cornerstone of economic growth. Major projects, such as the construction of national highways, which saw 10,993 km completed in FY23 and 12,375 km awarded in the same period, are set to enhance connectivity, reduce logistics costs, and boost Indias competitiveness in the global market. This substantial infrastructure development is expected to further moderate logistics costs and facilitate quicker product transfers, benefiting various sectors, including real estate.

At Marathon NextGen, we have witnessed healthy demand across our projects. We anticipate better sales in Panvel due to the completion of several towers, and we expect growth across all segments, including city, mid-segment, and Dombivli/Panvel. Driven by ongoing and upcoming projects in Byculla, Bhandup, and Panvel.

We are exploring opportunities for redevelopment projects and considering launching new projects in key areas. Our strategic focus includes exploring the Real Estate Investment Trust (REIT) market for future commercial projects and considering mini REITs for single leased premises. We are also open to equity or debt options to fuel our growth and development projects. We are committed to maintaining a balanced approach to financial management, ensuring sustainable and profitable growth.

With a robust economic backdrop and strategic initiatives in place, Marathon NextGen Realty Limited is well-positioned to capitalise on the opportunities in FY24.

Risks and concerns

In addition to land prices, input costs impact us. Interest rates could affect margins and directly impact customer cash flow. End product prices, combined with liquidity, may affect demand. Various taxes and levies add to costs, likely squeezing margins as end product prices may or may not increase proportionately.

Internal control systems and their adequacy

The internal controls, appropriate for our activities, are supplemented by ongoing management reviews. Our internal control system is designed to ensure that all aspects of the companys operations are thoroughly monitored.

Discussion on financial performance

In FY24, MNRL delivered robust financial results, marked by significant improvements across several key metrics. Although Revenue from Operations saw a marginal decline of 2% YOY, it remained relatively stable, reflecting consistent operational performance despite market fluctuations.

Our EBITDA increased by 5% YOY, with EBITDA margins improving from 38.6% to 41.4%. The Profit After Tax (PAT) experienced a substantial rise of 36%, with PAT margins climbing significantly from 16.3% to 24.0%. These enhancements in EBITDA, PAT, and their respective margins highlight our improved operational efficiencies and cost management, resulting in higher profitability.

The booking value stood at a record high of H817 Crores in FY24, registering an increase of 36% YOY, and the area sold increased by 24% and stood at 561,475 sq.ft. This substantial growth in booking value and area sold underlines strong market demand, high acceptance of our developments, and the successful execution of our sales strategies. Additionally, collections increased to H695 Crores, registering a growth of 27%, indicating efficient cash flow management, which has ensured liquidity and financial stability.

While the realisation per sq. ft. for commercial properties decreased by 6%, the realisation for residential properties increased significantly by 32%.

Our financial performance for the year under review, along with the figures from the previous year, are presented below:

Particulars	Consolidated	Standalone
	FY24	FY23	FY24	FY23
Revenue from Operations	70.461.50	71,653.43	34.480.73	44.527.01
Other Income	4.122.49	4.240.91	6.519.03	4.261.74
Total Revenue	74.583.99	75.894.34	40.999.76	48.788.75
Expenses	56.568.60	60.284.45	24.266.02	35.050.96
Profit tax & share of profit from JV	18.015.39	15.609.89	16.733.74	13.737.79
Share of profit from JV	3.505.51	1.087.61	-	-
Tax exp	4.642.98	4.328.6	3.172.88	3.229.02
Profit After Tax	16.877.92	12.368.90	13.560.86	10.508.77
Other Comprehensive Income	0.59	(19.17)	(1.20)	(10.39)
Total Comprehensive Income	16.878.51	12.349.73	13.559.66	10.498.38
Earnings per share
Basic (in Rs)	34.43	26.12	28.05	22.74
Diluted On Rs)	32.50	25.21	26.47	21.90

Material developments in human resources

EMPLOYEE ENGAGEMENT AND TALENT

Our people are the pillars of our success With a centralised human resources department overseeing all people-related processes at the Group Level, our HR function plays a pivotal role in driving organisational success. The HR teams primary objective is to align the aspirational needs of our employees with the Companys goals of sustained growth, market leadership, and cost competitiveness. Our mission is to build Marathon Group as an exemplary organisation that inspires excellence every day.

Our brand and our people are our greatest assets. Sustainable, profitable growth is achievable only when we engage and empower our employees to reach their fullest potential. We strive to create an organisation that is simple, diverse, and agile, enabling us to move swiftly and innovate effectively.

Our employees are not only customer-centric but also future-ready, capable of thriving in a fast-changing world characterised by digitalisation and increased competition.

At Marathon, we empower our employees to think and act like entrepreneurs and business owners. This empowerment has established us as the Employer of Choice in our industry for many years. We cultivate an environment where individuals are given significant responsibilities early in their careers. We view our people as our most valuable resources and invest heavily in talent management practices, learning, and training initiatives to develop strong and credible leaders.

We ensure that young talent is regularly nurtured and mentored, with rewards and recognition commensurate with performance. We provide ample opportunities for personal and professional development, fostering a culture of trust and mutual respect. Our agile organisational structure is designed to deliver business results efficiently, with regular communication and sustained efforts to align our employees with Marathon Groups overall objectives.

Our commitment to professionalism, creativity, integrity, and continuous improvement enables us to operate efficiently and achieve sustainable, profitable growth. By fostering a culture of excellence and effectively utilising our resources, we ensure that Marathon NextGen Realty Limited remains at the forefront of the real estate industry.

DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS _STANDALONE BASIS_

Particulars	FY24	FY23	Variation	Reason for variance
Current Ratio	3.57	4.82	(26%)	Due reduction in current assests & increase in current liabilities
Debt-Equity Ratio	0.37	0.69	(46%)	Decrease in debt
Debt Service Coverage Ratio	0.82	0.79	4%	Increase in EBIT & decrease in fianance exp
Return on Equity Ratio	15%	14%	7%	Increase in equity
Inventory Turnover Ratio	0.69	0.98	(30%)	Due to change in inventory
Trade Receivables Turnover Ratio	24	15	60%	Increase in average collection period
Trade Payables Turnover Ratio	34	24	42%	Increase in trade payable ratio on account of increased in credit purchase
Net Capital Turnover Ratio	0.73	0.32	128.23%	Decrease in working capital
Net Profit Ratio	0.25	0.19	30%	Increase in share of profit from partnership firm /LLP
Return on Capital Employed	0.18	0.17	2%	Increase in EBIT
Return on Investment	0.63	0.57	10%	Increase in share of profit from partnership firm /LLP
Operating Profit Margin (%)	0.69	0.53	31%	Increase in EBIT
Return on Net Worth (%)	0.14	0.13	6%	Increase in total Comprehensive income

Disclosure of accounting treatment

The financial statements of the Company have been prepared in accordance with the guidelines and accounting standards set by the Institute of Chartered Accountants of India (ICAI) and as prescribed under Section 133 of the Companies Act, 2013.

Cautionary statement

Statements in this Management Discussion and Analysis report may be forward-looking within the meaning of applicable laws and regulations. These statements are based on certain assumptions and reasonable expectations of future events. However, actual results may differ materially from those expressed or implied. Factors that could significantly impact the

Company?s operations include material availability and pricing, cyclical demand and pricing in our principal markets, changes in government regulations and tax regimes, economic developments in India, and other incidental factors. The Company assumes no responsibility for these forward-looking statements, which may change in the future based on subsequent developments.