MANAGEMENT DISCUSSION and ANALYSIS REPORT
WORLD ECONOMY
The global real estate market size was valued at USD 3.69 trillion in 2021 and is
expected to expand at a compound annual growth rate (CAGR) of 5.2% from 2022 to 2030. The
market is expected to grow at a healthy pace during the forecast period, owing to the
rising population and a desire for personal household space. As of 2021, the commercial
real estate space was estimated to be the most important element driving industry
expansion.
Despite the pandemics huge reduction in home sales, real estate activity began to
rebound, returning to pre-pandemic levels. Potential buyers began to ramp up their search
for and purchase of homes, boosting the growth of the real estate market.
One of the primary drivers of the global real estate market is population growth. As
the worlds population continues to grow, the demand for housing and commercial space also
increases, which in turn drives up property values.
Economic conditions also play a significant role in the real estate market, as a strong
economy typically leads to increased demand for real estate. Additionally, low-interest
rates and favourable government policies such as tax incentives and infrastructure
development can also drive demand for real estate.
There are numerous downside risks to weigh on outlook like stalling recovery in China,
escalation of war in Ukraine, sudden reprising in financial markets, and geopolitical
fragmentation. Also, high post-pandemic debt burden will pose to be an ongoing challenge
for many countries over the next few years.
The upside though can come through pent-up demand boost fuelled by excess private
savings from pandemic fiscal support and in many cases, still-tight labour markets and
solid wage growth; or through faster disinflation as easing in labour market pressures in
some advanced economies due to falling vacancies could cool wage inflation.
INDIAN ECONOMY
India has emerged as the fastest growing major economy in the world and is expected to
be one of the top three economic powers in the world over the next 10-15 years, backed by
its robust democracy and strong partnerships.
Indias economy expanded by 6.1 percent in the Q4 of the fiscal year 2022-23, leading
to an annual growth rate of 7.2 percent. The growth rate during the January-March period
surpassed the 4.5 percent expansion witnessed in the previous quarter of October-December
2022-23.
According to official figures released on May 31,2023. The estimated Q4GDP forthe
current fiscal year stands at Rs.43.62 lakh crore, compared to Rs.41.12 lakh crore
recorded in Q4 of the previous fiscal year 2021-22.
On June 12, 2023, Finance Minister Nirmala Sitharamans office tweeted that Indias GDP
touched the $3.75 trillion mark in 2023. The Ministry also confirmed that India has now
become the fifth largest economy in the world, moving from the tenth spot. At $3,737
billion in current price terms,
Indias GDP is only lowerthan the US ($26,854), Chinas ($19,374 billion), and
Germanys ($4,309 billion).
Indias GDP is expected to reach US$ 5 trillion by FY25 and achieve upper-middle income
status on the back of digitization, globalization, favourable demographics and reforms.
India is also focusing on renewable sources to generate energy. It is planning to
achieve 40% of its energy from non-fossil sources by 2030, which is currently 30%, and
have plans to increase its renewable energy capacity to 175 gigawatts (GW) by 2025.
India is expected to be the third largest consumer economy as its consumption may
triple to US$ 4 trillion by 2025, owing to Shift in consumer behaviour and expenditure
pattern, according to a Boston Consulting Group (BCG) report. It is estimated to surpass
USA to become the second largest economy in terms of purchasing power parity (PPP) by 2040
as per a report by Price water house Coopers.
REAL-ESTATE SECTOR
The real estate sector is one of the most globally recognized sectors. The real estate
sector comprises four sub sectors - housing, retail, hospitality and commercial. The
growth of this sector is well complemented by the growth of the corporate environment and
the demand for office space as well as urban and semi-urban accommodations. The
construction industry ranks third among the 14 major sectors in terms of direct, indirect
and induced effects in all sectors of the economy.
The post-pandemic picture for real estate sector is a paradigm shift from before. The
pandemic has reinstated the importance of home ownership and the attitude of customers
towards residential properties has seen a substantial shift. Preference for larger sized
apartments, inclination towards reputed developers and a rising demand for townships
projects are just some of the emerging trends.
Fiscal 2023 was a milestone year for the Indian Real estate sector with all-time high
sales. The sector showed healthy growth on the back of a high base achieved in fiscal
2022. The demand pick-up seen in the second half of fiscal 2021 has continued into fiscal
2023 and is expected to continue in fiscal 2024. The number of launches is also increasing
and touched a decadal high last year, inventory is continuing to show a decline or
stability across Tier-1 cities, indicating a healthy demand momentum.
While the residential segment witnessed strong performance, commercial office sector
continues to remain sluggish with demand not yet reaching the pre-pandemic levels. The
challenges to office space demand have been the work from home trend and slowdown in
global economic growth. The global slowdown directly impacts sectors like IT which is the
major occupier of office space in India.
Retail real estate sector though, is back to full swing with consumption recovering
beyond pre-pandemic levels and should continue the momentum.
MUMBAI REAL-ESTATE SECTOR
The Mumbai real estate market has been one of Indias most vibrant and dynamic, with
numerous factors driving its growth over the years. With the ongoing economic recovery and
rising demand for residential and commercial properties, trends in Mumbai real estate are
expected to continue their growth trajectory in 2023.
However, real estate in Mumbai has been a topic of interest for many investors and
analysts lately. The realty market in the city is still active and adapting to changing
needs. While there may be some slowdown in the affordable segment, the upper end of the
market is growing, and sales have picked up across the city. With redevelopment expected
to continue in the next ten years, it will be interesting to see how the market evolves
and adapts to changing needs and trends.
The residential real estate market in Mumbai and the Mumbai Metropolitan Region
("MMR") has shown strong demand, of late. The second quarter of 2022 saw as many
as 20,000-plus new residential units being launched across the region. Mumbai alone saw a
quarterly rise of 5 per cent in terms of new launches, indicating a positive upward
trajectory for demand of new units in the bustling metropolis.
BUDGET 2023 - TAKEAWAYS
The union budget presented this year was supportive of the long-term growth of the real
estate sector in India through its focus on urban infrastructure and the digital economy.
The Governments rising focus on infrastructure capex will create a backdrop of
opportunity for the real estate sector.
Housing for All
The Government allocated Rs.79,000 Crore, 66% higher than last years allocation, under
the Pradhan Mantri Awas Yojna (PMAY) initiative which will be used for both urban and
rural markets. The government plans to complete its target of over 4 Crore houses across
both urban and rural markets, which will be allocated to persons eligible underthe scheme.
In addition, it plans to make the land and construction approval process more efficient.
Urban Development Plan
The Real estate sector is expected to benefit from emphasis laid on development and
urban planning in Tier 2 and Tier 3 cities in the budget. The National Housing Bank (NHB)
will oversee the proposed Urban Infrastructure Development Fund (UIDF). This will help
public agencies develop infrastructure in Tier 2 and Tier 3 cities. A Rs.10,000 crore
budget has been proposed for this fund.
Municipal Bonds
The budget also proposed property tax reforms to provide cities with incentives to
improve their credit ratings for municipal bonds. These bonds have the potential to
alleviate urban infrastructure woes while also improving real estate sentiment in these
areas.
OPPORTUNITES AND CHALLENGES
Opportunities
As India awaits policy reforms to pick up speed, your Company firmly believes that the
demand for Real Estate in a country like India should remain strong in the medium to long
term. Your Companys well accepted brand, contemporary architecture, well designed
projects in strategic locations, strong balance sheet and stable financial performance
even in testing times make it a preferred choice for customers and shareholders. Your
Company is ideally placed to further strengthen its development potential by acquiring new
projects.
Challenges
While the management of your Company is confident of creating and exploiting the
opportunities, it also finds the following challenges:
A. Inflation and Interest Rate;
B. Unanticipated delays in project approvals;
C. Rising cost of construction;
D. Regulatory uncertainty;
E. Availability of accomplished and trained labour force;
F. Digital Real Estate Sales;
RISKS AND CONCENRS
Market price fluctuation
The performance of your Company may be affected by the sales and rental realizations 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 reputation and the design of
the projects. Your Company follows a prudent business model and tries to ensure steady
cash flow even during adverse pricing scenario.
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. At times execution is also
dependent upon timely availability of materials.
Statutory Approvals
The real estate sector in India is heavily regulated by the central, state and local
governments. Real estate developers are required to comply with a number of laws and
regulations, including policies and procedures established and implemented by local
authorities in relation to land acquisition, transfer of property, registration, and
redevelopment of building. These laws often vary from state to state. Several of your
Companys projects are in preliminary stages of planning and any delay in obtaining
approvals could warrant revised scheduling of project timelines.
INTERNAL CONTROL SYSTEM
The Company has also focused on upgrading the IT infrastructure - both in items of
hardware and software. In addition, the company is presently reviewing the process
documentation to ensure effectiveness of the controls in all the critical functional areas
of the Company.
Post pandemic, developers have moved away from the traditional way of doing business
and rightly focused on end-user customer. We believe that 2023-24 will be a growth year
too with constant stability and higher sales as compared to last year.
The demand for residential property will still increase as hybrid cultures have been
accepted by corporates.
We look forward to adding a large number of projects to our portfolio in FY 2023-24
aiming for a huge sale potential and more satisfied customers.
HUMAN RESOURCES
Your Company is always committed to the health and safety of its
employees. Your Company provides a clean and hygienic and conducive work environment to
all employees. Mental wellness is a positive state of mental health. It ensures that
individuals think, feel and act in ways that will create positive impact on their personal
and professional life. Your company aims at optimizing mental health. Your Company aims at
gender diversity. Women are given equal opportunities.
OUTLOOK
FY2022-23 was a landmark year for the real estate sector and Modis Navnirman Limited
has witnessed highest ever sales collections, project deliveries and business development.
Post-pandemic, developers have moved away from the traditional way of doing business
and rightly focused on end-user customer demand.
KEY FINANCIAL RATIOS
In accordance with SEBI (Listing Obligations and Disclosure requirements 2018)
(Amendment) Regulations 2018, the Company is required to give details of significant
changes (Change of 25% or more as compared to the immediately previous financial year) in
key sector specific financial ratios. Since the company was incorporated on March 4th,
2022 a comparison chart cannot be provided.
| Ratios |
2023 |
Definition |
Explanations |
| Trade Receivables turnover |
86.1 |
Trade Receivables Turnover - Revenue from Operations/Average Trade Receivables |
Decrease in Trade Receivable Turnover Ratio is mainly on account of increase in trade
receivables during current year on recognition of revenue for certain projects as compared
to previous year |
| Inventory Turnover |
1.64:1 |
Inventory Turnover - Sale from Real Estate Developments/Average Inventory |
Decrease in Inventory turnover ratio is majorly on account of increase in inventory
due to addition of new projects during current year as compared to previous year |
| Interest Coverage Ratio |
4.46:1 |
Interest Coverage Ratio - Earning before interest, taxes, depreciation and
amortisation expenses / Finance Costs |
Interest coverage ratio increased mainly on account of increase in adjusted EBITDA due
to revenue recognised for certain projects on completion of performance obligation |
| Current Ratio |
2.96:1 |
Current Ratio - Current Assets / Current Liabilities |
Current Ratio decreased on account of increase in current liabilities mainly due to
increase in |
|
|
|
a. Advance received against on sale of flats/ units of new projects. |
|
|
|
b. Increase in trade payables. |
|
|
|
c. Increase in debt |
| Net Debt- Equity Ratio |
0.44:1 |
Net Debt- Equity Ratio = Net Debt (Non-current liabilities - borrowings (Including
current maturities of long term debt) plus current financial liabilities - borrowings less
cash and bank balances and other current investments / Equity |
Net Debt Equity Ratio changed mainly due to utilization of cash and bank balance for
business development activity and increase in debt during the year |
| Operating Profit Margin (Adjusted EBITDA Margin) % |
18% |
Earnings before interest, taxes, depreciation, amortisation expenses and interest
included in cost of sales / Total Income including Share of profit / (loss) of joint
ventures and associate (net of tax) |
Increase in Adjusted EBITDA Margin is mainly on account of increase in profit due to
revenue recognised for certain projects on completion of performance obligation |
| Net Profit Margin % |
13% |
Profit for the year / Total Income including Share of profit / (loss) of joint
ventures and associate (net of tax) |
Increase in Net Profit Margin is mainly on account of increase in profit due to
revenue recognised for certain projects on completion of performance obligation |
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