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Ratnabhumi Developers Ltd Management Discussions

156.5
(-4.25%)
Jul 18, 2024|12:00:00 AM

Ratnabhumi Developers Ltd Share Price Management Discussions

OVERVIEW OF INDIAN ECONOMY

Indias economic growth in FY23 has been principally led by private consumption and capital formation.

It has helped generate employment as seen in the declining urban unemployment rate and in the faster net registration in Employee Provident Fund. Still, private capex soon needs to take up the leadership role to put job creation on a fast track. Recovery of MSMEs is proceeding apace, as is evident in the amounts of Goods and Services Tax (GST) they pay, while the Emergency Credit Linked Guarantee Scheme (ECGLS) is easing their debt servicing concerns. The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) has been directly providing jobs in rural areas and indirectly creating opportunities for rural households to diversify their sources of income generation. Schemes like PM-Kisan and PM Garib Kalyan Yojana have helped in ensuring food security in the country, and their impact was also endorsed by the United Nations Development Programme (UNDP)1.

The governments focus has rightly been on sectors such as infrastructure, construction, and manufacturing that create jobs for workers across all skills. Production-Linked Incentive (PLI) Schemes for various industries rolled out over the past few years have started to bear fruit. Though still in infancy, these sectors have huge potential to effectively kick-start the manufacturing engine for the country thus diversifying the growth drivers for the country. Growth is expected to be brisk in FY24 on the back of robust credit growth, positive capital investment cycle given the demand as well as the strengthening of the balance sheets of the corporate and banking sectors RBI expects GDP growth for FY24 to be 6.5% which will translate into general optimism in the economy and job sentiments.

The Real Estate sector has witnessed resilient growth in the current year, with housing sales and the launch of new houses surpassing in Q2 of FY23 the pre-pandemic level of Q2 of FY20. Information Technology-Business Process Management (IT-BPM) and the E-commerce industry have been exceptionally resilient during the Covid-19 pandemic, driven by accelerated technology adoption and digital transformation. The Governments push to boost the digital economy, growing internet penetration, rise in smartphone adoption and increased adoption of digital payments have also given a renewed push to these industries. The introduction and piloting of Central Bank Digital Currency (CBDC) will also provide a significant boost to digital financial services. They may lay the framework for another generation of financial innovation.

Indias nominal gross domestic product (GDP) at current prices is estimated to be at Rs. 232.15 trillion in

FY22. With more than 100 unicorns valued at US$ 332.7 billion, India has the third-largest unicorn base in the world. The government is also focusing on renewable sources to generate energy and is planning to achieve 40% of its energy from non-fossil sources by 2030

In the Union Budget 2023-24, the Finance Ministry has announced a commitment of Rs. 79,000 crore (US$ 9.64 billion) for PM Awas Yojana, which represents a 66% increase compared to the last year.

OUTLOOK

In the second quarter of FY 2022-23, the growth momentum of the first quarter was sustained, and high-frequency indicators (HFIs) performed well in July and August of 2022. Indias comparatively strong position in the external sector reflects the countrys generally positive outlook for economic growth and rising employment rates. India ranked fifth in foreign direct investment inflows among the developed and developing nations listed for the first quarter of 2022.

Indias economic story during the first half of the current financial year highlighted the unwavering support the government gave to its capital expenditure, which, in FY 2022 23 (until August 2022), stood 46.8% higher than the same period last year. The ratio of revenue expenditure to capital outlay decreased from 6.4 in the previous year to 4.5 in the current year, signaling a clear change in favour of higher-quality spending. Stronger revenue generation as a result of improved tax compliance, increased profitability of the company, and increasing economic activity also contributed to rising capital spending levels.

Despite the continued global slowdown, Indias exports climbed at the second highest rate this quarter. With a reduction in port congestion, supply networks are being restored. The CPI-C and WPI inflation reduction from April 2022 already reflects the impact. In August 2022, CPI-C inflation was 7.0%, down from 7.8% in April 2022. Similarly, WPI inflation has decreased from 15.4% in April 2022 to 12.4% in August 2022. With a proactive set of administrative actions by the government, flexible monetary policy, and a softening of global commodity prices and supply-chain bottlenecks, inflationary pressures in India look to be on the decline overall.

(Source: IBEF, CNBC, Economic Times)

1. INDUSTRY STRUCTURE AND DEVELOPMENT

In India, the real estate sector is the second-highest employment generator, after the agriculture sector. Real estate sector in India is expected to reach US$ 1 trillion by 2030. By 2025, it will contribute 13% to the countrys GDP. Rapid urbanisation bodes well for the sector. The number of Indians living in urban areas is expected to reach 542.7 million by 2025 and 675.5 million by 2035.

Construction is the third-largest sector in terms of FDI inflow. FDI in the sector (including construction development & activities) stood at US$ 55.50 billion from April 2000-December 2022. Government of

Indias ‘Housing for All initiative is expected to bring US$ 1.3 trillion investment in the housing sector by 2025. Indias Global Real Estate Transparency Index ranking improved by three notches from 39 to 36 since the past eight years from 2014 until 2022 on the back of regulatory reforms, better market data and green initiatives, according to property consultant JLL.

The importance of the ‘brand in real estate has continued its upward journey. Housing is increasingly becoming a branded ‘consumer product. A strong housing brand in consumers minds stands for superior product quality, avenue for life style upgrade, an aspirational address and above all certainty of timely delivery. The above can only be delivered by branded tier 1 developers, leading to the demand side consolidation. Branded tier-1 developers with strong execution capability are expected to leverage this opportunity to gain even more market share by bringing newer products suitable for the demand dynamics whilst offering quality, and a sustainable environment as well as social ecosystem.

Rising international real estate development is expected to provide potential growth opportunity to the Indian market. For example, an MoU signed between J&K and the Government of Dubai (in October 2021) for the development of real estate projects (such as industrial parks, IT towers and super specialty hospitals) is expected to boost growth in the union territory.

Market Size

By 2040, real estate market is expected to grow to Rs. 65,000 crores. Real estate sector in India is expected to reach a market size of US$ 1 trillion by 2030 and contribute 13% to the countrys GDP by 2025. Retail, hospitality, and commercial real estate are also growing significantly, providing the much-needed infrastructure for Indias growing needs.

Indias real estate market is estimated to increase at a CAGR of 19.5% during 2017- 2028. The market is forecast to reach US$ 650 billion, representing 13% of Indias GDP by 2025. In 2022, Indias real estate sector experienced price growth of 6%. Increasing share of real estate in the GDP would be supported by increasing industrial activity, improving income level and urbanisation. A total of 431,510 new homes were launched in CY22, registering an increase of 101%.

In the review period, Ahmedabad registered the highest growth in average costs of flats, with average cost rising to Rs. 3,500-3,700 (US$ 42.75-US$ 45.19) per square foot, an increase of 8% YoY. Pune and Chennai recorded the highest annual appreciation of 9% each.

Road Ahead

RBI proposed to allow banks to invest in real estate investment trusts and infrastructure investment trusts, attracting more institutional investors to such assets. Indian Banks, which are allowed to invest about 20% of their net-owned funds in equity-linked mutual funds, venture capital (VC) funds and stocks, could invest in these trusts within this limit.

The Securities and Exchange Board of India (SEBI) has given its approval for the Real Estate Investment Trust (REIT) platform, which will allow all kind of investors to invest in the Indian real estate market. It would create an opportunity worth Rs. 1.25 trillion (US$ 19.65 billion) in the Indian market in the coming years.

Responding to an increasingly well-informed consumer base and bearing in mind the aspect of globalisation, Indian real estate developers have shifted gears and accepted fresh challenges. The most marked change has been the shift from family owned businesses to that of professionally managed ones. Real estate developers, in meeting the growing need for managing multiple projects across cities, are also investing in centralised processes to source material and organise manpower and hiring qualified professionals in areas like project management, architecture and engineering.

The residential sector is expected to grow significantly, with the central government aiming to build 20 million affordable houses in urban areas across the country by 2022, under the ambitious Pradhan Mantri Awas Yojana (PMAY) scheme of the Union Ministry of Housing and Urban Affairs. Expected growth in the number of housing units in urban areas will increase the demand for commercial and retail office space.

The growing flow of FDI in Indian real estate is encouraging increased transparency. Developers, in order to attract funding, have revamped their accounting and management systems to meet due diligence standards. Indian real estate is expected to attract a substantial amount of FDI in the next two years with US$ 8 billion capital infusion by FY22.

(Source: Money Control, Statista, IBEF)

2. OPPORTUNITIES AND THREATS

There is the opportunity for the domestic industry to become more organised, with the creation of more large firms through organic growth and acquisitions. This would improve overall construction quality. Strong population growth and a growing economy is fueling demand for infrastructure. The government is looking to attract private companies to invest in infrastructure through PPPs. Growing recognition of

"Made in India" brand in global market. Favorable Government policies and market opportunities are making widening the scopes of the industry:

The Government of India is expected to invest heavily in the real estate sector, mainly highways, renewable energy and urban transport. Increasing budget allocations, Smart City Mission, Pradhan Mantri Awas Yojana, new metro rail policy, Housing for All and the North East Special Infrastructure Development Scheme are expected to contribute significantly to drive infrastructure growth in India.

3. SEGMENT-WISE / PRODUCT-WISE PERFORMANCE:

The Company has delivered a satisfactory financial and operating performance for 2022-23. The total revenue from operations of Real Estate segment is 66.09 lakhs on standalone basis as compared to 175.80 lakhs in 2021-22 and 21.63 lakhs on a consolidated basis in F.Y. 2022-23. The Profit before interest and taxes stands 726.90 lakhs for the FY 2022-23 as against 268.87 lakhs in 2021-22 on standalone basis.

4. OUTLOOK FOR FY 2023-24

Emphasis on increasing dealers network to achieve higher penetration;

Emphasis on gaining market share from the local unorganised players;

Expand portfolio with mid and high range residential and corporate schemes;

Engage with various engineers, designers and architects to promote business.

5. RISK AND CONCERN

The Companys ability to foresee and manage business risks is crucial in achieving favourable results. Risk management at Ratnabhumi Developers Limited is an integral part of the business, focusing to mitigate the adverse impact of risks on business objectives. The Company has laid down a well defined risk management procedure covering the risk identification, risk exposure, potential impact and risk mitigation process. The Board periodically reviews the risks and suggests steps to be taken to control and mitigate the same through a properly defined framework.

6. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUECY

The Company has an adequate internal control system adopted for operating procedures, policies and process guidelines. The guidelines are well-documented with clearly defined authority limits corresponding with the level of responsibility for each functional area. Further, the Company has budgetary control system to monitor expenditure against approved budgets on an ongoing basis. The Companys robust internal audit programme which works to conduct a risk-based audit not only tests the adherence to laid down policies and procedures but also suggests improvements in the current processes and systems.

7. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The Financial performance on standalone basis of the company during the FY 2022-23 as compared to FY 2021-2022 is as under: (Rs. In Lakhs)

Particulars

2022-2023 2021-2022 % of Increase/Decresase
Gross Revenue from 66.09 175.80 -62.41 %
operations
Profit Before Tax 22.74 13.03 74.52 %
Profit after Tax 23.39 16.87 38.65 %

Operational Performance

The Company continued to focus on improving operational efficiency leading to better returns for the shareholders. Further, the company has significantly enhanced its operational performance by establishing prudent risk management framework.

8. MATERIAL DEVELOPMENT IN HUMAN RESOURCES/INDUSTRIAL RELATIONSHIP FRONT, INCLUDING NUMBER OF PEPOLE EMPLOYED

Human resource practices and policies at Ratnabhumi Developers Limited ensure that all employees, wherever they work, whatever their role is, are always treated equally, fairly and respectfully. We maintain consistent and transparent diversity policies.

Our human resource team believes in personnel management, which involves planning, organising, directing and controlling of the recruitment and resource management, training & development, compensation, integration and maintenance of people for the purpose of contributing to organizational, individual and social goals.

People power is one of the pillars of success of company and hence any creative suggestion by the employees are always welcomed by the Management. As on 31st March, 2023 the Company employs 18 employees. Going ahead, the Company aims to retain and develop the existing employees and align their goals with the common business vision and mission.

9. THE DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS

During the financial year, the details of significant change in the key financial ratios i.e. change of more than 25% as compared to the previous year along with the detailed explanation is summarized below on standalone basis:

. Key Ratios

Financial F. Y. 2022- 2023 F.Y. 2021-22 Changes in % Reasons for change

1. Debtors Ratio

Turnover 1.32 1.03 28% New project started so inventories increased so ratio decreased.

2. Inventory Ratio

Turnover 0.00 0.00 0.00 New project started so inventories increased so ratio decreased.

3. Interest Ratio (in times)

Coverage NA NA NA NA

4. Current Ratio

2.83 4.41 -36 % New project started so inventories increased but loans increased in compare with previous year so ratio decreased.

5. Debt Equity Ratio (in times)

3.12 1.20 160 % Secured loans taken during the year and unsecured loans increased during the year so ratio increased drastically.

6. Operating Margin (in %)

3660% 1691% 116% Profit increased during the year.

7. Net Profit Margin (in %)

117.08% 106.07% 11% Profit increased during the year.

10. The Return on Net Worth during the FY 2022-23 was 5.05% as compared to 3.86% in FY 2021-22. The increment of 23.56% in the return on Net Worth is mainly due to increase in profit during the FY 2022-23.

11. CAUTIONARY STATEMENT

Statement made in the Management Discussion and Analysis describing the various parts may be "forward looking statement" within the meaning of application securities laws and regulations. The actual result may differ from those expectations depending upon the economic conditions, changes in Government regulation and amendments in tax laws and other internal and external factors.

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