prestige estates projects ltd Management discussions

Company Overview

The Company (Prestige Estates Projects Limited along with its subsidiaries, joint ventures and associates) stands as one of Indias prominent and highly regarded real estate developers. Commencing its journey in 1986 in the Southern region of India, the Company has successfully completed over 281 remarkable real estate ventures, encompassing a total area of 166 Mn sq. ft. Its reach has now expanded, and it is actively involved in crafting projects across 13 significant locations throughout the nation.

Renowned for its pioneering approach to luxury, futuristic architectural designs, exceptional craftsmanship, and impeccable project delivery timelines, the Company is held in high esteem within the industry. The foundation of its philosophy is centred around prioritising customer satisfaction, which has consistently propelled it towards achieving greater accomplishments with each passing year.

Economic Review

During FY23, the Indian economy demonstrated its resilience in the face of global challenges, achieving an impressive growth rate of 7.2%. This growth was primarily propelled by multiple factors, including a positive business climate, robust industrial production, increased consumer spending, improved GST collections, and the vision of a selfreliant India (Aatmanirbhar Bharat). The robust foundation that has allowed the Indian economy to navigate through the challenges, was achieved through the attraction of investments from both domestic and international sources, across both the public and private sectors. By September 2022, India ascended from the tenth-largest global economy to secure the fifth position, marking a significant advancement over the past decade. This progress can be attributed to pivotal reforms, encompassing liberalisation, streamlined bureaucracy, reduced corruption, increased investments in infrastructure, and enhanced access to financing for small and medium-sized enterprises, among numerous other contributing factors.

(Source: https://pib.gov.in/PressReleseDetailm. aspx?PRID=1928682)

Outlook

Built upon the strong foundation established over recent years, the Indian economy stands on the verge of unprecedented growth. The proactive measures of the RBI have guided the economy through inflationary challenges, shaping an optimistic path forward. Additionally, the favourable demographics of the nation has garnered the attention of leading firms worldwide with India increasingly being viewed as a manufacturing hub across industries. According to forecasts by Deloitte, the Indian economy is projected to achieve a growth rate ranging between 6.0% and 6.3% during FY24, followed by a growth rate of 6.6% and 7.2% over the subsequent two years.

(Source: https://www2.deloitte.com/us/en/insights/economy/ asia-pacific/india-economic-outlook.html)

Review of the Indian Real Estate Sector

Recent developments have triggered a rapid transformation in the Indian real estate sector, which had been weighed down by a decade-long downturn. In contrast to the global economic environment, the Indian real estate sector finds itself on the brink of transformative growth.

There has been a noticeable increase in local demand, particularly evident in the surge of smaller deals (under 50,000 square feet), which is effectively balancing supply and demand in the office segment. Prominent developers in India have observed that smaller deals have come to dominate leasing volumes in recent quarters. The ongoing evolution of the office market has sparked a sharp rise in demand for managed offices, driven by both medium and large occupiers. This trend is anticipated to persist over the upcoming years as occupiers seek flexibility, cost optimisation, and a heightened focus on their core operations.

Furthermore, the pandemic has acted as a catalyst, redirecting occupier preferences toward higher quality assets. Presently, Environmental, Social, and Governance (ESG) principles and well-being considerations have become pivotal evaluation criteria, rendering building grades and green certifications as integral to negotiations as commercial terms.

The comprehensive reforms undertaken by regulatory bodies have yielded encouraging outcomes, marked by significant initiatives in recent months. The Securities and Exchange Board of India (SEBI), through a consultation paper, has explored the idea of regulating fractional ownership of real estate assets, a step that could potentially introduce a framework similar to Real Estate Investment Trusts (REITs), enabling individual investors to seek ownership of prime assets. Additionally, the National Stock Exchange (NSE) has taken a laudable step by incorporating REITs and Infrastructure Investment Trusts (InvITs) into leading indices like NIFTY 500, NIFTY Midcap 150, and NIFTY Smallcap 25. This move encourages participation from small investors, further enriching Indias real estate growth narrative.

Amidst the robust rise of sub-segments like warehousing, industrial, and data centres within India, along with the accelerated institutionalisation of these assets, the real estate sector is anticipated to perform robustly across multiple asset classes.

(Source: https://www.cushmanwakefield.com/en/india/insights/ anshul-mid-year-newsletter_2023)

I Budget FY24 is anticipated to provide further support to the real estate sector

In the Union Budget FY24, the Government of India introduced several measures that are expected to have a positive impact on the countrys real estate sector.

• The allocation of ? 79,000 Cr for the Pradhan Mantri Awas Yojana (PMAY), amounting to an increase of 66%, was welcomed by the real estate sector. This will contribute to the governments goal to provide housing for the urban poor.

• The 33% increase in capital spending that was announced is poised to strengthen the countrys infrastructure apparatus and urban town planning. This budget would improve real estate prospects in tier 2 cities by allocating ? 10 Lakh Cr in capital investment and intending to establish an urban infrastructure development fund with an annual allocation of ? 10,000 Cr.

• The allocation of ? 16,000 Cr towards the construction of "sustainable cities of tomorrow" could alter several cities in India by increasing their quality of life and delivering integrated infrastructure, mobility, and urban sustainability.

(Source: https://timesofindia.indiatimes.com/blogs/ voices/budget-2023-24-whats-in-store-for-real- estate-sector/)

Residential

The increase in new residential supply can be attributed to the growing interest in homeownership, with housing demand continuing to rise steadily. Consequently, prominent developers, both established and listed, have intensified their efforts to meet the rising demand for new residential properties.

During the first quarter of CY2023, the top 7 cities witnessed a notable surge in new launches, totalling around 109,000 units. This is a significant increase from the 89,100 units in Q1 CY2022 and 92,900 units in Q4 CY2022, marking a 23% annual rise and an 18% increase from the previous quarter. Major cities contributing to this uptick in new launches in Q1 CY2023 included Mumbai Metropolitan Region (MMR), Hyderabad, Pune, NCR, and Bengaluru, collectively accounting for 89% of the added supply. Among them, MMR saw the highest volume of new launches in the current quarter, making up 34% of the total new supply across the top 7 cities. In contrast, Kolkata had the lowest share of new launches, making up only 5% of the total among the top 7 cities in India.

The Top 7 cities include Mumbai, Delhi-NCR, Pune, Bengaluru, Chennai, Kolkata and Hyderabad.

City	New Launches	Sold Units	Available Inventory	Avg Price (?/sq. ft.)
NCR	12,450	17,100	1,19,000	5,200
MMR	37,300	34,700	2,00,500	12,200
Bengaluru	13,600	15,700	54,500	5,750
Pune	19,400	19,900	1,03,800	6,150
Hyderabad	14,600	14,300	83,700	4,800
Chennai	6,400	5,900	28,700	5,400
Kolkata	5,850	6,200	36,500	4,800

Outlook

The Indian residential sector reached a new peak in the first quarter of CY2023, as housing sales and new launches surpassed the 1 Lakh milestone. Looking ahead, theres an anticipation that the recent layoffs by both large and small corporates could potentially impact demand in the upcoming two quarters. Concerns over ongoing inflation, coupled with the potential for a rate hike by the RBI in the

near future, might also dampen growth within the housing market.

Furthermore, even though there are predictions of possible future layoffs, housing demand is expected to maintain its momentum over the long term, as these repercussions are primarily short-term in nature. Despite successive rate hikes by the RBI, interest rates remain attractive, still lower than those witnessed during the global financial crisis of 2008.

Commercial

Amidst global economic uncertainty, the office market displayed resilience during the year, driven by fresh leasing demand in key cities like Bengaluru, Delhi NCR, Hyderabad, and Pune. The return of employees to offices and positive net hiring that happened across many companies over the last couple of years sustained the leasing momentum. Despite a healthy leasing volume, nationwide vacancies have increased, primarily due to the addition of new supply in key markets, as well as portfolio consolidation and relocation by certain occupiers. This trend is particularly noticeable in specific tech cities. However, office absorption levels are expected to improve in the coming times as leasing activity continues to gain momentum and a greater proportion of employees return to offices.

IT-BPM drove leasing volumes during the first two quarters of CY2023 followed by engineering & manufacturing, in continuation of the trend usually witnessed during the second half of CY2022. These two segments cumulatively accounted of around half of pan India gross leasing volumes. Engineering and manufacturing recorded a 131 % q-o-q during Q2CY2023 while IT-BPM posted a growth of 30% q-o-q. BFSI and flexible workspaces maintained their positions as key contributors to leasing activities, recording growth of 22% and 42% q-o-q, respectively during the Q2CY2023.

(Source: https://www.cushmanwakefield.com/en/india/ insights/india-office-market-report)

Outlook

Indian developers have been adding speculative supply given that demand was observed to be steadily recovering. This increase in supply has also been driven by the relative outperformance of the Indian office market compared to some other markets, particularly in the US and Europe. The supply pipeline for 2023 remains robust, and while market sentiment remains cautious, a more positive outlook is emerging due to decreasing recession probabilities in Western economies.

(Source: https://www.cushmanwakefield.com/en/india/ insights/india-office-market-report)

Retail

The growth of Indias residential real estate market has been primarily driven by the escalation of disposable incomes, the rapid expansion of the middle class, the presence of low interest rates, fiscal incentives on both housing loan interest and principal payments, heightened customer expectations, the ongoing process of urbanisation, and the increasing prevalence of nuclear families.

While the retail sector in India remains largely unorganised, the organised retail share is witnessing rapid expansion, currently accounting for over 18% compared to 9% in FY19.

This segment has achieved a Compound Annual Growth Rate (CAGR) exceeding 20% and is poised for further robust growth in the future, according to IBEF.

In existing shopping malls, there has been a notable shift in brands and categories to align with evolving customer preferences and to accommodate emerging global businesses. Mall operators are now adjusting the concessions provided to occupiers during the pandemic, and lease renewals are being aligned with current trends. There has been an increase of approximately 15% in mall rentals, surpassing pre-pandemic levels. Consequently, this has further contributed towards the reshuffling among occupiers.

(Source: Anarock)

Hospitality

The hospitality industry has exhibited robust recovery, rebounding from recent setbacks and witnessing a reversal of fortunes in FY23. The domestic hospitality sectors demand outlook has turned positive, aligning with prepandemic levels during the fiscal year. Festivals, the wedding season, and the anticipated increase in foreign inbound travel and MICE (Meetings, Incentives, Conferences, and Exhibitions) activities have contributed to the rising demand in the hospitality sector. The escalation of international airfares and prolonged waiting times for travel approvals/ visas, coupled with inflation, have constrained outbound travel from India, subsequently boosting domestic demand throughout FY23.

The hospitality sector has made significant strides in terms of occupancy and average rates, providing a cushion for its Revenue per Available Room (RevPAR), which marginally exceeded pre-pandemic levels in FY23. The narrowing gap between supply and demand, resulting from lower supplies in the past two years, has led to an enhancement in occupancy levels during the year. In FY24, it is anticipated that average hotel occupancy across India will range between 67% to 69%, with an Average Room Rate (ARR) ranging from? 6,200 to ? 6,400.

(Source: https://hospitality.economictimes.indiatimes.

com/news/speaking-heads/hospitality-industry-witnesses-

strong-rebound-in-fy23-set-on-growth-path/100319570)

Real Estate Sector Outlook

The Indian real estate industry is currently in a phase of significant transformation, driven by the entry of new participants, technological advancements, and regulatory changes. This diverse sector encompasses a wide range of participants, from small-scale developers to large corporations, contributing to its status as one of the worlds rapidly growing real estate markets.

As economic activities regain momentum and employees return to workplaces, theres a concurrent rise in demand for office spaces. The supportive measures introduced by the Central Government in the budget are expected to provide an additional boost to the sectors growth. Looking forward, NITI Aayog envisions the Indian real estate sector reaching a market size of US$1 Tn by 2030 and contributing around 13% to Indias GDP by 2025.

(Source: https://timesofindia.indiatimes.com/blogs/voices/ the-systematic-evolution-of-the-real-estate-sector-in-india/)

Business Review

The Company continued to perform resiliently during FY23, emerging stronger through the prevailing macroeconomic challenges. The commencement of a fresh growth phase for the Company was characterised by the introduction of projects in previously unexplored regions and innovative designs that prioritise environmental considerations. The major performance drivers of the Company can be attributed to the following:

i Sustained emphasis on new launches and expansion of land bank to facilitate future growth i Ongoing expansion of our geographical presence i Upholding consistent delivery timelines # Ensuring customer satisfaction across all operations i Diligent capital management and unlocking of value

Segment-wise Performance Overview

Residential

With a legacy of over 3 decades, Prestige has successfully completed 140 projects, spanning across 114 Mn. sq. ft., providing homes to several delighted residents. Our reputation for reliability among customers has been forged through our impeccably designed and aesthetically appealing residences, as well as our commitment to meeting our promises. Our residential offerings encompass a diverse range, including townships, apartments, luxury villas, mansions, row houses, plotted developments, golf communities, and our recent venture into the affordable housing segment.

	Ongoing Projects		Upcoming Projects
City	No. of Projects	Total Developable	No. of Projects	Total Developable
		Area (Mn sq. ft.)		Area (Mn sq. ft.)
Bengaluru	20	29.39	16	39.65
Chennai	1	0.91	2	6.31
Goa	1	0.30	-	-
Hyderabad	4	8.94	4	14.46
Kochi	3	0.89	-	-
Mangaluru	1	0.35	-	-
Mumbai	5	5.78	4	12.25
Ooty	1	0.11		-
Noida	-	-	1	3.10
Calicut	1	1.50	-	-
Total	37	48.18	27	75.76

Commercial

Prestige Estates is a well-established developer of commercial properties strategically situated in prime business districts across various cities. Among its clientele are several Fortune 500 companies. The Company has successfully completed 120 projects, covering a total area of 40 mm sq. ft. with an annual exit rental of ? 2,100 Mn.

Key Financial Highlights

	Ongoing Projects		Upcoming Projects
City	No. of Projects	Total Developable Area (Mn sq. ft.)	No. of Projects	Total Developable Area (Mn sq. ft.)
Bengaluru	8	13.65	4	5.88
Pune	1	1.17	-	-
Mumbai	1	4.01	2	5.29
Hyderabad	1	3.45	-	-
Delhi	1	0.80	-	-
Kolar	-	-	1	2.12
Kochi	-	-	2	0.88
Total	12	23.08	9	14.17

Retail

Under the brand Forum, the Companys retail portfolio encompasses 12 completed projects, spanning across 9 Mn sq. ft. This business segment generates annual exit rentals amounting to ? 1,865 Mn.

Key Financial Highlights

	Ongoing Projects		Upcoming Projects
City	No. of Projects	Total Developable Area (Mn sq. ft.)	No. of Projects	Total Developable Area (Mn sq. ft.)
Bengaluru	1	1.13	2	1.82
Hyderabad	-	-	1	1.00
Chennai	-	-	1	1.96
Kochi	1	1.02	1	0.69
Total	2	2.15	5	5.46

Hospitality

Collaborating with its partners, Prestige, a prominent player in the industry, has successfully constructed distinguished hotels, resorts, spas, and serviced apartments. These properties are strategically situated across India, catering to the preferences of both business and leisure travellers.

The Company partners with the worlds leading hospitality players including, but not limited to, the following:

	Ongoing Projects		Upcoming Projects
City	No. of Projects	Keys	No. of Projects	Keys
Bengaluru	3	406	-	-
Hyderabad	-	-	-	-
Chennai	-	-	1	150
Kochi	1	32	-	-
New Delhi	2	779	-	-
Mumbai	-	-	1	200
Sakleshpur	-	-	1	203
Total	6	1,217	3	553

Property Management and Services

Prestige offers a comprehensive property management service, where a team of exceptionally skilled professionals delivers unparalleled support and maintenance solutions for all Prestige properties. This commitment ensures the Companys unwavering standards are maintained.

Prestige also takes on construction contracts and is involved in the production of related items such as doors, windows, panels, concrete blocks. Additionally, the Company has recently expanded its operations to include the manufacturing of facades.

Financial Review

Particulars	Year ended 31 March 2023	Year ended 31 March 2022	Change y-o-y
Income
Revenue from Operations	83,150	63,895	30%
Other Income	4,570	2,107	117%
Total Income	87,720	66,002	33%
Total Expenses	76,824	58,823	31%
Profit before exceptional items and tax, share of profit / (loss) from associates and jointly controlled entities and tax expenses	10,896	7,179	52%
Exceptional items	3,079	8,079	(62)%
Share of profit / (loss) from associates/ jointly controlled entities (Net of tax)	168	(165)	(202)%
Profit before tax	14,143	15,093	(6)%
Tax expense	3,475	2,945	18%
Net Profit for the year	10,668	12,148	(12)%
Other Comprehensive Income (net of tax)	(9)	33	(127)%
Total comprehensive income for the year attributable to:	10,659	12,181	(12)%
Owners of the Company	9,409	11,533
Non-controlling interests	1,250	648
Basic and diluted EPS (in )	23.49	28.69

Profit and loss analysis

Revenue from operations

Prestige consolidated revenue increased by 30% to 83,150 million in FY 23 against 63,895 million in FY 22 owing to increase in units handover along with improvement in hospitality operations.

Cost analysis

During the year the expense increased by 31% to 76,824 million in FY 23 against 58,823 million primarily due to corresponding increase in revenue of operations. Exceptional item

Prestige has diluted its stake in some of the subsidiaries and joint ventures in earlier years. During FY 23, the deferred consideration on the transaction was realised and was recognised as an exceptional item.

Internal Controls

The Company has a robust internal control policies and procedures in place, commensurate with the size, scale and complexity of its operations. To ensure effective internal controls across business process and systems, it has established a vigorous framework that is designed to provide reliable and quality assurance related to its business and operational performance. The adequacy and efficacy

Balance sheet analysis

Borrowing

Gross Borrowings has increased by 25% to 81,208 million as at March 31, 2023 against 65,130 million as at March 31, 2022. The increase in borrowings can be attributable to Companys strategy to venture in new geographies and acquisition of land parcels to ensure future growth of the Company.

Inventory

During the year, Inventory increased by 24% to 143,671 million as at March 31, 2023 against 115,667 million as at March 31, 2022. The increase is attributable to increase in construction activities coupled with new land purchase during the year. of these controls are evaluated on a regular basis and ensures compliance with applicable laws and safeguard the Company assets.

The Companys Audit Committee is entrusted to review the Internal Control Systems and the appointment of Internal Auditors. M/s. Grant Thornton India LLP is acting as the Internal Auditor for the Group.

Risk Management

Risk Management forms an essential part of Prestiges operations ensuring the business continually thrives, regardless of the prevailing challenges. The Enterprise Risk Management Committee, operating under the oversight of the Board of Directors, is tasked with the responsibility of supporting the Board in overseeing and appraising the Companys Risk Management Plan and protocols. The comprehensive risk management plan of the Company is meticulously formulated following a thorough scenario analysis. This plan undergoes regular assessments and obtains the Committees approval, serving as a complementary element to the Internal Control Mechanism and the Audit function.

The Company diligently supervises, evaluates, and reports on the primary risks and uncertainties that hold the potential to influence its capacity to realise its strategic aims.

Technology

The Companys strategy to uphold operational efficiency centres around a robust emphasis on technology. This commitment to technological advancement has proven advantageous in alleviating operational hurdles. Notably, the recent modernisation of internal accounting and ERP systems with state-of-the-art solutions has facilitated realtime updates and streamlined collaboration among teams. A mobile application has been introduced for customers, enabling access to account statements and customer services, resulting in a substantial number of downloads. Additionally, our in-house Falcon Brick App plays a pivotal role in overseeing project execution and contractor progress, while also maintaining Management Information Systems (MIS).

We have successfully transitioned the entire process from customer onboarding to property handover into a digital format. This includes offering virtual site visits for tenants, significantly enhancing customer engagement levels.

Human Resources

The Group comprises 8,393 permanent members as well as a consistent collaboration with contractors and subcontractors who are responsible for recruiting personnel for the Companys construction and other operational endeavours. Despite the macroeconomic challenges experienced, the Companys employees have been a pillar of support enabling Prestige to navigate through the turbulent environment and emerge stronger. Emphasising the preservation of safety protocols took precedence to ensure the well-being of the staff.

Prestige greatly values the dedication and perseverance demonstrated by its team members, which it considers to be the Companys most valuable resources. The Company firmly believes that an organisations prowess, engagement, and determination for success are defined by its employees. It regularly conducts programmes for learning and development with the aim of enhancing the capabilities of its people.