Poddar Housing & Development Ltd Management Discussions.

Indian economic overview

India retained its position as the sixth-largest economy and the fastest-growing trillion-dollar economy through a major part of the year under review (except in the last quarter of 2018-19). After growing 7.2 percent in 2017-18, the Indian economy is estimated to have grown 6.8 percent in 2018-19 as per the Central Statistics Office release, May 2019.

The principal developments during the year under review comprised a sustained increase in per capita income, decline in national inflation, steadying interest rates and weakened consumer sentiment from the second half of the financial year. The weaker sentiment was on account of a large non-banking financial institution announcing its inability to address liabilities. This affected credit expansion, financial markets and consumer sentiment, which in turn resulted in slower GDP growth that declined to 5.8 percent by the fourth quarter of 2018-19, the slowest growth in a single quarter in years.

In 2018, the country attracted ~USD 42 billion in FDI inflows as per the World Investment Report 2019. Driven by strong policy reforms, India witnessed a 23-notch jump to a record 77th position in the World Banks latest report on the ‘Ease of Doing

Business that captured the performance of 190 countries. The commencement of the US-China trade war opened new opportunities for India, particularly in the agro sector. Inflation (including food and energy prices) was estimated at 2.6 percent on an annual basis, one of the lowest in years and well below the Reserve Bank of Indias medium-term target of 4 percent. The rupee rebounded after touching a low of H74.45 to a dollar to close the financial year at H69.44. During the fiscal under review, the Indian Government continued to invest deeper in digitisation, renewable energy capacity generation and infrastructure building.

Key government initiatives

The Indian government continued to take a number of initiatives in reviving the national economy.

• Bank recapitalisation scheme: In addition to infusing H2.1 lakh crores in public sector units, the Indian Government announced a capital infusion of H41,000 crores through recapitalisation bonds in 2018-19. The Budget 2019-20 mandated that the Union Government will infuse H70,000 crores to strengthen and enhance their lending capacity. (Source: Hindu Business Line)

• Expanding infrastructure: Indias proposed expenditure of H5.97 trillion (USD 89.7 billion) towards infrastructural development in the Union Budget 2018-19 is expected to strengthen the national economy. As of November 2018, total length of road-building projects awarded under Bharatmala Pariyojana (including residual NHDP works) was 6,460 kms for a total cost of H1.52 trillion (USD 21.07 billion). The Government has announced an investment of H1,00,00,000 crores (USD 1.5 trillion) in infrastructure over the next five years in Budget 2019-20. (Source: IBEF)

• Ujjwala Yojana and Saubhagya Yojana: With the help of this initiative, the Government has transformed the lives of many rural families, dramatically improving the ease of their living by providing electricity and clean cooking facility to all willing rural families by 2022. • UDAN: This Scheme is directed towards providing air connectivity to smaller Indian cities, enabling the common citizens to avail the option of travelling by air. A number of airports are likely to be constructed under this scheme.

• The Insolvency and Bankruptcy code (Amendment), Ordinance 2018:

Passed in June 2018, the ordinance provides significant relief to home-buyers by recognising their status as financial creditors. The major beneficiaries were the MSMEs, as the ordinance empowered the Indian Government to provide the MSMEs with a special dispensation under the code.


(Source: PIB)

• Pradhan Mantri Kisan Samman Nidhi:

In February 2019, the Indian Government announced the Pradhan Mantri Kisan Samman Nidhi, a scheme promising an annual assured income of H6,000 (USD 84.5) for any farmer owning up to 2 hectares of farmland. The budget for fiscal year 2020 allocated H75,000 crores for the scheme, benefiting ~120 million land-owning farmer households. (Source: PIB)

• Direct Benefit Transfer: The Direct Benefit Transfer initiative re-engineered the cash disbursement process in welfare schemes through simpler and faster flow of information/funds to ensure accurate targeting of beneficiaries, de-duplication and reduction of fraud. In 2018-19 alone, this scheme is estimated to have transferred more than H3,00,000 crores and the gains to have accrued since scheme implementation (up to March 2019) estimated at H1,41,677.56 crores. (Source: www.dbtbharat.gov.in)


The Indian economy appears to be headed for sustained sluggishness in 2019-20. Even as a new government is expected to remain pro-investment and pro-business resulting in a larger spending on infrastructure build-out, an economic revival appears some quarters away. The long-term outlook of the country appears to be positive on account of the various economic reforms, increasing aspirations, sustained consumption momentum and a national under-consumption across a range of products appearing to correct itself. (Source: CSO, Business Standard)

Indian real estate sector overview

The Indian residential construction segment contributes ~80 percent to the overall real estate development in the country. 2018 was a mixed year for the segment with the policy push for affordable housing reviving it both in terms of new launches and sales. However, buyers are still being cautious while investing money in residential properties. Lifestyle or premium housing remains sluggish while affordable housing, as a segment, is increasingly gaining traction. Launches within the price range of H4 million were the highest during 2017 and 2018. The Indian real estate is expected to witness an addition of nearly 200 million square feet in 2019 across all categories, including office, retail, residential and logistics to reach 3.7 trillion square feet by 2019. Of this, nearly 40 million square feet development is expected to be generated from new office spaces in 2019. 30 percent of this pipeline is expected to be in the Special Economic Zone (SEZ) owing to the rise in demand for SEZs and technology parks. Further, a share of technology in the overall real estate market across the country is expected to range between 30 percent and 35 percent.

Indias commercial real estate market is one of the more well-organised markets in the Asia Pacific region and the introduction of REITs structure is expected to help the sector become even more efficient. Currently, the pan-India office vacancy rate stands at 14 percent that is considered to be a natural vacancy rate. In 2017, the commercial markets saw new completions at more than 26 million square feet and in 2018 this number reached 42 million square feet. Commercial assets have been the most preferred asset classes in real estate by investors over the last couple of years. They have attracted ~80 percent of the total investments between 2016 and YTD-2018. While RERA and GST improved transparency in the sector, schemes like Credit Linked Subsidy Scheme (CLSS) boosted the sector by benefitting both buyers and developers. With SEBI giving REIT a nod of approval, increasing investments has been coming in the sector, giving it the push that was needed. Further, a business model like co-working spaces resulted in gross office absorption rate in the country growing by 20 percent y-o-y in 2018. Affordable housing has eased the access and affordability of houses, giving the sector another push.

The retail segment is expected to remain steady in the medium to long-term with a strong supply pipeline and stout absorption. In 2017, net absorption of malls was at 3.2 million square feet, which reached 5.2 million square feet by end-2018 and is likely to be higher (6.7 million square feet) for 2019. Delhi-NCR accounted for ~32 percent of total retail space in India, followed by Mumbai at 23 percent and Bengaluru at 14 percent. Delhi-NCR had a Grade-A retail stock of 24.6 million square feet, while Mumbai had 17.6 million square feet and Bengaluru had 10.5 million square feet. Retail investors are gradually focusing on emerging retail destinations (Tier-1 and Tier-II) over metros, due to higher growth prospects. The Indian residential market recorded a marginal growth in sales in the first half of 2019 on the back of the boost the segment received from affordable housing. Owing to the reviving residential segment, the inventory level has come down from 5,28,494 units at the end of December 2017 to 4,68,372 units at the end of December 2018. (Source: JLL, KPMG, Colliers)

The Mumbai story…

Mumbai is the most populated city in India and is also the financial and commercial capital of the country. With an area of 4,355 sq kms and population of more than 18 million, the city is expected to account extensively for the growth of Indian real estate sector. The citys office market saw absorption of 4.8 million sq ft in 2018. Further, the Mumbai retail market witnessed a supply of ~2 million sq ft of leasable space, of which 1.2 million sq ft was successfully absorbed in the year under review. The residential segment witnessed a surge in new launches and clocked a y-o-y growth of 22 percent. The Mumbai residential market also saw a price moderation of 3 percent y-o-y per sq ft in the first half of 2019.

The Pune story…

Pune is one of the fastest growing cities in the Asia-Pacific region with an area of 7,256 sq kms and GDP of USD 69 billion. The city saw a supply of 5.7 million sq ft in 2018, of which 5.4 sq ft were absorbed in the year. Furthermore, Pune saw a retail space leasing of 0.5 million sq ft and it is expected to grow in the near future, translating into growth of the entire real estate market in the city. Pune saw a 52 percent y-o-y growth in new launches in first half of 2019, which, coupled with a price moderation of 4 percent in the same period, gave a boost to the Pune residential market.

Five key regulatory reforms are working in tandem to bring in the next wave of transformation in the sector

RERA: Aims at increasing transparency and accountability.

Impact: More than 26 states and Union Territories have notified rules under RERA and more than 20 states have their websites operational under the provisions of RERA. Furthermore, as on December 2018, more than 34,000 real estate projects were registered under RERA.

GST rate cuts: GST rates on non-affordable housing projects were reduced from 12 percent to 5 percent for under-construction properties. Further, the GST for affordable housing projects were revised from 8 percent to 1 percent on under-construction properties.

Impact: Implementation of a standard tax simplified the compliance processes and resulted in limited tax leakages and boosted the overall housing sector.

Insolvency and Bankruptcy Code: Instills a sense of urgency among all stakeholders to resolve bad loans that have plagued the balance sheet of banks.

Impact: Home buyers have been recognised as financial creditors which has made them liable to receive a share, in case of insolvency proceedings. In case of any delay from the developer, allottee has the right to demand for refund of the entire amount with interest.

A_ordable housing: The government relaxed the carpet area norms on multiple occasions for affordable housing. Further, additional incentives and GST relaxations were also made.

Impact: Area relaxations for affordable housing were undertaken in February 2019 wherein affordable housing includes units upto 60 sq. m. in metropolitan cities like NCR, Bangalore, Mumbai – MMR region, Chennai, Hyderabad and Kolkata having value up to H4.5 million. For non-metropolitan cities / towns, units upto 90 sq. m with value up to H4.5 million have been included in the affordable housing category.

REITs: Aims at providing avenues for fundraising and alternative investments. Impact: More than 20 billion worth of REIT-able office stock, remains underutilised.


(Source: KPMG, CBRE)

Demand drivers

Growing urbanisation: Urbanisation is one of the major factors behind the growth of the housing sector. As factors like better job and educational opportunities sustains migration from the rural to the urban areas, the rate of urbanisation in India was quite as high as 33.2 percent in 2018, which is expected to reach 36.2 percent by 2015. This has resulted in rising demand for more commercial and residential space. (Source: Worldometers)

Easier financing: In order to boost the demand for affordable real estate, housing loans of up to H3.5 million (USD 54,306) in metro cities were included in priority sector lending by the RBI in June 2018. Loans under priority sector lending are relatively cheaper. Home loans in India are expected to grow by 17-19 percent in 2018-19. (Source: ICRA)

Rising population: Indias urban population is expected to reach 543 million by 2025 from 461 million in 2018. This will drive the demand for more residential spaces.

Growing nuclear families: The Census 2011 indicated that about half of Indias households are gradually declining. Also contrary to popular perception, nuclear families in rural areas jumped 29 percent versus 9 percent in urban households. Nuclearisation is expected to add about 6-7 million households per year, strengthening domestic consumption.

Increasing HNIs: In 2017 India had 119 billionaires, 20,730 multimillionaires with USD 10 million and above wealth, and 3,30,400 high net worth individuals (HNWI) with USD 1 million and above. This will drive the demand for more commercial and residential space.

Increasing wealth: The total wealth in India as of 2018 is USD 5,972 billion and change in wealth in 2017-18 is 2.6 percent. Wealth per adult is USD 7,024 in 2018; y-o-y growth is 0.7 percent in 2017-18. This will drive the demand for high rise and super high rise residential space.

Rise in demand: The population in India is around 1.35 billion people and it is expected to become the most populous country in the world by 2025, thereby catalysing the housing and real estate demand.

Government initiatives: The Credit Linked Subsidy Scheme (CLSS) has increased the purchasing power of the economically weaker and lower income groups. Also, government initiatives like Pradhan Mantri Awas Yojana, Housing for All and the creation of the National Housing Urban Fund is expected to increase the demand for real estate.

Rising income levels: The per capita income in real terms (at 2011-12 prices) during 2018-19 is likely to attain a level of H91,921 compared to H86,668 for the year 2017-18. The growth rate in per capita income is estimated at 6.1 percent during 2018-19 compared to 5.4 percent in the previous year. The growth in the countrys per capita GDP in turn has increased the disposable income of the populace, ultimately driving the countrys consumption.

RERA implications

The Real Estate Regulation Act (RERA) was passed by the Indian Parliament in 2016, with the primary aim of protecting the interests of home buyers and boosting investment in the real estate sector. For years, it was considered that the real estate transactions were heavily in favour of the developers. Through RERA, the government aims to create a more equitable and fair transaction between the seller and the buyer, and make real estate purchase simpler, by bringing in better accountability and transparency. Some of the important compliances are: • Consent of two-third allottees about any addition or alteration.

• No marketing before registration with RERA.

• Increasing the quality of construction due to a defect liability period of five years. • Increasing focus on the timely completion of projects and delivery to the consumer. • Consent of two-third of the allottees before transferring majority rights to third party. • Sharing all the information about the project plan, layout, government approvals, land status and sub-contractors.

Key highlights

Establishment of the regulatory authority: The Act established a regulatory authority in each state and union territory, and its functions included the protection of interest of the stakeholders, accumulating data at a designated repository and creating a robust grievance redressal system.

Compulsory registration: Every real estate project (total area of more than 500 sq. metres or more than eight apartments in one phase) must be registered with its respective states RERA. While applying for registration, promoters are required to comply with the registration requirements (completion certificate or occupancy certificate) and are required to provide detailed information on the project (land status, details of the promoter, approvals and schedule of completion). Reserve account: Primary reason for delay in the completion of projects was that funds collected from one project would get diverted to fund new projects. To prevent such a diversion, promoters are now required to allocate 70 percent of all project receivables into a separate reserve account, and it can only be used for land and construction expenses of one particular project. Regular updates: Home buyers are now able to monitor the progress of the project on the RERA website, as it is a compulsion for promoters to make periodic submissions to the regulator regarding the progress of the project. Standardisation: The Act requires a standard model sale agreement to be entered between promoters and home buyers to safeguard the customers against the punitive clauses inserted by them. Through this, the promoters are held accountable for any defaults on their part. Penalty: Severe monetary penalty (up to 10 percent of the project cost) and imprisonment has been prescribed against the violators for the violation of the Act.


(Source: Housing.com)


The real estate sector in India is expected to reach a market size of USD 1 trillion by 2030 and contribute 13 percent of the countrys GDP by 2025, while generating employment opportunities for over 66 million people parallelly. The private equity investment is estimated to grow to USD 100 billion by 2026 with Tier-I and Tier-II cities benefiting the most in future. Office space leasing in the top eight cities is expected to cross 100 million square feet during 2018-20. (Source: IBEF)

Risk management

Economic risk: Slowdown in the economy could impact the Companys growth. Mitigation: Mumbai being the core market for the Company, Poddar Housing is optimistic of its prospects in affordable residential space on account of the fact that the affordable housing sector is largely under-penetrated in the city. Further, the Central and the State Governments are also taking steps to facilitate the revival and growth of the sector.

Competition risk: Increase in competition could affect the Companys market share. Mitigation: Poddar Housing has strategically positioned itself in certain MMRDA geographies marked by absence or lesser availability of organised players, which translates into a bigger share of business for the Company.

Accessibility risk: Projects outside of centralised locations could act as a hindrance to sales as people prefer a more centralised location.

Mitigation: Poddar Housing has strategically located all its projects in centralised locations and in close proximity to railway stations, which form an interconnected network, thereby ensuring easy access to the Central Business District. Quality risk: Degrading quality of product may affect the Companys profitability. Mitigation: The Company strives to service its customers with superior quality houses and has been accredited with the ISO 9001:2008 certification, which attests to the Companys compliance with the stringent quality management norms.

Environmental risk: Risk of the business harming the environment.

Mitigation: Poddar Housing employs a time-tested procedure to convert tracts that lie in ‘green zones into permitted areas for residential housing. Poddar Housing abides by the environmental regulations set by the government and believes in working in such a way, so as to maintain the sustainability of resources. Cost risk: Increase in the cost of acquiring raw materials could act as a hindrance to the smooth functioning of the business. Mitigation: Poddar Housing undertakes a disciplinary approach to acquire large tracts of lands at reasonably lower rates. It holds properties in the form of MOUs as opposed to conveyance, thereby reducing the chances of having to purchase tracts of land at higher rates.

Financial performance

The Companys revenues increased by 43.5 percent to reach H47.56 crores in 2018-19. Further, the Companys EBITDA margin for the year stood at 33.42 percent compared to (18.30) percent in the previous year, clocking an increase of 5,172 bps. The Company also reported a post-tax loss of H724.80 lakhs in 2018-19. Further, Poddars debt-equity ratio for the year under review stood at 1x.

Internal control systems and their adequacy

The internal control and risk management system is structured and applied in accordance with the principles and criteria established in the corporate governance code of the organisation. It is an integral part of the general organisational structure of the Company and involves a range of personnel who act in a coordinated manner while executing their respective responsibilities. The Board of Directors offers its guidance and strategic supervision to the Executive Directors and management, monitoring and support committees. The control and risk committee and the head of the audit department work under the supervision of the Board-appointed Statutory Auditors.

Human resources

Poddar Housing believes that its competitive advantage lies within its people. The Companys people bring to the stage a multi-sectoral experience, technological experience and domain knowledge. The Companys HR culture is rooted in its ability to subvert age-old norms in a bid to enhance competitiveness. The Company always takes decisions which are in alignment with the professional and personal goals of employees, thereby achieving an ideal work-life balance and enhancing the pride of association. As on 31st March, 2019 the employee strength of the Company stood at 307 (perpetual and contractual).

Cautionary statement

This statement made in this section describes the Companys objectives, projections, expectation and estimations which may be ‘forward looking statements within the meaning of applicable securities laws and regulations. Forward–looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised by the Company. Actual result could differ materially from those expressed in the statement or implied due to the influence of external factors which are beyond the control of the Company. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent developments.