Martin Burn Ltd Management Discussions

1. ECONOMIC REVIEW

Global Economy

The world economy is projected to sustain a growth rate of 3.2% during 2024 and 2025, maintaining the same pace as in 2023. While advanced economies are expected to see a slight increase in growth, from 1.6% in 2023 to 1.7% in 2024 and 1.8% in 2025, emerging markets and developing economies will experience a modest slowdown, with growth dipping from 4.3% in 2023 to 4.2% in both 2024 and 2025.

Inflation is anticipated to decrease steadily, from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025, with advanced economies returning to their inflation targets more quickly than emerging markets and developing economies. Core inflation is expected to decline at a more gradual pace. Despite significant interest rate hikes by central banks aimed at restoring price stability, the global economy has demonstrated surprising resilience.

Indian Economy

Indias economic performance has remained strong despite global challenges and geopolitical issues, driven by robust domestic demand, an uptick in rural demand, solid investment, and sustained manufacturing momentum. This resilience underscores Indias broad-based growth across sectors and its crucial role in supporting the global growth trajectory.

Efforts by the government and the Reserve Bank of India (RBI) to combat inflation, including calibrated policy rates, strengthening food buffers, and easing imports, have effectively managed inflation. As a result, retail inflation in FY 2023-24 saw a significant decline, reaching its lowest level since the COVID-19 pandemic, with core inflation dropping to 3.3% in March 2024. Additionally, a predicted above-normal monsoon in 2024 is expected to yield a good harvest, further easing inflation concerns.

Despite the challenges posed by slowing global trade, Indias trade deficit is expected to decrease in the coming years as the Production-Linked Incentive (PLI) scheme expands its coverage to other sectoRs Strong exports and resilient remittances are anticipated to help reduce the current account deficit (CAD) to GDP ratio below 1% in FY 2023-24, according to various international agencies and the RBI.

Overall, India continues to be the fastest-growing major economy, with positive growth outlook assessments from international organizations and the RBI for the current financial year.

a. Sector Overview

The Indian real estate industry has undergone significant changes over the past three years, driven by factors such as regulatory reforms, changing consumer preferences, and technological advancements. The implementation of the Real Estate (Regulation and Development) Act, 2016 (RERA) has led to greater transparency and accountability in the sector, promoting investor confidence and safeguarding the interests of home buy eRs The adoption of technology, such as virtual reality and artificial intelligence, has transformed the home-buying experience, making it more accessible and convenient for consumeRs Additionally, the pandemic has led to an increase in demand for larger homes and the adoption of work-from-home policies, leading to a shift in consumer preferences towards properties with more space and amenities.

However, the industry has also faced several challenges over the past four years, including a liquidity crunch, rising construction costs, and the impact of the pandemic. The slowdown in the economy and the liquidity crisis faced by non-banking financial companies (NBFCs) has impacted the availability of financing for real estate projects, leading to delays in construction and a slowdown in new project launches. The rise in construction costs, driven by factors such as the shortage of skilled labor and the increasing cost of raw materials, has also impacted the profitability of develope Rs The COVID-19 pandemic has further impacted the industry, leading to a decline in sales and a slowdown in construction activity due to restrictions on movement and supply chain disruptions. Despite these challenges, the industry has shown resilience, with developers adopting innovative strategies to manage costs and deliver projects that meet the evolving needs of consumers.

2. RESIDENTIAL REAL ESTATE MARKET

a. Segment Overview

The Indian housing market maintained its upward momentum in the first quarter of 2024 despite rising prices and global geopolitical tensions. The sustained strong sales can be attributed to several factors, including the RBIs decision to maintain the repo rate, the ongoing desire for homeownership, and positive homebuyer sentiment driven by Indias economic growth forecasts and controlled inflation.

Housing sales reached a new peak on a quarterly basis in Q1 2024, with a significant 14% year-on-year increase compared to Q1 2023 across the top seven cities. Approximately 130,170 units were sold in Q1 2024, up from around 113,775 units in the same period in 2023. The Mumbai Metropolitan Region (MMR) and Pune accounted for over 51% of these sales, with MMR seeing a 24% annual increase and Pune experiencing a more than 15% rise. This indicates that the demand for homeownership remains strong, with most sales driven by end-useRs

New launches across the top seven cities surpassed the one lakh mark, with a slight 1% year-on-year increase from 109,570 units in Q1 2023 to over 110,865 units in Q1 2024. Leading and listed developers contributed significantly to this new supply, and this trend is expected to continue in the coming quarteRs

Notably, MMR and Hyderabad led in new supply in Q1 2024, together accounting for 51% of all new launches in the top seven cities. Hyderabad saw a 57% annual increase in new supply, while MMR experienced a 9% decline. Despite robust sales, new supply dipped in NCR, Kolkata, MMR, and Pune during the quarter. NCR experienced the highest decline, with new supply dropping by over 42% from approximately 12,450 units in Q1 2023 to about 7,270 units in Q1 2024.

Mid-segment homes priced between INR 40-80 lakh dominated new supply, making up 33% of the total, followed by luxury homes (priced over INR 1.5 crore) with a 25% share, and premium homes (priced between INR 80 lakh and INR 1.5 crore) with a 24% share. The share of affordable segment homes (priced below INR 40 lakh) continued to decline, standing at 18% in Q1 2024.

Despite a decent addition to new supply, the available inventory across the top seven cities saw a 7% annual decline in Q1 2024, standing at over 581,000 units by the end of the quarter. The NCR experienced the highest yearly drop in inventory, at 27%.

Residential property prices in Q1 2024 saw significant increases across the top seven cities, with quarter-on- quarter rises ranging from 3% to 10%. On a year-on-year basis, prices jumped remarkably by 10% to 32% compared to Q1 2023. These price escalations are mainly due to rising costs of construction raw materials and sustained housing demand. Hyderabad and Bengaluru recorded the highest annual price hikes at 31% and 24%, respectively.

Residential demand remains strong, driven by a persistent desire for homeownership post-pandemic. Additionally, new supply, particularly in the mid and premium segments, is dominated by large and listed developers, leading to high buyer demand as preferences shift towards branded products.

Positive consumer sentiment is bolstered by timely project completions from these branded developers, enhancing the overall consumer outlook. Furthermore, a decisive general election result could further boost buyer confidence.

Moreover, with several large developers actively acquiring land for residential developments amid high demand in FY2024, a robust pipeline of new project launches is expected in the coming quarters across the top seven cities.

b. Kolkata Launches

New residential launches in Kolkata witness a significant dip, both on Q-o-Q and Y-o-Y basis Kolkatas residential market witnessed a period of moderate growth in Q1 2024. Approximately 4,300 new residential units entered the Kolkata market in Q1 2024. This figure represents 4% of the total new launches across the top 7 cities in India. New launches declined by 17% compared to the previous quarter and by 27% year-on-year.

Looking deeper into the distribution of these new launches, the South zone emerged as the clear leader, contributing nearly half (47%) of the total new supply. Following the South zone was West Kolkata with a 22% share, while North, East and Central Kolkata collectively accounted for the remaining 31% of new launches.

The mid-segment and affordable segment dominated the new launches in Q1 2024. These two categories combined represented a significant 89% of the total new supply, with the mid-end segment holding a slight lead at 47% and the affordable segment following closely at 42%.

Sales Trend

Residential market in Kolkata experiences a slowdown in housing absorption Kolkata maintained a steady presence at Pan India level, contributing roughly 4% to the total sales in the top 7 Indian cities. The city experienced a slight decline in sales compared to both the previous quarter and the same period last year. Residential sales volume reached approximately 5,600 units, reflecting a 2% dip from Q4 2023 and a 9% decrease year-on-year.

Looking into the zonal distribution of housing sales, South Kolkata emerged as the leader, capturing a significant 34% share of total transactions. This dominance suggests a strong preference of homebuyers for properties in South Kolkatas micro markets. East and North Kolkata followed behind, contributing 26% and 24% of sales respectively. West Kolkatas share remained modest at 15%, with the remaining sales concentrated in the central areas of the city.

Available Inventory

Kolkata inventory overhang levels in Q1 2024 hold steady quarter-over-quarter.

The Kolkata housing market witnessed a decline in available housing stock in the first quarter of 2024. Compared to the previous quarter, there has been a 4% decrease, bringing the total available inventory down to approximately 29,300 units. This trend extends year-over-year as well, with a 20% reduction in available units compared to Q1 2023.

Within Kolkata, South Kolkata continues to hold the largest share of available housing inventory at 32%. This is followed by East Kolkata (24%), West Kolkata (22%), and North Kolkata (20%). The available housing stock in Kolkata is primarily concentrated within the affordable segment, accounting for 55% of the total inventory. The mid-end segment comes in second with a 33% share.

As of Q1 2024, the overhang remains at 16 months, consistent with the previous quarter. However, its important to note a positive trend when compared year-over-year.

3. OPPORTUNITIES

a. Economic Dislocation: The current economic environment presents the sort of circumstances that can provide attractive buying opportunities on a relative risk-adjusted basis. With interest rates at near-zero levels and compressing yields on sovereign bonds, investors are scouting the globe for investment opportunities to put their money to work. It remains a particularly alluring asset class for those who view that alpha is more attainable in the private markets to match their respective long liabilities. In this downturn, a strategic allocation to alternative assets can help improve the overall risk/return profile and achieve long-term liquidity objectives. The current scenario affords a rare opening to achieve above average market returns in real-estate by mobilizing to buy mispriced assets in emerging markets.

b. India Opportunity: India remains a compelling investment destination for institutional investors from across the globe. They are attracted by its bottomless market opportunity afforded by its 1.3bn population size, favorable demographics with an average age of 29 and an educated and expanding middle-class who are aspirational. The governments recent push to consistently debottleneck and push through regulatory reforms such as an Insolvency and Bankruptcy Code (IBC), a nationwide Goods and Service Tax (GST) has imparted confidence to investors that their capital is protected. India is in the early stages of a very long-term growth cycle and lot of the pro-growth oriented policies put in place by the administration have set it up to achieve that. Short-term market gyrations present an attractive opportunity to investors to take a forward-learning stance and accelerate the pace of investments to facilitate demand.

c. Darwinian Shakeout: The number of developers in the top nine Indian cities fell by nearly 50% between 2011-12 and 2017-18. The coronavirus is only expected to accelerate the shakeout with changing customer preferences and industry demand. In what is expected to be a stricter operating environment going forward, the unorganized players have recognized the need to either explore joint-development agreements or exit the sector completely citing lack of execution and financial capabilities. Organizations with a track record of delivery, strong customer franchise and best-in-class practices will continue to attract the kind of patient, longterm and institutional capital necessary for the successful delivery of projects in this new normal

4. THREATS & CHALLENGES

a. Regulatory Hurdles

Unfavorable changes in government policies and the regulatory environment can adversely impact the performance of the sector. There are substantial procedural delays with regards to land acquisition, land use, project launches and construction approvals. Retrospective policy changes and regulatory bottleneck may impact profitability and affect the attractiveness of the sector and companies operating within the sector.

b. Shortage and Manpower & Technology

Despite being the second largest employer in the country, the construction sector as a whole faces a shortage of quality manpower. Further the sector is heavily dependent on manual labor which increases the timelines for construction companies and results in deferred supply. There is a need to promote new mass housing construction technologies such as prefabricated, pre-engineered buildings (PEBs), modular homes and tunnel formwork technologies. Active R&D in modern technology space must be promoted.

c. Funding

The lending to real estate developers by NBFCs and HFCs fell by almost half to about INR 27,000 crores in FY19, triggered by the IL&FS crisis, according to JLL. This NBFC crisis has further deteriorated the liquidity situation for smaller developers who had to resort to alternative funding in absence of long term loans from banks. While established developers with lean balance sheets continue to have funding access, many developers are expected to face significant liquidity pressure in the near-term.

5. COMPANY STRENGTHS

Martin Burn Ltd (MBL) is a real estate development firm formed in 1946. It pursues development of residential and commercial space in Kolkata. MBL aims to deliver superior value to all stakeholders through extraordinary and imaginative spaces created out of deep customer focus and insight. MBL has always embraced the notion that collaboration is the essence of excellence. To that end, we have worked with high-quality consultants i.e. architects, structural engineers, MEP consultants, electrical etc. By bringing together the best-in-class team, we are able to deliver products suited to the needs of our custome Rs Your Company continue to capitalize on the market opportunities by leveraging its key strengths:

a. Brand Reputation: MBL has developed some of the most iconic and landmark developments of the city like Victoria Memorial, Esplanade Mansion, Shahid Minar etc. The Company enjoys a strong brand association and affinity with the local populace which allows it to command higher premium realisations over its peers

b. Transparency: We take our Ethics and Code of Conduct very seriously. We believe that investing resources to create a systematic and a professional approach would best serve the needs of our various stakeholders in the long-term. That is reflected not only in our finished product, but also in our day-to-day activities and business practices. We have a zero-tolerance policy against unfair and malpractices and expect our Employees to abide by the same in their dealings with third-party service providers

c. Execution: MBL has always been known to deliver high-quality projects on time. To achieve that, it believes in engaging best-in-class consultants, advisors and contractoRs Its employees are also aligned with the companys mission of producing best product in line with the needs of the market

6. BUSINESS OVERVIEW

a. Financial Performance

During the year under review, your Companys total revenue stood at Rs 8.53 crores as compared to Rs 5.42 crores for the previous year; profit before tax stood at Rs 1.43 crores as compared to Rs 1.30 crores for the previous year. Therefore, during this financial year 2023-24 the total revenue has increased by 57% approx and the profit before tax has also increase by 10% in compare to previous financial year.

7. HUMAN RESOURCES

Your Company believes that it can only be as good as the people it hires. Hence it has taken a very careful and deliberate approach to hiring across all the levels in your Company. We do not want to hire the most or run a treadmill to be on a leadership board - we want to hire the best. It is an approach that has worked well for us. At the same time, we realize that it is not a one-way street. We must work hard to retain our employees through competitive compensation, conducive working environment and an opportunity to be seen and heard. Your Company will continue to keep setting the bar high for it is the single most element in building a lasting business.

8. RISKS AND CONCERNS

a. Market Price Fluctuation

The performance of MBL may be affected by the sales realisations of its projects. These prices are driven by prevailing market conditions, the nature and location of the projects, and other factors such as brand and reputations and the design of the projects. Your Company follows a prudent business model and tried to ensure steady cash flow even during adverse pricing scenario.

b. Sales Volume

The volume of bookings depends on the ability to design projects that will meet customer preferences, getting various approvals in time, general market factors, project launch and customer trust in entering into sale agreements well in advance of receiving possession of the projects. Your Company sells its projects in phases from the time it launches the project, based on the type and scale of the project and depending on market conditions.

c. Execution

Execution depends on several factors which include labour availability, raw material prices, receipt of approvals and regulatory clearances, access to utilities such as electricity and water, weather conditions and the absence of contingencies such as litigation. Your Company manages the adversities with cautious approach, meticulous planning and by engaging established and reputed contractoRs As your Company imports various materials, at times execution is also dependent upon timely shipment and clearance of the material

d. Industry Cyclicality

The residential real estate market is inherently a cyclical market and is affected by macroeconomic conditions, changes in applicable governmental schemes, changes in supply and demand for projects, availability of consumer/project financing and illiquidity. Your Company has attempted to hedge against the inherent risks through a business model comprising joint ventures, joint development agreements. However any future significant downturn in the industry and the overall investment climate may adversely impact business.

9. OUTLOOK

Post implantation of The Real Estate (Regulation and Development) Act, 2016 (RERA), developers are focusing firmly on selling their existing ready inventory and finishing their near completion projects rather than launching new projects. With several smaller realty developers interested in either liquidating their existing positions or entering into JV/JDA, your Company believes that this is an opportune time to take advantage of this market dislocation.

a. Focus on affordable and mid-market residential segment in Kolkata

Your Company will continue to focus on the affordable housing and mid-market residential segment in the region of Kolkata. Real Estate is largely a locally driven and run business and your Company is confident that it can leverage on its past experience, unique local consumer know-how to deliver the best product in the market

b. Strengthen relationships with key service providers and develop multiple vendo Rs

In order to continue delivering landmark offerings to our customer, your Company shall further strengthen its relationship with key service providers, i.e. architects, designer and contractoRs Your Company is also working on strategy to develop more and more vendors who can deliver product and services in line with Companys philosophy and product offerings.

c. Internal Control Systems

Your Company has also focused on upgrading the IT infrastructure - both in terms of hardware and software. Your Company is presently reviewing various CRM/ERP tools to ensure effectiveness of the controls in all the critical functional areas of the Company.

10. CAUTIONARY STATEMENT

Statements in the management discussion and analysis report describing the Companys objectives, rejections, estimates, expectations or predictions may be "forward looking statements" within the meaning of applicable laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could influence the companys operations include economic conditions affecting price conditions in the domestic market in with the Company operates or changes in government regulations, tax laws and other statutes or other incidental factors.