Economic Review
GLOBAL ECONOMY
A Rocky Recovery
The global economy is yet again at a highly uncertain moment, with the cumulative
effects of the past three years of adverse shocks, most notably the COVID-19 pandemic and
Russias invasion of Ukraine manifesting in unforeseen ways. Spurred by pent-up demand,
lingering supply disruptions, and commodity price spikes, inflation reached multidecade
highs last year in many economies, leading central banks to tighten aggressively to bring
it back toward their targets and keep inflation expectations anchored. Although
telegraphed by central banks, the rapid rise in interest rates and anticipated slowing of
economic activity to put inflation on a downward path have, together with supervisory and
regulatory gaps and the materialization of bank-specific risks, contributed to stresses in
parts of the financial system, raising financial stability concerns.
Banks generally strong liquidity and capital positions suggested that they would be
able to absorb the effects of monetary policy tightening and adapt smoothly. However, some
financial institutions with business models that relied heavily on a continuation of the
extremely low nominal interest rates of the past years have come under acute stress, as
they have proved either unprepared or unable to adjust to the fast pace of rate rises. The
unexpected failure of two specialized regional banks in the United States in mid-March
2023 and the collapse of confidence in Credit Suisse, a globally significant bank, have
roiled financial markets, with bank depositors and investors re-evaluating the safety of
their holdings and shifting away from institutions and investments perceived as
vulnerable. The loss of confidence in Credit Suisse resulted in a brokered takeover. Broad
equity indices across major markets have fallen below their levels prior to the turmoil,
but bank equities have come under extreme pressure. Despite strong policy action to
support the banking sector and reassure markets, some depositors and investors have become
highly sensitive to any news, as they struggle to discern the breadth of vulnerabilities
across banks and non-bank financial institutions and their implications for the likely
near-term path of the economy. Financial conditions have tightened, which is likely to
entail lower lending and activity if they persist. Prior to recent financial sector
ructions, activity in the world economy had shown nascent signs of stabilizing in early
2023 after the adverse shocks of last years Russias invasion of Ukraine and the ongoing
war caused severe commodity and energy price shocks and trade disruptions, provoking the
beginning of a significant reorientation and adjustment across many economies. More
contagious COVID-19 strains emerged and spread widely. Outbreaks particularly affected
activity in economies in which populations had lower levels of immunity and in which
strict lockdowns were implemented, such as in China. Although these developments
imperilled the recovery, activity in many economies turned out better than expected in the
second half of 2022, typically reflecting stronger-than-anticipated domestic conditions.
Labor markets in advanced economies most notably, the United States have stayed very
strong, with unemployment rates historically low. Even so, confidence remains depressed
across all regions compared with where it was at the beginning of 2022, before Russia
invaded Ukraine and the resurgence of COVID-19 in the second quarter. With the recent
increase in financial market volatility and multiple indicators pointing in different
directions, the fog around the world economic outlook has thickened. Uncertainty is high,
and the balance of risks has shifted firmly to the downside so long as the financial
sector remains unsettled. The major forces that affected the world in 2022 comprising
central banks tight monetary stances to allay inflation, limited fiscal buffers to absorb
shocks amid historically high debt levels, commodity price spikes and geo-economic
fragmentation with Russias invasion of Ukraine, and Chinas economic reopening seem
likely to continue into 2023. But these forces are now overlaid by and interacting with
new financial stability concerns. A hard landing particularly for advanced economies has
become a much larger risk. Policymakers may face difficult trade-offs to bring sticky
inflation down and maintain growth while also preserving financial stability.
COMMODITY SHOCKS UNWINDING EVEN AS RUSSIAS WAR IN UKRAINE PERSISTS
The shock of Russias invasion of Ukraine in February 2022 continues to reverberate
around the world. Economic activity in Europe in 2022 was more resilient than expected,
given the large negative terms-of-trade fallout from the war and associated economic
sanctions. Large budgetary support measures for households and firms of the order of about
1.3 percent of GDP (net budgetary cost) in the case of the EU were deployed to help them
weather the energy crisis.
The sharp hike in prices galvanized a reorientation of gas flows, with marked increases
in non-Russian pipeline and liquefied deliveries to Europe, alongside to declines in
mobility and economic activity in the fourth quarter of 2022 duetothediseasesdirect on
human health and heightened fears of contagion. Supply disruptions also returned to the
fore, even if temporarily, leading to a rise in supplier delivery times. The surge in
infections compounded the headwinds from property market stresses in China. Declining
property sales and real estate investment posed a drag on economic activity last year.
There remains a large backlog of presold unfinished housing to be delivered, generating
downward pressure on house prices, which price floors have so far limited in some regions.
The Chinese authorities have responded with a variety of measures, including additional
monetary easing, tax relief for firms, new vaccination targets for the elderly, and
measures to encourage the completion and delivery of unfinished real As COVID-19 waves
subsided in January of this year, mobility normalized, and high-frequency economic
indicators such as retail sales and travel bookings started picking up. With China
absorbing about a quarter of exports from estateprojects. Asia and between 5 and 10
percent from other geographic regions, the reopening and growth of its economy will likely
generate positive spill-overs.
INDIAN ECONOMY
Indias growth continues to be resilient despite some signs of moderation in growth,
says the World Bank in its latest India Development Update, the World Bank Indias
biannual flagship publication. The update notes that although significant challenges
remain in the global environment, India was one of the fastest growing economies in the
world. The overall growth remains robust and is estimated to be 6.9 percent for the full
year with real GDP growing 7.7 percent year-on-year during the first three quarters of
fiscal year 2022-23. There were some signs of moderation in the second half of 2022-23.
Growth was underpinned by strong investment activity bolstered by the governments capex
push and buoyant private consumption, particularly among higher income earners. Inflation
remained high, averaging around 6.7 percent in 2022-23 but the current account deficit
narrowed in Q3 on the back of strong growth in service exports and easing global commodity
prices.
The World Bank has revised its 2023-24 GDP forecast to 6.3 percent from 6.6 percent
(December 2022). Growth is expected to be constrained by slower consumption growth and
challenging external conditions. Rising borrowing costs and slower income growth will
weigh on private consumption growth, and government consumption is projected to grow at a
slower pace due to withdrawal of pandemic-related fiscal support measures.
Although headline inflation is elevated, it is projected to decline to an average of
5.2 percent in 2023-24, amid easing global commodity prices and some moderation in
domestic demand. The Reserve Bank of India has withdrawn accommodative measures to rein in
inflation by hiking the policy interest rate. Indias financial sector also remains
strong, buoyed by improvements in asset quality and robust private-sector credit growth.
The central government is likely to meet its fiscal deficit target of 5.9 percent of GDP
in 2023-24 and combined with consolidation in state government deficits, the general
government deficit is also projected to decline. As a result, the debt-to-GDP ratio is
projected to stabilize. On the external front, the current account deficit is projected to
narrow to 2.1 percent of GDP from an estimated 3 percent in 2022-23 on the back of robust
service exports and a narrowing merchandise trade deficit.
OUTLOOK
Indicator (percent Y-o-Y, unless otherwise indicated) |
FY19-20 |
FY20-21 |
FY21-22 |
FY22-23 |
FY23-24 |
| Real GDP growth (at constant market prices) |
3.9 |
(5.8) |
9.1 |
6.9 |
6.3 |
| Private consumption |
5.2 |
(5.2) |
11.2 |
8.3 |
6.9 |
| Government consumption |
3.9 |
(0.9) |
6.6 |
1.2 |
(1.1) |
| Gross fixed capital formation |
1.1 |
(7.3) |
14.6 |
10.1 |
9.3 |
| Exports, goods and services |
(3.4) |
(9.1) |
29.3 |
11.5 |
9.2 |
| Imports, goods and services |
(0.8) |
(13.7) |
21.8 |
19.0 |
11.6 |
Weak global demand and the effect of monetary policy tightening to manage inflationary
pressures will constrain the economy in
2023-24, limiting real GDP growth to 6%. Moderating inflation and monetary policy
easing in the second half of 2024 will help discretionary household spending regain
momentum. This, along with improved global conditions, will help economic activity to
accelerate, with growth of 7% in real GDP. Despite an impressive growth and development
record, daunting challenges remain. Creating good jobs is the most promising pathway to
reduce poverty, which is particularly high in the female population. Increasing investment
in education and vocational training, and updating labour laws, would help to achieve this
objective. India is particularly vulnerable to extreme heatwaves and must make progress in
mobilising resources for investment in the green economy. Moderating demand and high
inflation have activity in 2022-23. Yet, the year ended on a positive note due to
higher-than-expected agriculture output and strong government spending. However, high
inflation, in particular for energy and food, and the ensuing monetary tightening to
anchor expectations are weighing on purchasing power and household consumption,
particularly in urban areas. Tighter financial market conditions are reflected in
weakening credit-supported demand for capital goods, a good proxy for business investment.
The merchandise trade deficit was 40% larger in 2022-23 than in 2021-22, with trade in
petroleum accounting for over two-fifths of the deterioration. Although services export
growth remains brisk and the sectoral surplus rose by 35%, it is insufficient to offset
the imbalance in goods trade. Low labour productivity is affecting the competitiveness of
Made in India" goods and participation in global value chains. The current account
deficit narrowed in the October-December quarter to 2.2% of GDP, from 2.7% in the same
period slowed economic in FY 2021-22. Headline inflation has fallen below 6% (the central
banks upper bound of the tolerance band) since March 2023, mostly due to lower food
prices, as well as base effects. Employment and wage estimates suggest improving labour
market conditions in rural areas, while export-oriented service firms report increasing
difficulties filling vacancies.
The Indian economy will not escape the global slowdown
After reaching 7.2% in 2022-23, real GDP growth is expected to slow to 6% in 2023-24,
before rising to 7% in 2024-25 (estimated). While indicators suggest that Indias growth
is stable for now, headwinds from the impact of rapid monetary policy tightening in the
advanced economies, heightened global uncertainty and the lagged impact of domestic policy
tightening will progressively take effect. With slower growth, inflation expectations,
housing prices and wages will progressively moderate, helping headline inflation converge
towards 4.5%. This will allow interest rates to be lowered from mid-2024. The trade
restrictions (including export bans on various rice varieties) imposed in 2022 to fight
inflation are assumed to be withdrawn. The current account deficit will narrow, reflecting
abating import price pressures. Most risks to the projections are tilted to the downside.
While banks solvency ratios and financial results have improved and the authorities have
enhanced loan-loss provisioning and established a ‘bad bank, any deterioration of
banks asset quality could threaten macro-financial stability. In the run-up to the 2024
elections, fiscal consolidation may be delayed, and the conclusion of trade agreements may
become more difficult. A potentially below-normal monsoon season could also impact growth.
Declining geopolitical uncertainty, on the other hand, would boost confidence and benefit
all sectors, as would a faster-than-expected conclusion of free-trade agreements with key
partners and the incorporation therein of services.
Climate change and gender gaps require targeted policies:
More than half of the Indian population lives in the Indo-Gangetic plain and is exposed
to the increasingly frequent and extreme heatwaves caused by climate change. It is
estimated that almost 1,00,000 extra lives are lost every year due to hot weather and the
flooding that can follow.
The economic costs are also large, including labour losses, a meagre wheat harvest,
greater livestock mortality and power outages.
Reducing global greenhouse gas emissions, including in India, will help limit such
losses in the long term. However, measures that can immediately reduce the impact of
extreme weather events are also needed, such as improved infrastructure to prevent
flooding. Sustainable development also requires further progress in gender equality across
many dimensions, including access to health, education, and capital. Impressive results
have been attained, for instance in financial inclusion, but substantial gaps remain.
Policy formulation and execution should fully incorporate gender considerations and
specific indicators. Enhanced policy efforts to increase childcare assistance, vocational
training, and life-long education for working women would also be welcome. Better
enforcement of the land rights of women would strengthen their economic position and, by
making it possible to use this asset as collateral, may also facilitate investments in
climate mitigation and adaptation.
Industry Review
The residential real estate market in India achieved robust progress in 2022, setting
new sales records of 68% YoY, further demonstrating the industrys prominence as one of
Indias fastest growing industries. After two years of being affected by COVID, Tier 2 and
3 cities have arisen as new major real estate trends in 2022, and the real estate market
has set unprecedented benchmarks which continued its growth momentum from 2021 amid the
global slowdown.
INDIAN REAL ESTATE INDUSTRY OVERVIEW
Currently, real estate companies are contributing approximately 7-8% to the Indian GDP,
which is estimated to increase by 3-4% by 2025. As the nation strives to become a USD 5
trillion economy, studies predict that the sector will be worth USD 1 trillion soon.
Indian real estate is one of the leading sectors impacting the GDP and generating enormous
employment opportunities. Technological advancements, changing market realities and
property purchase behaviour in the post-COVID era have undeniably impacted the real estate
sector. The biggest real estate companies in India, channel partners and property buyers
depend on each other to maintain the industry flow. Conquering the pandemic that had
temporarily altered these networks and disturbed their functionality, the sector has
gained momentum and demonstrated a steady recovery. The V-shape recovery in the last two
quarters is a testament to consumers confidence in real estate investment and their
optimism about top real estate developers performance in India. Despite rising
construction costs and a record hike in the repo rate (225 bps) in 2022, the real estate
sector has seen a considerable upswing. After a protracted period of economic stagnation,
the real estate industry was able to breathe easier this fiscal year. After two long years
of pandemic-related lockdowns and subsequent economic turmoil, the industry has
experienced a comprehensive recovery this year throughout Tier I, II, and III cities.
With RBI increasing repo rates, home loan interest rates saw a rise. However, this has
had an almost negligible impact on sales and customer sentiment in the past. Additionally,
flexible payment plans from developers have also encouraged home buyers to complete their
purchases. This was also the year of espousal of sustainable and innovative products
amongst the new-age environment-conscious homebuyers. At Puravankara, we have leveraged
innovation, technology, thoughtful design and a deep commitment to sustainability to add
value to our real estate offerings. The demand and supply dynamics are expected to remain
resilient in 2023. Even considering the expectations of another round of rate hikes, the
market is likely to respond positively as it has done over the last year. We expect this
momentum to continue over the coming year and remain confident of the growth of the
industry as a whole.
5. Out sourcing: Operates an outsourcing model of appointing globally renowned
architects/ contractors that allows scalability and emphasizes contemporary design and
quality construction a key factor of success.
6. Transparency: Follows a strong culture of corporate governance and ensures
transparency and business ethics.
7. Highly qualified execution team: Employs experienced, capable and qualified design
and project management teams who oversee and execute all aspects of project development.
Key Developments in
BUSINESS OVERVIEW
In 2022-23, your Company sold an area of 4 million sq. ft., as compared to 3.52 million
sq. ft. in 2021-22. Rooted in Values
As an organization, values are a critical part of the company culture.
To ensure continuous alignment with the values, your Company has launched a value
reinforcement drive which includes a series of Value Workshops twice a week and other
interventions for all employees across locations. These workshops are the guiding force
that supports alignment in all our regular activities.
Furthermore, your Companys Employee Recognition Program acts as an engagement tool
that encourages and recognizes company values in action. It is a platform to showcase and
reinforce values like innovation, effective problem-solving, achieving process and
operational efficiency and going above and beyond the call of duty to achieve
organizational objectives.
Revenue and Profitability (consolidated)
Consolidated revenues (including other income) stood at C 1,407 crore during 2022-23.
EBIDTA stood at C 432 crore, with EBIDTA margin of 31% as compared to C 635 crore in the
previous financial year. The reported profit after tax stood at C 63 crore as compared to
C 146 crore in the previous year.
Balance Sheet
The Companys consolidated net worth was recorded at C 1,993 crore. The key ratio
arising out of the performance in the last fiscal are summarized below:
Ratio |
FY22-23 |
FY21-22 |
| Net debt/equity |
1.11 |
0.90 |
| EBIDTA margin |
31% |
46% |
| Net profit margin |
4% |
11% |
Review of Operations
Your Company achieved the highest ever annual and quarterly sales of any financial year
since inception. The sales performance for the full year and fourth quarter is presented
below:
• Achie ved the highest ever sale valueof C 3,107 crore for 2022-23, the highest
in any financial year since inception. This comprised a sizeable increase of 29% compared
to C 2,407 crore in 2021-22.
• This impressive increase in sales was accompanied by an equally impressive
increase in customer collections from the real estate business, which increased to C 2,258
crore in 2022-23 in comparison to customer collection of C 1,440 crore in 2021-22,
implying a significant jump of 57%.
• Average price realization increased by 14% to C 7,768/sft during 2022-23, up
from C 6,838/ sft in 2021-22.
• We launched approx. 6 msft in 2022-23.
Risks and Concerns
MARKET PRICE FLUCTUATION
The performance of your Company may be affected by sales and rental realizations of its
projects. These are driven by prevailing market conditions, the nature and location of the
projects and other factors such as brand, reputation and project design. Your Company
follows a prudent business model and tries to ensure steady cash flow even during adverse
pricing scenarios.
SALES VOLUME
The booking volume depends on the ability to design projects that 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.
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.
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 adversity with a cautious approach, meticulous planning
and by engaging established and reputable contractors. As your Company imports various
materials, at times execution is also dependent upon timely shipment and clearance of the
material.
LAND/DEVELOPMENT RIGHTS COSTS AND
AVAILABILITY
The cost of landforms is a substantial part of the project cost, particularly in
Mumbai. It includes amounts paid for freehold rights, leasehold rights, fungible FSI,
construction cost of area given to landlords in consideration for development rights,
registration, and stamp duty. Your Company acquires land/land development rights from the
government and private parties. It ensures that the consideration paid for the land is as
per prevailing market conditions, reasonable and market timed. Your Company also enters
into MOUs and makes advances for the land/land development rights prior to entering into
definitive agreements. The ensuing negotiations may result in either a transaction for the
acquisition of the land/land development rights or the Company getting a refund of the
monies advanced.
FINANCING COSTS
The acquisition of land and development rights needs substantial capital outflow.
Inadequate funding resources and high interest costs may impact regular business and
operations. Your Company has always tried to build sufficient reserves resulting from
operating cash flows to take advantage of any land acquisition or development opportunity.
INTERNAL CONTROL SYSTEMS
The internal control systems are commensurate with the nature, size and complexity of
operations of the Company. Your Company has also focused on upgrading its IT
infrastructure both in terms of hardware and software. Your Company has clearly defined
policies, standard operating procedures (SOPs), financial and operational delegation of
authority and organizational structure for functioning of business to ensure smooth
conduct of operations.
SUSTAINABILITY
Being a responsible corporate citizen, Puravankara has incorporated sustainability as
an integral part of its business operations. Through sustainability initiatives, your
Company provides safe and sustainable ecosystem for all its stakeholders.
OUTLOOK
In 2023, we anticipate further downward trend in the global economy. This, however,
should be an opportunity for the Indian economy to become a world leader. The real estate
sector is likely to continue on its journey of long-term growth as we see a continuous
rise in GDP per capita, larger disposable incomes, growing urbanization and, most of all,
a larger global focus on India as the next big economy. An increase in earning potential,
a need for a better standard of living and the growing base of aspirational consumers and
their lifestyle changes have led to substantial growth in the sector. With suited economic
growth, the premium housing segment will also witness higher demand in the years to come.
CAUTIONARY STATEMENT
This Management Discussion and Analysis contain forward-looking statements that reflect
your Companys current views with respect to future events and financial performance. The
actual results may differ from those anticipated in the forward-looking statements because
of many factors.
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